The board and management of Fonterra have pulled off the impossible today and convinced the Turkeys to vote for an early Xmas.
I have sat through a few Fonterra meetings over the last year. I have heard all the reasons for TAF and none of the reasons to say no to TAF.
Here is how this is going to play out for Mr and Mrs Dairy Farmer;
Your farm gate price will drop. While this will be good for Fonterras domestic rivals and ultimately the domestic consumer it will be bad for young farmers and small farmers alike.
You see to create sustained demand for the unit trusts and dry shares the price of them will need to rise. And the only way they will sustain growth in pricing is to pay a bigger and bigger dividend. And that increase in dividend can only come from the farm gate price.
Moving away from a co-op model has failed the grower in every instance since Pontius was at flight school. This will be the same.
Fonterra sold this by claiming redemption risk was a scary monster. This is bullshit. Simply pulling back on the payout in times of stress covers this and they have simply moved the redemption risk to the farmers balance sheet and off theirs.
Likewise the access to capital argument, making this argument while interest rates are at historic lows is ludicrous.
And now why will it be bad for the young and small?
Marginal farms will sell down 30% of their shares to the big farms (if the bank who no doubt holds a security over them will allow it). And as the share price goes up they will not be able to buy them back. Allowing new farms to buy the shares in years three, four and five sounds good but how much will they cost?
A lot more because the demand side pressure will force ever increasing dividends which will come out of the farm gate price which they need to buy the shares.
Fonterra are claiming in excess of 66% voted yes. That might be the case in terms of milk solids but I would like to see a farmer count.