Fonterra has ruled out a public listing, a decision which is supported by most of the cooperative’s shareholders.
Suppliers are wary of a public listing because they want higher returns from the milk they produce and that might not be the primary aim of outside shareholders.
Having ruled out listing the company has to look for other ways of funding expansion and will be making an announcement tomorrow afternoon.
It is likely to include a change to the way shares are redeemed.
At the moment farmers can sell shares back to Fonterra if they want to stop supplying the company or if production drops below the level of their shareholding.
That can help farmers with cash flows if, for example, their milk supply falls because of drought. But it also allows them to sell out when the share price is high, supply another company for a year or two then buy in again when the share price has fallen.
It would be better for the company if farmers had to sell to other suppliers or wait a few years – at least three and up to five – before redeeming their shares and if the price for redemption was set at a three or five year rolling average.