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Prudent decision says Shareholders' Council

18 February 2008

Prudent decision says Fonterra Shareholders' Council

The Fonterra Shareholders' Council today said the Fonterra Board of Directors' announcement to its shareholders not to proceed with a May vote to change the co-operative's structure into two entities was a prudent decision.

The Fonterra Board has been consulting with shareholders about its preferred option for changing Fonterra's capital structure, which seeks to address redemption risk, farmer choice and capital for growth.

Shareholders' Council Chairman Blue Read said the decision not to proceed with the preliminary vote in May was consistent with farmer and Council feedback.

"This is an example of the consultation system working as it should.

"For the first time we are being asked to consider opening up the business of our co-operative to non-supplying shareholders. The implications of this are significant and irreversible.

"There is widespread acceptance amongst farmers that Fonterra needs to adapt to keep pace in the changing global dairy industry. At the same time, we are a co-operative first and foremost and the fundamental aspects that underpin our business must remain intact."

Mr Read said while the Board is clear in its stated preference for Fonterra's future structure, the Council was pleased to hear the Board say it is open to considering other options.

"Fonterra is unique, but the matters we are seeking to address are neither unique to our co-operative nor easy to resolve. There are many possible ways to address the agreed issues but each of these requires trade offs. There is a need for much more detailed information so farmers can weigh up the pros and cons of each solution. We must take the time to get this right."

The Council also welcomed the announcement that work on a new milk pricing mechanism would continue.

"Milk pricing is the most fundamental component of farmer returns. The Council has received preliminary details of how the proposed milk price model would operate and we are encouraged by the direction of this initiative," Mr Read said.

The Shareholders' Council has assessed the implications of the proposed capital structure changes on farmer ownership, farmer control and farmer benefits. After gauging shareholder views on the proposal and undertaking research of its own, the Council provided its views on the capital structure process and proposal to the Board.

"The Council is committed to working with the Board to find the right solutions for our shareholders and for Fonterra. And while preparing our co-operative for the future is essential, the Council wishes to ensure there remains a strong commitment within Fonterra on getting the best returns possible from its present operations," Mr Read said.


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