Cooperative Fonterra is also working on financing

With these adjustments, Fonterra wants to maintain the level of milk supply in the future and also strengthen the membership or ownership of the cooperative's member dairy farmers. “The future financing of the co-operative group is highly dependent on our ability to maintain a sustainable New Zealand milk supply and protect farmer ownership and control,” McBride said in a statement.

The change to the financing structure is necessary because the business environment for Fonterra and the New Zealand dairy industry has changed in recent years. The current structure was introduced at a time when milk supplies in New Zealand were increasing significantly year-on-year, Fonterra said in a statement. Now it must be prepared for a period of stable or possibly declining milk supply due to factors such as climate change measures, regulatory changes and alternative land use.

Greater influence not dairy farmers
In the current structure, the delivery of 1 kilo of Milk Solids (approximately 11,85 kilos of milk) is equivalent to 1 share in the Fonterra cooperative that the dairy farmer must purchase. Fonterra members can trade these shares on an internal market (the Fonterra Shareholders' Market) or convert them into shares in the listed Fonterra Shareholders Fund. By participating in this fund, non-dairy farmers can also acquire an interest in Fonterra.

Fonterra fears that if the structure remains unchanged, many members will convert part of their shares, causing the Fund to become increasingly larger and therefore also the possible influence of non-dairy farmers. That is why the board and management have submitted a series of proposals that they want to discuss with the more than 10.000 members of the cooperative over the next six months. Until this discussion has been completed, the size of the Fund has been frozen. In other words, members cannot convert an interest in the cooperative into shares in the Fund.

Preference of the board
Although the Fonterra board describes several options to redesign the financial structure, on which the members can give their opinion, according to McBride he does have a preference. And that means linking the shares in the cooperative to more milk: 1 share for 4 kilos of Milk Solids. The size of the listed Fund is also frozen or limited. Even taking the Fund off the stock exchange is an option. 

Fonterra had temporarily halted trading in the Fund's shares at the time of the announcement to allow the stock exchange to absorb the news. When the New Zealand stock exchange reopened last Friday, the stock immediately fell by more than 13%. In recent days, the Fonterra Shareholders' Fund share price has been slowly climbing again.