With or without Fonterra...

Fonterra’s strategies ensured it would be "big in the world" in 2020, said Ferrier. "There is no doubt in my mind about that. The question is, do we do it with you, or without you?" Ferrier, however, did manage to offer a bit of sunshine. Demand for high quality, low-cost dairy products would grow markedly by 2020, he said. Fonterra farmers had to unite, and manage milk growth, despite challenges such as water shortages and farming costs, Ferrier said. (link)
This statement came after a significant news about a small newest rival of Fonterra, Synlait Investments.
Synlait's 8500-strong herd at present accounts for only about 0.25 per cent of Fonterra's total, but it is looking to expand this to 40,000 within 10 years, using its farms or contract farms. On current production levels, Synlait stands to make just over $19 million from its Fonterra shares in 2007. Any expansion before then would involve buying more shares in Fonterra that would then have to be sold back. One subsidiary, Synlait Farms, will produce the milk and another, Synlait Milk, will process and market it. It is looking to export high value milk products, and aims to become a major niche player. (link)
What did the former minister say?

The fair value share bundled a milk commodity price with a return on the shareholding in the cooperative. At the end of this season, a farmer's capital investment in Fonterra would be about $6.15 a share. From Fonterra reports of a net 30 cents of the payout coming from adding value to the milk, Mr Luxton calculated a 5 per cent dividend on farmers' capital. "Holding Fonterra shares has been a good investment since deregulation, but like any share value, the future will depend upon the performance relative to others and the marketplace," he said. (link)

The main issue of capital structure in a dairy company that makes it's different from other industry is that, in my view, its financial leverage account considers domestic milk supply of the members. Most of its foreign term borrowings (denominated in USD term notes) has to be covered by the fair value of the co-operative shares owned by the farmers(denominated in NZD milk supply contract).

In global free market, it's kind of unique when the financial market directly meets the commodity market.

Apart from that, can I imagine here "a mobile dairy factory" that can sail around the globe to find cheap lands as well as picking up raw milk and dropping in milk product from one country's port to another?


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