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Sharemilkers and Fonterra’s new capital structure meetings

10 December 2010

Sharemilkers and Fonterra’s new capital structure meetings

Media are invited to attend a series of meetings Federated Farmers is holding for all sharemilkers, farm owners and rural professionals to discuss how Fonterra’s capital restructure affects the sharemilking industry.

Since the last meetings held this time last year, a number of issues have been raised by farmers as they have talked with their sharemilkers.

The meeting will include a presentation from Federated Farmers Sharemilkers’ Section and the Sharemilker Employers’ Section.

This will be followed by a presentation from the Fonterra Share Registry and Payments team, who will cover the options available and the matters which need to be considered, when making agreements on payment to sharemilkers for milk.

This will cover the options available (Milk Price only and Milk Price plus any Dividend Related Payment Adjustment (DRPA)) as well as the options contained within the Milk Price plus DRPA option.

Issues to be considered with Fonterra’s payout structure:

1. Shares are no longer tied to production.
2. Shareholders can now hold dry shares.
3. The dividend is paid on both the wet (production) shares and dry shares
4. The dividend may not be tied to production. For example:
i. Assuming opening shares of 100,000 kilograms of milksolids (kg/MS), if the sharemilker does a great job and produces 120,000 kg/MS, the dividend will only be paid on 100,000 kg/MS.
ii. Conversely, if the farmer has 120,000 shares but the sharemilker only produces 100,000 kg/MS, the dividend will actually be paid on 120,000 kg/MS.
So should the change in dividend be made up by either party? Either way, there seems potential for dispute.
5. If shareholding is based on rolling three-year production and the sharemilker is increasing production, will the sharemilker be paid out on this extra production reflecting their extra effort?
6. The shareholder only has to hold shares for the rolling three year average, which may be less than production.
7. Trading Among Farmers (TAF) is going to complicate this dividend payment even more as shares will be able to be traded regularly throughout the year.


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