Fonterra Farmers Prioritize Debt Reduction with Capital Return Strategy

A recent survey conducted by agribusiness consultants BakerAg indicates that a majority of Fonterra farmers intend to use the proposed $3.2 billion capital return to reduce their debts. The survey, which included feedback from 28 Fonterra shareholders, showed that 75% of the respondents prioritized debt reduction. On average, these farmers plan to allocate 72% of the capital return toward this goal.

BakerAg dairy team director Chris Lewis emphasized the small sample size but noted that the survey offers insights into the financial strategies and priorities of Fonterra farmers. He highlighted that the preference for debt reduction underscores the risk-averse nature and financial discipline prevalent among these farmers.

According to Lewis, the survey results suggest that approximately $2.3 billion could be directed back to banks for debt repayment. Although debt reduction is the immediate focus, the survey also revealed that nearly 26% of respondents see land purchase as a secondary option, signaling potential future investments in real estate.

The survey findings come as Fonterra farmers prepare to vote at a special general meeting on a proposal to sell its global consumer businesses to Lactalis for $4.22 billion. If approved, the sale would enable a capital return of $2 per share, equivalent to $3.2 billion.

The results indicate a conservative approach among Fonterra farmers, with many viewing the capital return as an opportunity to strengthen their financial stability rather than pursuing immediate expansion or personal expenditures.

Lewis concluded that these financial decisions are likely to position the dairy sector for future stability and measured growth, reflecting the cautious and strategic mindset of the farmers.