Fonterra has no competitors north of Auckland, leaving dairy farmers with no choice but to join the co-operative.
The Fonterra Co-operative is consulting farmers on a capital structure “shake-up” it says will make it easier for young farmers to enter the industry.
Its preferred option would reduce the minimum requirement for farmers to own one share in the co-op per kilogram of milk solids they supply down to one share per four kilograms.
Kaipara Young Farmers vice-chair Zarnie Fergusson is welcoming the move and says it has been extremely difficult for young sharemilkers to buy into the cooperative.
She says the first few years as a sharemilker can be overwhelming due to the upfront costs of buying a herd and equipment, let alone attempting to buy shares or land.
Furthermore, because the number of shares required is pegged to the amount of milk solids a farm produces, if a farm manages to become more productive, it is stung with further costs.
“We have had our production increase this season and have received a bill from Fonterra as a result,” she says.
Zarnie manages a dairy farm in Kaukapakapa alongside sharemilkers and hopes to ultimately become a sharemilker herself.
She believes the change in rules could make it easier to do so, but she is waiting to see how easily young farmers might be able to buy shares from established owners.
“Unfortunately, it may drive a wedge between new and old farmers. Established farmers may be resentful that they have had to pay more all these years. How are they going to be reimbursed for that investment?” she says.
But Zarnie says market conditions are favourable, with forecasted milk payouts high enough to make purchasing shares a realistic option for young farmers.
The current share price is $3.42 while Fonterra’s latest Farmgate milk price forecast is between $7.30 and $7.90. A sharemilker might receive anywhere between 40 to 60 per cent of a pay-out.
Fonterra says the current model was put in place 10 years ago when milk supply was growing rapidly, but now it is having to respond to flat or potentially declining milk supply.
It blames the impact of climate change, government regulations and changing land use.
Zarnie says she advocates for what Fonterra does and believes it is heading in the right direction.
“But, it needs to do something to lift barriers. It’s a lot of costs and a lot of pressure. Sharemilkers are lucky to break even for the first few years.”
She says if the industry continues the way it is, farms will increasingly be owned by large companies instead of individual farmers.
“Unfortunately, that usually means environmental and animal welfare concerns fall by the wayside.”
Zarnie says that the advantage of Fonterra is its international marketing which has established a brand presence globally despite producing a “drop in the bucket” of global supply.
“New Zealand exports 95 per cent of its milk, so we need a large company selling our milk overseas.”
Over the coming months, farmers in the co-operative will have the chance to share their views through meetings and webinars hosted by Fonterra.
If the Fonterra board decides to change the capital structure, it would be put to a vote in November and would require 75 per cent approval. An option whether to buy back non-farmer shares in Fonterra from the market may also be put to a vote.