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Thread: Fonterra

  1. #1
    Guru Dr_Who's Avatar
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    Default Fonterra

    So the farmers dont wanna list on the market, how will they pay for a huge capital raising by Fonterra? The rural sector is leveraged to the max, I assume.

    I, for one was looking forward to buying some Fonterra shares in the IPO.

    Hey, average NZers should have the opportunity to participate in NZ's largest industry.
    Last edited by Dr_Who; 07-09-2009 at 02:13 PM.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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    Quote Originally Posted by Dr_Who View Post
    So the farmers dont wanna list on the market, so how will they pay for a huge capital raising by Fonterra? The rural sector is leveraged to the max, I assume.

    I, for one was looking forward to buying some Fonterra shares in the IPO.
    I never thought Fonterra would become a viable investment for a non-dairyfarmer shareholder. I couldn't see any arrangement being agreed to which didn't put a priority on value being distributed via the milk payout, with overall profitability of the company coming a distant second.

    A pity though, as the potential for profitable growth is undoubted if handled well. Brian Gaynor's recent article on the success of Irish former co-operative Kerry Dairy ( or some such name ) shows what might be possible.

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    Yes- bummer. I was really looking forward to buying some Fonterra shares and having a stake in NZs largest exporting company- still perhaps they may issues bonds?

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    Quote Originally Posted by Walfootrot View Post
    Yes- bummer. I was really looking forward to buying some Fonterra shares and having a stake in NZs largest exporting company- still perhaps they may issues bonds?
    They have issued debt instruments in the past, and were over-subscribed.

    Yes the farmers will be reluctant to give up the current structure. But why shouldn't the townies have a share too?

    Perhaps some kind of hybrid structure where there is a partial float, with the majority shareholding being held by the farmer/owners. The farmers would then be able to book equity in the floated entity, or sell their holdings a bit like what happened with AMP when it demutualised.
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    all farmers know that kiwis, investors and speculators have a habit of selling out to overseas investors.
    cant blame farmers for holding on to their own co op

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    yes I agree Neopole. the farmers have a deep and embedded mistrust of 'the money-magic'.
    And if you look at history both ancient and recent who can blame them.
    For clarity, nothing I say is advice....

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    I think the "overseas control" bogey is a bit of a red herring.

    It's simple enough to include restrictions/limitations on overseas ownership/control if that's what's worrying farmers. Their real concern is the company being run in a way that doesn't give priority to their return via the milk payout.

    Ironic that they should be finding it necessary to raise capital. Doesn't seem so long ago that they compulsorily redeemed a big chunk of retail bonds! In retrospect, that can now be seen as a signal that they didn't really have their hearts in the "value added" business, development of which would have required every spare dollar, and then some!


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    Well said Mcduffy.

    Like all your children, sooner or later you gonna let them go, especially when they get too big to handle and too costly to feed.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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    I don't think the ownership aspect would be crucial, but control would be the more worrying aspect for farmers - however would take a major player to get any sort of control. The chnage with SFF has a maximu of 5% voting block for non supplier shareholders.

    Farmers are already supply the likes of NZ Dairies, owned by a Russian company (Nutriek??) and Open Country are 25% owned by Olam from Singapore. Farmers will be loyal as long as Fonterra have the best payoff (or thereabouts) - it won't matter about market development or added value or whatever.

    there would have to be some sort of hybrid system to equally reward shareholders and would be a tough balance - inveriably would be tilted the way of farmers.

    Fonterra also issued some new bonds earlier this year.

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    Now that Fonterra have apparently decided against a market listing I wonder if anyone's giving any thought to a possible "corporate dairy farm" company, based perhaps on the 18 Crafar farms that are said to be on the market, and others who might welcome the chance to quit the industry.

    If, as we are lead to believe there is a strong appetite for equity investment in dairy farming, now would seem to be an opportune time to buy these assets at favourable prices.

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    I ve actually thought about that also, Mcduffy. The only problem is that with the recent PGW, PGC and SCF problem, investors may shy away from rural sector investment for awhile.

    I a still struggling to see how Fonterra can raise cash without issuing shares to the public.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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    Yes, rural type companies are doing it tough at the moment, a far cry from the heydays of Dalgety's, Wright Stephenson's, Williams and Kettle, Southland Frozen Meat and others. Corporate farming has never really been a success either, at least in the public listed company form.

    But if we believe in the future of farming in NZ, there's got to be an opportunity there for the right people, the right methods and the right structure.

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    Quote Originally Posted by macduffy View Post
    Yes, rural type companies are doing it tough at the moment, a far cry from the heydays of Dalgety's, Wright Stephenson's, Williams and Kettle, Southland Frozen Meat and others. Corporate farming has never really been a success either, at least in the public listed company form.

    But if we believe in the future of farming in NZ, there's got to be an opportunity there for the right people, the right methods and the right structure.
    I think that in general, the margins for the rural supply stores have been reduced so much by competition (down to about 10% average), that they then concentrate only on fast-moving items, not necesarily the items that will deliver real value for farmers longer-term. So if farmers then only buy the gear they see in the stores, the uptake of new technology is slower than it should be. On the other side, some consultants are now saying "look at the profit per kg of drymatter fed, and base all of your purchases and effort around that". This leads to more use of grass (protecting it, growing it better). It's NZ's major crop, our competitive advantage.

    In a high payout year, those dairy farmers feeding supplements and with high stocking ratios win big. But they're quieter this year. The lack of money flowing about is very noticeable.

    You're right macduffy, to get in on the ground floor with some of these farms would be interesting. Just needs a long-term approach, and of course the capital gain on the land is where most of the action is.

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    Default You shall go to the ball, Cinderella

    Quote Originally Posted by Dr_Who View Post
    So the farmers dont wanna list on the market, how will they pay for a huge capital raising by Fonterra? The rural sector is leveraged to the max, I assume.

    I, for one was looking forward to buying some Fonterra shares in the IPO.

    Hey, average NZers should have the opportunity to participate in NZ's largest industry.
    Dr Who, you WILL be able to participate in a listing - it will just take more time. It is inevitable that there will be a public offering.
    I think it has been forgotten that this has been brewing for nine years now - with a slow, often glacial march towards listing.
    Consider the history - it was the Dairy Board that heavily lobbied government to disestablish the board - not the other way round. The first real change was the amalgamation of the remaining big dairy cos - Kiwi and NZDG - That got rid of any other board and CEOs other than that vested with Fonterra - now it has centralised control of the supply chain from 'cow to customer'. Simultaneously, the number and depth of 'joint ventures' overseas was ramped up. Experiments were tried with developing parts of the business into consumer and end market operations - sometimes successful, sometimes a total failure - but again, it is a slow and relentless march away from a bulk commodity supplier with large fixed contracts to direct market placement.
    Over that period of time, the product mix changed as well - no longer suited to the 'marketing Board' model and more suited to a company that should be structured like the Nestles and Krafts.
    This change has been a long evolution - (for good reason - in that if the farmers had realised that the present situation would occur - they would not have let the companies amalgamate and might have realised what was actually happening) - but because it has been over a long time, the multiple big changes that have already occurred are not too noticeable - - thus the listing or partial float or whatever vehicle that will be used to give Fonterra a 'normal' equity structure is in reality not that big.
    Whatever happens - they will find a way of succeeding. It was always in the plan.

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    It continues to surprise me that a large number of firms dont plan for the bad times during the good times. Dont they know the party dont last forever?

    The public should have a chance to participate in NZs largest industry, esp when we have given Fonterra a monopoly status that is detriment to the dairy retail prices at the grocery stores.

    I am still struggling to understand how the farmers will fund Fonterra and the other rural sector companies in dire need for capital. The NZ rural sector is in debt and desperate for new capital. Time for them to wake up to reality and become part of the real world.
    Last edited by Dr_Who; 19-09-2009 at 07:48 AM.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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