One simple action could save Fonterra
Fonterra’s announcement of its massive loss, and its need to sell a host of assets should rouse the government from sleeping at the wheel as it did over Westland Milk, to re-enact a simple, no cost solution to Fonterra’s financial woes.
Instead of sitting on its hands and watching a big chunk of the New Zealand economy dive bombing headfirst into a major crash, it should put in place an arrangement similar to one the first Labour government did in 1936.
It established an overdraft facility at the Reserve Bank which the Dairy Board and the country’s other producer boards had access to until the mid 80's, and make it available to Fonterra.
That would enable the co-operative to swap the expensive Commercial Bank created debt of over $7 billion with much cheaper Reserve Bank overdraft at 1 percent or less and allow it to use its income for the benefit of its farmers rather than the overseas owned banks that it currently owes money to.
Such an arrangement would not result in an increase in the country's money supply, it would not cost New Zealand taxpayers a single cent, and nor would it generate any inflation.
That facility should be based on 100% New Zealand ownership of the company's shares which may require some overseas shareholders to relinquish their stake.
The overdraft facility should be extended to other New Zealand owned dairy processors on a similar basis.
Such a scheme would be a win-win for the country, the farmers, and the government.
It should not, however, absolve Fonterra from pruning the excesses of many of the senior management, nor from taking a good hard look at its record of poor decisions and learn from them
What it would do is ensure that New Zealand's dairy processing was retained in New Zealand hands and that this country, not overseas owned banks, got the benefit of Kiwi farmers’ hard work.