YOUR QUESTIONS ANSWERED

CAPITAL STRUCTURE

For the first time, this might mean Synlait, OCD suppliers etc could be attracted back putting pressure on share price which would be positive?

The preferred option – a Reduced Share Standard with No Fund or a Capped Fund – would allow farmers to make better decisions about which processor to supply on a more like-for-like basis and provide farmers more choice about whether to join, stay in, or leave the Co-op. 

That’s due to the Reduced Share Standard, which would make it easier for farmers to join our Co-op and give more flexibility to existing farmer owners who may want to free up capital or who are working through succession. We think this will better support a sustainable milk supply for Fonterra.

The key things to consider with this option – including what may happen to the share price – are detailed on pages 12-13 of the Consultation Booklet. Ultimately, the price of our shares would be determined by the performance of our Co-op and trading between farmers.

 

Since TAF has been introduced, there has been a tension between dividend and milk price. How will these proposals ease that tension?

Aligning incentives is one of the core design principles that the Board used to assess all potential options.

Currently our share price moves in line with the price of units in the Fund. In that sense it is influenced by unit holders, some of who have a different investor profile to that of our farmers – a farmer’s cost of capital is typically higher. Under the preferred option, this would no longer be the case.

All suppliers would still be required to hold capital-backed supply, and all farmer owners would still have exposure to both milk price and some earnings – although some may have more exposure to earnings than others relative to their supply. 

The minimum shareholding requirement of 1:4 and a cap of 4x supply on shareholding is intended to provide meaningful flexibility for farmers to reduce their shareholding, while ensuring there is sufficient ability for other farmers to hold a greater number of shares without giving rise to a significant concentration of ownership.

Further information about alignment is included in the key things to consider section on page 13 of the Consultation Booklet. We welcome farmer views on whether there should be any other mechanisms to support greater alignment between farmers.

 

What are the negative implications of extending the time a departing shareholder has to sell their shares say to 15 or 20 years instead of 5 years?

The Board has put forward its current thinking on how the preferred option could work. This includes extending the share-up and share-down periods to five seasons (up from three seasons today), but we are keen to hear farmer views on this over the course of consultation.

If departing shareholders were to have 15-20 years to sell their shares, then assuming all shares retain the same rights to a dividend, those departing shareholders would be entitled to dividends for 15-20 years.

GREATER CHINA

Can you give us an update re organic and a2 milk in China?

Overall, premium dairy such as a2 and organics are a small part of the market.

Over the past few years, the overall organic milk market has been quite flat. It is expected to remain stable in the coming years. While there is little growth in total volume sold, there has been an increase in value with organic infant formula becoming more popular. 

Demand for a2 products is not growing at the rate it has in the past. Looking at powders, it’s really about maintaining the level of demand rather than growing it. a2MC is the primary a2 player in the adult milk powders category but their growth is behind the category as a whole. With infant formula, most players have an a2 offering now so it’s not as niche. 

Where there is increasing a2 growth, it’s in categories that are growing as a whole (such as UHT) because of a trend towards milk as a nutritious product/liquid milk such as UHT being seen as a premium product, and the a2 versions within this category are benefiting from this increased demand.

How does the Chinese consumer view the products of a local Chinese’s dairy company with overseas investments versus an overseas based supplier like Fonterra?

We can see no evidence to suggest a consumer chooses NZ sourced product produced by a Chinese owned company over product produced by an NZ owned company. What we do know is for some customers our provenance claims, which include our NZ farmer-ownership, are a point of differentiation and one reason why they choose Fonterra.

SUSTAINABILITY PANEL

Why did we invest in solar panels offshore to achieve our carbon neutral milk and not put this investment into our own cowshed roofs?

For us to certify our milk as carbon neutral we must purchase carbon offsets to reduce the remaining emissions. Unfortunately, in New Zealand solar panel installations were not available for carbon credits so we had to purchase credits from offshore.

Indonesia has more sunshine hours than New Zealand and it’s a warmer climate, which helps with solar production.  Countries in Asia also have a lower cost of entry for solar power as it is more available, competitive and in some cases has government subsidies.  

We are really interested in working with our certifier in New Zealand and other industry groups to recognise the great work our farmers do under the voluntary carbon credit scheme.

Fonterra produces food for 40+ million people. Why are our “emissions” not passed on to consumers who are purchasing product? It doesn’t seem fair?

Under the Paris agreement each country has a nationally determined contribution for emissions reduction. Therefore, although our food feeds over 40 million people, we must account for emissions at the point of production. This is an issue dairy producers are facing around the world.

We already have amongst the lowest emissions dairy in the world, giving us an advantage over other dairy producers who are racing to catch up.

INNOVATION

How can we promote good dairy nutrition when sugar is added in large quantities alongside - I.e. cheese lollipops?

We are focused on providing the best nutrition we can across a broad range of formats. We work hard to reduce sugar where possible and to improve products versus the competing alternatives. We are not purist that everyone must eat or drink full cream milk equivalent all the time as this is not always preferred or affordable.

We’re on track to achieve our target of 100% of everyday and advanced nutrition products meeting endorsed nutritional guidelines. The guidelines make sure we’re continuously moving our product portfolio towards reduced use of added sugars, salt and other additives, while maintaining food safety and quality. They have been endorsed by the New Zealand Nutrition Foundation, which is an integral part of providing trustworthy nutrition to our consumers.

What has happened with Motif since our investment?

The Motif investment was to help further our understanding of fermentation produced proteins. We speak regularly with the team at Motif. They have just put out a Series B funding round calling for up to $200m (this is oversubscribed and at this stage we are not planning to participate). To date they have not launched any commercial products but are still tracking as per their plan when we invested in them. The value of our stake in Motif has increased, as has the knowledge we are able to gain.

APAC

Your video just showed 2 examples of milk from non-plastic containers. (Glass Bottle and TetraPak). When are we removing plastic bottles?

Across the Co-op, our people are working hard to reduce waste and make our packaging as sustainable and environmentally friendly as possible, while retaining our high food safety and quality standards.

We’ve got a target to have 100% recyclable or reusable packaging by 2025. This is part of our Co-op’s wider efforts to reduce its environmental impacts across the business, which is not only the right thing to do but has also become increasingly important as more and more customers and consumers are choosing products that are environmentally friendly.

Last year Anchor launched a plant-based bottle made with sugar cane. Sugar cane is a natural alternative to bottles made from non-renewable sources such as fossil fuels, and 100% kerbside recyclable in the North Island where it is be sold.

All our plastic containers, including our Anchor Lightproof milk bottles, are recyclable. Our recycled milk bottles show up again as all kinds of useful things like milk crates, rubbish bins, roof tiles and furniture.

 

The Co-operative Difference programme has an 80% minimum threshold for grass fed. Is that high enough? In the same vein, is GE of pasture, simply a no go area?

In New Zealand we have a reputation for being pure, natural and efficient producers of nutrition. Our pasture-based farming system and use of farm grown feeds supports this reputation and in turn protects the value we generate today and into the future.

Our current thresholds reflect our ability to legitimately market the natural grass-fed attributes of your New Zealand milk e.g. out Trusted Goodness quality seal. Appreciating that we have the framework to change over time as markets evolve.

We strongly support science and innovation and we’ll be guided by our consumers and customers. We’re not anti-genetic modification and see genuine value in maintaining optionality with regard to the use of technology, and the possibilities offered by new and emerging life science technologies. At the same time, we recognise the value in NZ’s global reputation for its GM status, as supported by our current New Zealand regulatory framework.

AMENA

Is our reliance on cow based milk limiting our market overseas? Is it time to look at ovine (sheep) milk products?

As a farmer owned co-op dairy will always be at the core of our business. In saying this we also need to stay at the forefront of innovation to understand and meet the changing preferences of consumers.

We want to be in a position to respond to the world’s increasing need for food and the changing needs of consumers with new types of nutrition, which complement and add value to our core dairy business. That’s why we’re always open to exploring new, innovative ways to meet these evolving needs and help feed the growing global population.

FMT Q&A PANEL

What pressures do you see on the milk price for the next couple of seasons?

The big pressures will be the usual supply and demand dynamics along with what happens to the NZ dollar relative to the US dollar.

The big question is whether today’s global dairy prices can be sustained.

In the past, when we’ve seen global dairy prices at the relatively high levels we’re seeing today, there’s been a correction.

Farmers around the world have tended to increase their production driving an increase in global supply and customers and consumers can suddenly decide there is a limit to what they can afford to pay.

In terms of demand, the economic recovery of our markets post COVID-19 will be a big factor to watch.

While there are positives signs that the global economy is moving in the right direction post the lows of 2020, the strength of the recovery will vary across countries.

If in years to come and the COVID downturn kicks in around the world, how will our value-add strategic direction look then?

There’s three key points that are important in answering this question.

The first is that in any potential downturn our Co-op would leverage our scale and ability to move milk into the markets and products that return the most value. In the same way that the economic recovery is expected to vary across markets, any downturn would also vary across markets and that’s why we would look to leverage this strength.

The second point is that we believe that no matter what the economic conditions are that the relative scarcity of our Co-op’s milk will drive value – especially when we combine it with sustainability, innovation and efficiency.

And the third point is that COVID-19 has put a renewed and positive spotlight on the health benefits of dairy. We’re seeing people wanting those benefits and we believe with the right in-market activity this will continue and would be relevant in people’s purchasing decisions during any potential downturn.

Please can you allow farmers to buy our own product online at discount on shopfonterra.com even if it’s just protein powder / ambient product to build connection?

We are currently looking at ways to help our farmers know the full range of products produced by the Co-op and potentially provide an opportunity to buy those products at discounted prices.  This includes considering partnership opportunities with supermarkets and food wholesalers and allowing more direct access through Farm Source stores and online e-commerce.  We are in the early stages of these conversations and will share more in due course.