Fonterra’s
capital restructuring has forced a rethink on sharemilker entitlements to
value-added payouts. In a Southland
sharemilking dispute, the High Court said sharemilkers should share in the
payment.
Dairy industry restructuring has resulted
in a collision between big business and small business. The big business is Fonterra: a multi-billion
dollar business. Farmers want to retain
control but the business needs outside capital.
The small business is at grassroots level, many operating as joint
ventures between land owner and milker.
Standard-form sharemilking agreements govern their relationship.
The High Court was told the business
relationship between Gladvale Farms Ltd as owner of a dairy farm at Oreti near
Invercargill and the Baty family as sharemilkers broke down completely, ending after
three seasons in May 2009. The Batys
were 19.5 per cent sharemilkers. They
were entitled to 19.5 per cent of the monthly milk cheque. As part of claim and counterclaim between
Gladvale Farms and the Batys there was a dispute over entitlement to the
end-of-season Fonterra value-added payouts.
Fonterra splits its income streams: milk
sales (commonly in the form of dried milk powder) are accounted for separately
from sales of value-added products (like yoghurt, butter and cheese). Differentiated income streams attract different pools of investment capital.
Back on the farm, Gladvale Farms said
under the standard-form sharemilking agreement in effect with the Batys for the
three seasons in dispute it was entitled to keep all of Fonterra’s value-added
payout. Justice Nation ruled that where
the value-added payment was based on Fonterra profits generated from the sale
of milk products, sharemilkers share in the payment. Under the Batys 19.5 per cent sharemilking
agreement, they were entitled to an extra $62,988 for the three seasons in
dispute.
Gladvale
Farms v. Baty – High Court (28.07.15)
15.085