My concerns about the Fonterra decision to axe Organic milk
from New Zealand are not so much the decision, but rather the way it was
handled, and that this behaviour could this be an ominous preface on how
Fonterra could treat other farmers under less cooperatively focused capital
structures in the future.
Telling Organic farmers twenty minutes before the national
media that their world was about to change can never be argued was genuine
consultation. It was nothing short of tyranny.
Organic farmers are still shareholders,
they still have put the same capital in as every other supplier. This does not bode well for the future of some regional supply groups that may be less profitable to pick-up and process
than other regions.
If Fonterra decides at some time in the future, that it was
no longer economical to pick up from a certain region, what will stop them dis-incentivising
them from producing. The Chairman, Henry
van der Hayden, has never made any secret of his desire to introduce farm-gate
pricing. He knows this can never happen
under the traditional co-operative model, so has spent the entire time at the helm
of the Board, trying to actively change the capital structure. To this end, you will note that every capital
structure option put forward has involved a trading platform of some kind. If you don’t take the thinking that a form of share trading is the best
model to transition Fonterra in to an investor owned company, you will concede
that any form of share trading will all but remove redemption from the control mechanisms
members have over their Board. By doing
this, the Board will be free to treat different groups of farmers as they chose,
because although shareholders will still be free to leave, any mass exudes will
not be felt on their balance sheet like it has in the past. Farm-gate pricing will always be in the best financial
interests of Fonterra, but not the best interest of all the members.
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