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Saturday
Aug172019

Mathew Hooten & Brian Gaynors on Fonterra

The following ultimate para in Mathew Hooten's columm in yesterday's Herald needs to be taklen aboard by both sides of Parliament - how likely is that?

"Paradoxically, fixing Fonterra involves removing some of its ongoing legislative constraints. It should no longer be required by law to collect milk from new entrants or those who want to expand — which only leads to overproduction, including at the peak — nor to sell raw product to its competitors.

It should be set on its path to being a completely normal company. That requires tough decisions and bold leadership from Jacinda Ardern, Grant Robertson and Damien O'Connor, or perhaps Simon Bridges, Paul Goldsmith and Todd Muller.

And it will require tough decisions and bold leadership from more dairy farmers. If they want to play it safe as commodity price-takers, the co-op will always be there for them.

But if they ever want the returns expected by shareholders of a2 or even Pic's, they will need to abandon that safety blanket and take a risk with something new, less conservative and less constrained."

And Brian Gaynor's ultimate columm in the today's issue;

"The new chairman and chief executive have adopted a more realistic attitude towards Fonterra's businesses, but the co-op's main flaw remains the same as identified by Allison and Fernyhough 18 years ago. That is "that other people's capital and ideas are essential for baking a bigger cake".

Kerry Group (previously the Irish dairy co-operative ) started down its road to success in 1986 when the co-op transformed itself into a limited liability company and listed on the Dublin Stock Exchange. This allowed it to attract "other people's capital" and a wider range of skills at the board table.

It has also aligned the interests of management and farmers as Kerry Group's senior management team has been successfully incentivised through the company's numerous share schemes.

Fonterra will only pull itself out of its huge rut when it is willing to accept "other people's capital and ideas".

This involves transforming itself into a limited liability company and appointing directors with significant consumer foods expertise, rather than relying almost totally on farmer directors."

Boy, that stubborn determination to maintain the flawed co-operative structure is beginning to look terminal. To repeast my earlier comment - they simply do not have the commercial nouse to dig themselves out of this hole, and Government will eventually have to step in to force a re-structure- our economy depends on it.

 

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