Fonterra preys on new members and lowers the deposit

Fonterra intends to adjust the capital structure to make it easier for dairy farmers to join. With this, the New Zealand dairy cooperative wants to secure the supply of raw materials in the future. New Zealand politicians agreed to the adjustment yesterday (November 24), although the adjustment is sensitive. 

The changes will be implemented in March 2023. From then on, a flexible shareholding will be introduced, making it easier for new members to buy in. In addition, this structure must also act as an attraction for the existing suppliers. In this way, the dairy cooperative wants to arm itself for the shrinkage that hangs over dairy farming in New Zealand. This threatens a shortage of raw materials with regard to production capacity. 

Contraction hangs over the market
It is not entirely illogical that Fonterra is concerned. Just like in Northwest Europe, milk production in New Zealand is under pressure due to increasingly strict environmental requirements and an aging population. The government recently announced its ambition to have a CO2050-neutral economy by 2. This is where the shoe pinches, because about half of the emissions come from agriculture, especially dairy farming. This means that the herd is likely to be scaled down, possibly as much as 15%, according to reports. Fonterra even assumes a shrinkage of 20% among its own members.

This development would be disastrous for Fonterra, which processes about 80% of New Zealand's milk. This also means that the fish pond for new suppliers is relatively small. In addition, Fonterra has been closely shadowed by the government for years to see if it is not gaining too much market power due to its market share. The relaxation of the recruitment policy for members was not self-evident in advance, but parliament nevertheless agreed to the proposal. 

Competition was against
Fonterra's competitors were against the plans and warned politicians against too much market power. Fonterra refuted this by stating that its market share has fallen from 2001% to 96% since 79. The main reason for this is the high deposit that members have to pay. This also makes it attractive to leave the cooperative. With the proposed adjustments, Fonterra wants to stop this trend. 

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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