Farmer control

A farmer’s ownership in Fonterra is not just part of their investment portfolio. Fonterra is an extension of their business. Without Fonterra collecting and processing their milk, and providing them with the best return possible, their milk would be worthless. It was to protect these fundamental rights of the producer from profit driven private processes that co-ops were originally set up. As the co-op is in essence part of a farmer’s business, having a good level of control over the decisions make within the co-op is critical to the long term success of each individual farmer’s business. Under the preferred option announced by the Fonterra board two weeks ago, the board is asking farmers to put all their voting rights together to become one shareholder, the farmer co-operative. What our board has conveniently brushed over is that although the co-op will be the majority shareholder, individual farmer will not get a say. The farmer control that the Board emphasizes so heavily will be exercised exclusively through the co-op’s board and not through individual farmer votes. The performance of Fonterra’s board would be monitored by the board of the co-op and if the board of Fonterra wanted to make constitutional or strategic changes they would need to get the support of the co-op’s board. This is were the devil is in the detail; the board of the co-op will be largely the board of Fonterra. This leaves the whole process without any of the usual check and balances around the governance and strategic planning the board should have. It also means that suppliers are stopped from having any direct influence over the way Fonterra chooses to operate.
Although there are many things I like and don’t like about the preferred option, having to hand all my rights as a shareholder over to the board of the new co-op affects my farming business too much and is a deal breaker as far as I am concerned. I was told that within Fonterra there is a saying, “Co-ops are always a dollar too short and a day too late.” Implying that co-ops never have enough money because capital is linked to milk supply and it takes too long to make any decision because of the high level of consultation required in dealing with so many supplying shareholders. With board members upholding a culture that encourages opinions like this to justify underperformance, this whole capital structure review smacks, at least in part, of a move by the board to get around the issue of shareholder consultation. I would suggest that a lack of freedom for the board to make decisions is not the root of Fonterra’s problems, but is rather a result of a Board and Chairman lacking in strong leadership and hands on governance. Farmers are not idiots and know when they are being played. As my husband said when he initially heard the preferred option, ‘It sounds too good to be true.” Perhaps there is some truth in the saying, “All that glitters is not gold.”