More on TAF

So, here I am, armed with all the to and fro gen on the Fonterra TAF (Trading Among Farmers) debate, and I spot a dairy farmer neighbour in a local hardware store, me, eager to engage in conversation on the issue, somewhat naively it turns out.
To recap, Fonterra is creating a tandem investment vehicle to run alongside farmer shareholder capital. All Fonterra suppliers must buy a shareholding matching their supply volume, being the shareholder capital side of the business. Its the nations biggest business, $10.4B of exports, 26% of NZ's total exports, 1 share per kg milk solids, 600m kg total production, share value $4.50 odd, total shareholder value, $2.7B?
When it was mooted, maybe 5 years ago, the main argument was that outside investment, ie. greater capital resource, was needed for greater expansion of the co-op's commercial activity and to enhance its competitiveness on the world stage.
The vote by shareholders to proceed was passed 3 years ago, but concern was raised about such a non-supplier fund eventually becoming a tail that would wag the dog, appeasement of investor expectation to the detriment of supplier income.
This second approaching vote, 25th June, is taking place after safeguards have been built into the proposal, limiting the size, and clarifying the non-voting status, of the tandem fund, and somehow the initial argument seems to have shifted from one of the necessity for extra capital for company expansion, to one of needing a buffer fund to absorb the need for capital to satisfy any cashing up farmers might make on exit from the industry. There's also a presumed danger that in times of financial stress, farmers, (or their bankers) might deem it wise to cash up some of the shareholding.
Therefore, this so-called redemption risk, is taken off the company balance sheet, providing stability for future commercial strategy.
So, here, I start getting a little lost. If I was an outside investor, I'm not sure I'd want such a tame punt, with no-voting rights, but I guess there'd be plenty of investment institutions, regardless of lack of involvement in the up front action, would appreciate an investment vehicle probably safer than a bank, if theyre prepared to ride out normal agri-economy ups and downs cycles, and easily return more than current banks penny pinching 3-5% deposit fund returns.
However, from my view, any move away from a simple co-op capital base, is thin edge of the wedge stuff.
Back to my neighbour....
When I asked how he voted, he looked at me like, are you nuts or something. What am I talking about if there are options to voting "yes"?
Oh well, I explained brightly, I've been following the debate on Country99, (which incidentally he knew nothing about).
So who was on it? he enquired, and I got sage nods of approval at mention of Theo Spierings, the Fonterra board member, and the Shareholders Council Chair Brown, but when I mentioned Guiney, (my heroine), Barkla, and that "other woman from Waikato, the accountant/dairy farmer" he responded somewhat forcefully, "those nutters, if they dont want to belong to this co-op, they should bugger off".
Oops......
So.... seems to be that the supposed 93% support are "rugby supporter" definite about where they want to go on this issue. And whats more, up till now I thought this debate was remarkably free of vitriole.

The next 10 years will be pretty interesting where this all gets to.
What I wonder about farmer/suppliers is whether they really appreciate the longer horizon vision of the corporate. Nestle can wait 50 years to take over Fonterra, which I bet they'd love to do, the Fonterra Board vision is only as long as the peer blokes farmers vote onto it, and they in turn employ graduates of the corporate world to run their company for them.
And it almost seems that suppliers want to pick up, embrace, and run with a corporate ball. Get the best of a both-world each way bet, milk price or dividend, cant lose.
Phew.....
Just as long as they never let the share register go public..., ever.
Buried in my psyche is one of Michael Porters main business model flowcharts, when the going gets tough, the first thing you screw are your suppliers. Actually, its the only thing you've got to screw.
We do it all the time when we "put our cheque books away".
Yesterday I was somewhat envious of my fellow farmers business model.
Today, I think I'm happy to be floating free in my non-aligned sheepfarming sea.....
except for that ominous NAIT cloud on the horizon, but thats another story.
Another parting thought, what say the Peoples Republic of China want to buy the TAF fund.....
20% of $2.7B shareholders total, ie. half a $B approx, would only be chicken feed to them, as would a 50 year vision horizon.
Actually, its not hard to draw parallels with the current issue of Govt selling parts of the SOE's.
You'd wonder why both organisations couldnt have just gone straight to the NZ Super Fund, or Kiwi Saver fund operators, and offered them an off-market package deal of non-convertibles.
Or is that too easy....