Suppliers maximise returns by obtaining the highest possible prices for their product - not by leaving plenty on the table for dividends to the owners. High cost of supply to the company sits well with the supplier and poorly with the investor.
When the supplier is the investor this is argument is a circular nonsense and ignores two obvious points. The farmer is quite entitled to stop supplying one dairy company and offer supply to another. Additionally the farmer is an investor and will benefit from the company which is able to offer the most added value. Evidence the high premium on Tatua supply farms. Tatua is a small dairy company with a consistently high payout relative to competitors including Fonterrra.
It is well worth the farmers while to accept short term growth in order to maintain control over their buyer and eventual market price. What they lose on the swings of supply price they make up for on the roundabouts of Fonterra dividend. Better the tightly controlled Directors who know full well they had better pay attention to their farmer shareholders than being subject to the complete lack of control evident through highly distributed shareholdings amongst many disinterested pension funds interested in only their quarterly returns and not the long term health of the company.
The Silver Ferns meat reference is just laughable. "Silver Fern Meats whose latest capital raising efforts imposed restrictions to limit non farmer investment to 20% ended up with a shortfall in capital raised. " I have previously posted on the meat industry. There is a huge difference between the asset rich low return meat industry and the dairy industry. Market ideology and evidently Wheeler says farmers should follow the highest short term price. Yet farmers are capable of seeing the returns that the likes if Dairy Farmers of Britain are able to return for their famers, despite the supposed protection of the EU. UK farmers are getting lower than economic returns and steadily going out of business as the likes of Tesco & Asda chip away at their milk supply margin with no correspondent rise in dividend to compensate.
To me Fonterra is like democracy. The worst solutions apart from all the other possible solutions. Fonterra is the worlds largest trader of dairy products. It needs to grow rather than stagnate but putting itself in the hands of wide boy NZX share dealers is not the long term answer to growth and preserving independence. The dairy cockies have shown far more sense than meat industry traders who shove their product and margin straight into the hands of foriegn owned traders and lose all ability to influence the final market price to consumers. NZ meat producers are price takers, NZ dairy are price makers.
I write as someone whose family arrived in NZ generations ago and built wealth from dairy farming only to see it pissed away once the farm land was sold and funds invested in NZ financial instruments.
The model that Fonterra should follow will be arrived at over a long period by necessity and should ensure that a transition to exchange tradeable shares does not result in a long term loss of producer control. Whatever the ideology says.