Two years after listing in Australia and New Zealand, Fonterra is in the planning stages of launching a new private equity fund called the Equity Partners’ Fund which will secure commitments from pension funds with long-dated liabilities for investment at the farm level. In its early stages Fonterra may participate in the fund itself, however the fund will function as an independent vehicle providing capital to fund farmer’s growth. This funding source could be the impetus needed for the Australian dairy sector which sorely needs funding to turn around its declining production in the face of increasing Asian demand. Approximately 40% of the already existing US$449 million Fonterra Shareholders’ Fund is owned by Australian institutions which under the fund’s structure are given economic rights but no voter rights, keeping the ownership of the co-op under its farmer’s control. This structure is causing tension as major shareholders in the Shareholders Fund are pressuring Fonterra about capital expenditures, timelines on shifting production toward higher value products, transparency, and increasing discipline around return hurdles. Fonterra is also facing various other challenges as it looks to address issues in Asian markets stemming from last year’s whey contamination scare, difficult situations in Australia’s dairy sector, and expansions into the Chinese infant-formula sector, while expanding operations in its Litchfield, Pahuatua, and Edendale locations. To read further:
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