2. R DOUG WOOLERTON (NZ First) Link to this
to the Minister of Agriculture
What conversations has he had with Fonterra’s board of directors regarding options for its future capital structure, and which of the options put forward would he favour as Minister of Agriculture?
Hon Dr MICHAEL CULLEN (Leader of the House) Link to this
The Minister has had a series of conversations with representatives of the board over the last year or so as Fonterra has considered its capital structure. These discussions have focused on the national interest. Fonterra’s board has put one preferred option to its shareholders. It is now up to the shareholders to decide whether the company will progress that option. The Minister has indicated that the Government is prepared to advance legislation in Parliament so that should the proposal be approved by shareholders, their decision can be implemented.
Was debt financing discussed as an option for raising capital, given that full ownership of the company would remain in the hands of New Zealand farmers under such an option; if so, what was the Minister’s attitude towards that option?
Hon Dr MICHAEL CULLEN Link to this
I cannot recall whether that specific option was discussed, but I think it would be fair to say that because of the cooperative nature of Fonterra as a structure at the present time, there are quite severe limits on the ability to debt finance expansion within the company.
Sue KedgleyCould the Minister explain how it would be in the national interest to open up the cooperative to foreign investors, to allow up to 50 percent of shares to be held by offshore owners, and to allow those dividends to flow straight out of New Zealand?
Hon Dr MICHAEL CULLEN Link to this
The view taken by Fonterra is that it has very large expansion plans, and it aims to maintain and enhance its position as one of the world’s major players in traded dairy products. To engage in that expansion, Fonterra needs significant access to capital. The current cooperative—an entirely New Zealand - based operation, in that respect—is not able to access that kind of capital, and therefore it needs to look at ways in which that capital can be raised. However, of course, the current proposal put forward by Fonterra includes limits on foreign ownerships and protection of the level of ownership by the farmers’ cooperative, which, in effect, would give it a controlling interest in the new organisation.
Is the Minister’s statement today that the Government is prepared to advance legislation in Parliament to implement any decision of Fonterra’s shareholders an indication that a partially foreign-owned Fonterra’s largely monopoly position would be under threat; if not, why not?
Hon Dr MICHAEL CULLEN Link to this
No, it is simply to state that if the shareholders, who are the people who own Fonterra, decide that they want to change the current structure, then because that structure is set by legislation it is appropriate for Parliament to consider that legislation. Of course, at the end of the day it will be a matter for Parliament to decide whether to approve any such legislation that may come forward.
Was any consideration given by the Government on the potential effect on New Zealand’s balance of payments of the partial foreign ownership of Fonterra; if not, why not?
Hon Dr MICHAEL CULLEN Link to this
As I indicated in my first answer, the Government’s primary concern is around the national interest. That includes ensuring that New Zealand retains majority ownership, that the farmers’ cooperative retains effective control, that the headquarters remains within New Zealand, that the primary listing of any such company remains within New Zealand, and, indeed, from the Government perspective, that the development of products, research and development, and the like takes place overwhelmingly within New Zealand. If Fonterra expands in that respect and if it significantly expands its offshore earnings, that, of course, is a factor that also has to be taken account of in the balance of payments.
Does the Minister share the concerns expressed by the Dairy Workers Union that the new structure will create pressure on Fonterra to undertake further commercial activities offshore that can be efficiently undertaken in this country; if not, why not?
Hon Dr MICHAEL CULLEN Link to this
Obviously there are issues around that, but in looking out over the long term, as there is a large expansion of world dairy consumption, we see that the issue facing Fonterra is whether it positions itself to remain, in effect, the largest player in terms of traded dairy products around the world. It is in New Zealand’s national interest that that is so, but it is in New Zealand’s national interest that Fonterra, in achieving that, does not become, in effect, a foreign company.
Is the Minister concerned at today’s admission by Fonterra’s chairman that the new structure will create tension between what farmers want and what shareholders want; and given that a publicly listed company is beholden solely to increased returns for the shareholders, how can the wishes of the farmers be addressed when a proportion of a company that they own decreases over time?
Hon Dr MICHAEL CULLEN Link to this
My understanding is that the proposed structure will, in effect, ensure that the farmers’ cooperative retains effective control of the company. With a single shareholding of 35 percent, and with limits on any foreign shareholding well below that level, the cooperative retains, in effect, the effective control of the company. At the end of the day, of course, the first hurdle the board has to clear is to persuade its farmer shareholders that it is in their interests that this proposal proceeds. I have no doubt that that will be quite a large ask.