Fonterra capital restructure and changes to the payout

I wonder how many dairy farm owners and sharemilkers understand the range of possible outcomes now that the payout is separated to a milk price and a dividend.

It is not simply an issue of whether the sharemilker is entitled to a portion of the wet shares as some advisers seem to think.

One example, if the farm does more production the sharemilker gets his/her portion of the dividend paid on the number of shares.  The result: the sharemilker gets less if the production is greater than the shares owned.

Another example: if the owner held 150,000 shares based on last year’s production and the production was 20,000 kgms less (ie 130,000 kgms) and the sharemilker is entitled to (say) fifty percent of the dividend on the wet shares.  The sharemilker is entitled to the dividend on 75,000 shares even though half of the production is 65000 kgms and the owner funded the excess shares. The result: the sharemilker gets more dividend than the proportionate production from the property.

And another thing, if Fonterra keeps back retentions and the sharemilker is entitled to a portion of the dividend, does the owner have to make up the difference?  The owner may never get the retention directly. And, if the agreement between the owner and the sharemilker is for the sharemilker to be entitled  to a percentage of the total dividend rather than based on production as before.

I don’t think many dairy farmers are aware of some of these issues.  But don’t panic, if you can identify these issues then you will be able to protect yourself when you negotiate an amendment to the agreement.

ALSO, BlackmanSpargo have a seminar on sharemilking agreements coming up at the War Memorial Hall on Wednesday the 17th of March.  You can get more information at the BlackmanSpargo website www.rurallaw.co.nz.  We look forward to your visit.