Fonterra leaders are facing a backlash from dairy farmers over a range of issues, including their choice of new chairman, being thrashed on milk payout by a tiny Waikato company, and a monster golden handshake to departing chief executive Andrew Ferrier.
Grumbling in the 10,500-strong shareholder ranks is coming to a head this week as a bruising contest for a director vacancy kicks off and Fonterra chairman Sir Henry van der Heyden, chairman-elect John Wilson and first-year chief executive Theo Spierings front up to what is expected to be feisty nationwide meetings with the farmer-owners of New Zealand’s biggest company to discuss its flat annual performance and drop in milk payout.
One influential shareholder said the unease threatened the stability of Fonterra, which is 90 per cent of the $12 billion dairy industry.
If farmers were disgruntled enough they would sell their shares and desert the company for processors that did not require them to buy shares, he said.
«We are a bit exposed at the moment with all the environmental and sustainability pressures pushing down our production.»
Dairy industry politics have never been for the fainthearted, never more so than when tightly-held director spots become vacant.
But with word spreading that the recent board vote for Te Awamutu’s John Wilson to replace the retiring van der Heyden was far from unanimous, and with the co-operative still recovering from a deeply divisive debate over the board’s drive to introduce share trading among farmers with public listing connotations, news of an $8.2 million payment to Ferrier last year while some farmers financially struggle, and that van der Heyden is to stay on the board as a director, has fanned unrest.
The announcement of a bumper milk payout of $7.50 per kilogram of milksolids by Waikato’s Tatua dairy co-operative compared to Fonterra’s $6.08/kg has aggravated the situation.
Tatua retained pretax 54c/kg, implying it had enough in the kitty to make an $8 payout if desired. Fonterra’s payout was $1.52/kg less than the previous year’s.
Wilson is up for re-election in December, along with academic Nicola Shadbolt. A third vacancy has been created by the shock exit of farmer-director Colin Armer within days of Wilson’s election as van der Heyden’s successor.
The Waikato Times understands rich-lister and corporate farmer Armer and director John Monaghan sought the chairmanship, which must go to a farmer. Fonterra has nine farmer directors and four independent appointed directors.
The Times understands Wilson’s election was opposed by most farmer directors. He was supported by van der Heyden and the independent directors. A farmer told the Waikato Times Wilson’s election represented «a consolidation of power» by van der Heyden that disturbed.
Van der Heyden yesterday said: «Can I frame it this way – all directors on the board today support John Wilson as chairman-elect and the whole board supports the chief executive.»
Wilson said he found it «remarkable» that a confidential process was being debated. He repeated an earlier statement that he knew he had to earn the respect of farmers.
Van der Heyden said he had wanted to step down after the December annual meeting. He had agreed to the board’s request to stay on for six months to help bed in share trading.
«People are playing games because of the director elections. It happens all the time.»
Former Federated Farmers dairy chairman Lachlan McKenzie, who has ruled himself out of the running for a Fonterra board seat, said farmers needed to understand the difference between a co-operative and an investment company.
Fonterra was poised to be turned into the latter by its board, with units in its shares to be publicly listed as part of share trading among farmers this year, and independent non-farmer directors having a say in who is its chairman, he said.
He accused van der Heyden of «political interference» at many levels of governance, including «inappropriate» comments about director candidates at farmer meetings.
FONTERRA EXPANSION BRINGS JOBS
Fonterra is to build a $30 million extension to its export cream cheese manufacturing operation at Te Rapa in the Waikato.
The dairy giant intends to more than double its current production of 10,000 tonnes of cream cheese for export to Japan and Asia.
Director New Zealand operations Brent Taylor said Waikato company Tetra had won the contract to build the single-storey plant which would create up to 25 new jobs.
It will be built this dairy season, commissioned next winter, with production due to start in early August next year.
Japanese bakeries and cheesecake manufacturers are the biggest buyers of Te Rapa’s cream cheese production, but Asian bakeries particularly in China are a growing market. Te Rapa is Fonterra’s only export cream cheese plant.