The biggest risk for Fonterra and its shareholders, who are also most of its suppliers, is redemption risk.
As the price rises that risk increases because the amount of money the company would have to pay to any farmers who want to redeem their shares increases.
Under the existing system, more suppliers might be tempted to sell when the share price is higher and go to other companies which don’t require suppliers to be shareholders.
Trading Among Farmers (TAF) would allow those farmers to sell shares into the pool and retain their voting rights.
Existing shareholders or anyone else can buy from the pool but those shares don’t carry voting rights.
This is best for the Fonterra and suppliers. The redemption risk would be gone and suppliers would still control the company.
Sir Dryden Spring who chaired the Dairy Board when Fonterra was formed supports TAF:
Sir Dryden, now retired from dairy farming and no longer a Fonterra shareholder, thinks farmers will face a bigger threat to their ownership and control if TAF does not go ahead.
“Fonterra was established with a flaw in its structure, and that was the fair value share, which under certain circumstances shareholders can require the company to redeem. Now that puts a huge strain on the company because effectively the share capital isn’t equity at all it’s effectively a contingent liability.”
Sir Dryden says that unless Fonterra can solve this redemption problem, and make its capital permanent, it will under invest in its core dairying activities which he says will lead to under performance and falling income.
That, he says, is a far bigger risk to farmer ownership and control than TAF.
Sir Dryden also says he thinks there will be sufficient safeguards in place under TAF to keep Fonterra in farmer ownership and control.
Fonterra is New Zealand’s only world-wide company.
It needs capital to continue growing and to keep its place in the world market. TAF enables more capital to come in without diluting supplier control.
Posted by homepaddock 
Homepaddock 