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Fonterra's novel way to help farmers

NZ NewswireNZ Newswire 5/04/2016 Fiona Rotherham

Fonterra could let farmer shareholders sell "wet shares" - the shares held based on annual milk production - as a way of providing support to its cash-strapped milk suppliers, says broker First NZ Capital.

The co-operative's latest support measure has been to bring forward payment of its forecast 20 cents per share final dividend earlier than usual to get the money into farmers' hands as quickly as possible given the low forecast milk payout. Last year 76 per cent of farmers took up an interest-free loan which cost the company $390 million.

First NZ Capital said in a research note that the flexibility provided by the Fonterra Shareholders' Fund (FSF) could also be used and would take the onus off Fonterra having to get cash to debt-laden farmers at a time when the business needs funds for its value-add growth strategy.

FSF listed on the NZX in 2012 after Trading Among Farmers (TAF) changed the way farmers bought and sold the cooperative's shares.

The analysts say it would be possible to get between $300m and $400m of capital to farmers that need it from outside investors without much real change being required in the way the actual fund size target is managed.

TAF gave farmers more options including being able to hold on to shares up to three years after selling a farm, buying additional shares over the amount of milk they produce, and being able to convert shares to tradeable units.

Farmers are required to hold one wet share for each kilogram of milk solids they supply annually while dry shares are any they hold over and above that share standard requirement.

The units were recently down 0.2 per cent to $5.90 and have decreased 1.3 per cent so far this year.

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