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Trading Amongst Farmers Nz Essay

868 words - 4 pages

Trading Among Farmers (TAF) and the future of the New Zealand Dairy Industry.

On the 25th June 2012, farmer shareholders in the Co-Op Fonterra, voted in favour of implementing TAF. TAF allows outside capital in the form of buying units; in return for rights to dividends, but not ownership or votes. When researched; there is no agricultural co-op in the world that has taken outside capital and still primarily focused on maximising returns to the supplying shareholders, ( as primary focus becomes the share price and dividend, eventuating in the demise of the co-operative.

A co-operative is set up by its shareholders to maximise the price for the suppliers milk.  ...view middle of the document...

The coolstore was never built. (Donna Smit) What happened was there were competing drivers; dividends and Orchard Gate Returns. Today Satara continues to lose Growers because they feel that their co-op is working for the investors and not them. They are moving to EastPack, who are now double the size of Satara (Donna Smit). In a pure co-operative there is no divergence of interests, every shareholder wants a high milk price or a strong balance sheet.
One of  TAF’s primary purposes’ other than to raise capital, was to eliminate redemption risk. It does not do this. Okay, so it does in the fact that it doesn’t need to retain earnings to buy back existing shareholders shares who wish to leave the co-op. ( it still has redemption risk in 3 other areas. Firstly, Farmers hold a ‘golden’ share so if it doesn’t work the farmers can decide to terminate the legislation forcing Fonterra to buy back all the units from the investors at market price – Redemption Risk. Secondly, if the fund grows to a point at which Fonterra do not like, they will have to stop new units being issued which stops farmers from selling shares into the custodian or they will have to buy back the units themselves – Redemption Risk. Finally, if the fund gets to 20%, and shareholders want to leave Fonterra, then Fonterra will have to buy the shares off the farmers – Redemption Risk.

The supplier shareholders did not receive enough information in laymen’s terms to make an informed decision. This is supported by a letter from Federated farmers president; Willy Leferink to Sir Henry van der Heyden....

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