The 2025 Taskforce report says Fonterra hasn’t lived up to its promise and it should convert to a conventional corporate structure.
Fonterra is New Zealand’s largest company. It is a private company, owned by its shareholders, and we have studiously avoided commenting on individual private companies elsewhere in this report.
However, Fonterra exists in its current dominant position only because of exceptions granted to the Commerce Act to allow it to form. The Dairy Industry Restructuring Act continues to influence it and the sector as a whole.
Fonterra’s performance matters for New Zealand and in view of Parliament’s role in the creation of Fonterra, the Government has a legitimate strong interest in the future structure of the company in a way that it would not if a more competitive model had been adopted earlier.
As with so many state-sponsored or facilitated businesses, Fonterra has not lived up to the promise sold to New Zealanders when it was allowed to form.
We do not believe that in its present cooperative structure it can do so, and we believe it is important for the long-term health of the dairy industry in New Zealand, and hence for farmer shareholders, that a transition to a conventional corporate form with outside traded capital occurs expeditiously.
That choice is one that is in the hands of farmers, but we believe it is important that the Government keeps legitimate pressure on, using any appropriate instruments to encourage the transition to be made. No consideration of accommodation for Fonterra on any other front should be countenanced until the transformation of the company is irreversibly underway.
I’m pleased the report acknowledges that the company is owned by its supplier shareholders and its future is in their hands.
Whatever anyone says about Fonterra’s role in the economy and its importance to New Zealand, farmers have shown little appetite for a public listing before and are unlikely to support the idea now.
I’m also intrigued that the recommendation for Fonterra is being made by a taskforce chaired by Don Brash. He is one of the men behind Oceania Dairy Group which is planning to build a milk processing plant near Waimate in South Canterbury.
I am not accusing him of any bias, in fact the opposite is the case. If Fonterra was operating as well as the 2025 Taskforce thinks it ought to be it would be much harder for new competitors to gain traction.
Criticism of Fonterra from farmers has quietened since the forecast pay out was increased but global prices are expected to fall when new season supplies from Europe and the USA reach the market early next year.
However, those unhappy with the co-operative are more likely to move their milk to another processor than to agitate for it to change its structure.