UPDATED: Fonterra to launch Equity Partners' Fund this year

UPDATED 4:20PM: Fonterra Co-operative Group [NZX: FCG] wants to establish an Equity Partners' Fund before the end of the year that would source capital from global investors for farmers in New Zealand and Australia.

It's one of the offerings rolled out today by the giant dairy co-operative under its new Farm Source hubs, which will combine retail service, support, rewards, digital technology and financial options.

Fonterra chief executive Theo Spierings said they want to give flexibility to farmers to "share-up" following concerns that the 8 per cent growth in milk production this season could mean some farmers would have to borrow significant loans to meet the share standard. Fonterra's 10,600 farmers are required to hold one share for every kilogram of milksolids supplied each season. 

Fonterra has also launched a dividend reinvestment plan which reduces the need for lump sum borrowing by allowing farmers to receive shares in lieu of all or part of their cash dividend. Farmers can also opt for Share-Up Over Time contracts that let them spread their share purchase requirements over a period of three to 10 years. 

Spierings said the Equity Partners' Fund was another tool to give farms access to the equity they need to grow. The ANZ Greener Pastures report in 2012 said farmers face significant challenges in raising sufficient capital to fund growth and support farm turnover. It said Kiwi and Australian farmers would have to find innovative ways to attract domestic and foreign investment between now and 2050, with an estimated $210 billion required for capital investment to enable production growth over the period and a further $130 billion to support farm turnover. It identified rapidly evolving equity partnerships as one of the new structures for owning and operating farms that needed to be encouraged to attract investment, given farm debt levels are already high. 

The size of Fonterra's proposed Equity Partners' Fund is yet to be determined, Spierings said.

"We're talking about it for the first time now. Lukas [Paravicini], our CFO, will take it to the AGM and discuss with farmers to create more awareness and we should get it going before the end of the year," he said. "We need to go around farmers and test their appetite before deciding how big it should be."

The Farm Source roll out involves the existing 67 RD1 farm supplies stores being rebranded with a further four under development. Each Farm Source hub will feature facilities that farmers and the local community can use, including meeting rooms and a drop-in space with free wifi. Methven is the first one off the block and Spierings said should there will be at least one big facility in each of eight regions nationwide before the end of the financial year. He said providing the community facilities involved bringing forward planned investment in refurbishment but wouldn't quantify how much that was. "It is only in the millions, single digit millions from a $1.6 billion total capex this year," he said.

A new loyalty programme will see Fonterra's milk suppliers receive a Farm Source Rewards Card that will earn Farm Source dollars for every dollar spent with Farm Source (former RD1) and its partners. These Farm Source dollars can be converted to store vouchers or other products and services including travel. The partners offering exclusive discounts via the car include Mobil with an 18 cents per litre saving at the petrol pump, On Farm Fuel providing a 23 cents per litre fuel saving delivered to farms, and Carters Tyres offering up to 25 per cent savings on tyres.

On the digital side, the company has given its farmer internet service Fencepost an overhaul to allow farmers expanded advice, tools and information to manage their farm operations and financials on mobile, tablet and computer.

By supporting farmers to succeed, the co-operative will also grow its milk pool in New Zealand which is core to its business as milk supply becomes increasingly competitive, Spierings said.

"We want to access a 30 billion litre global milk pool by 2025. Farm Source starts here in New Zealand. We will also look to adopt it in other markets where we are growing our milk pools, tailoring it to those local markets."

He said around half of that 8 billion litre increase from today's 22 billion litre milk pool was likely to be sourced from New Zealand.

(BusinessDesk)