27 Feb 2009

Fonterra share rule change disturbs dairy farmers

3:04 pm on 27 February 2009

Changes to the rules on Fonterra's unshared supply threshold have created some tension between the co-operative and dairy farmers.

Farmers who supply the dairy giant must buy shares relating to the amount of milk solids they produce.

Until last year the suppliers were allowed to carry up to 20% of production above their shareholding into the next season.

However, given the uncertainty in the financial environment, Fonterra's board decided to tighten up those rules so all suppliers must purchase shares strictly related to the amount of milk solids they produce.

Federated Farmers dairy section chairman Lachlan McKenzie says farmers are faced with the deciding whether to cap production or buy more shares so they can continue to supply the milk.

Mr McKenzie says although the rule changes are fairer to those shareholders who are fully paid-up, some farmers are unhappy Fonterra did not make the announcement sooner than last October.

He says the situation is causing tension because it is difficult to raise capital at present and shares price are falling.

Fonterra says it originally allowed for some leeway between the number of shares that were required for milk supply to deal with seasonal supply fluctuations.

The co-operative says most suppliers affected by the rule change have significantly increased production above what could be described as seasonal fluctuations.