Confusing Corporation with Cooperation
April 2008
In 1996, members of the Saskatchewan Wheat Pool were introduced to a hybrid formula that was part cooperative and part corporation, which they believed represented the best of both worlds. Alas, this new idealism was short-lived. Farmers soon lost control of their company, which acquired another and changed its name for Viterra. However, cooperative leaders, as courteous and discreet as always, abstained from commenting too loudly on the disappearance of this cooperative cornerstone.
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ut there were others. In the UK, the US, Australia, Germany… These experiences often left those involved with a bitter aftertaste. Not much was heard throughout our network, mostly because we didn’t know much about these businesses since most of them originated from the financial world. However, the one currently venturing along this path will most certainly concern us all. It is New Zealand’s Fonterra. Fonterra is the largest exporter of dairy products around the world with sales over US$10 billion over 140 countries. Furthermore, Fonterra developed several international alliances: with the Dairy Farmers of America, Nestlé in South America, Arla Foods in Europe, San Lu in China – to name just a few, the whole list would take up too much print. Eleven thousand farmers lay claim to this cooperative.

Fonterra’s board of directors is proposing an in-depth transformation of the company’s financial structure. Its motives are as follows: it has an ageing membership that will soon claim its shares and a growth strategy that is all over the place. A two-year member consultation process has just been launched. First, Fonterra members will be called upon to vote on whether or not they should authorize a transfer of production assets to a company that will remain their exclusive property. Then, a second vote in 2010 could approve a proposal that would allow 20% of its shares to be listed with outside investors.

But this time observers from all over the world are jumping into the fray and expressing their concerns in an effort to avoid side-slipping into corporate confusion. Then, last November, Alan Robb from Canada’s St-Mary’s University spoke frankly to New Zealand’s dairy producers. According to Robb, the proposed demutualization, even partial, would quickly create serious tension between shareholders and farmers. In the same breath, Robb stated that the cooperative values and principles rallying Fonterra members are no longer shared by the cooperative’s leaders.

“We cannot serve two masters at once”, states Poul Christensen, former president of Milk Marque, a large UK cooperative dismantled in 2000. Farmer and investor interests are too divergent. It just can’t work, declares Christensen. Sensing controversy, New Zealand observers bring up the Nordmilch debacle, a German cooperative that listed 25% of its shares in the stock market with a rather unpleasant outcome since its president resigned. Hybrid formulas, we now know, simply can’t stay the course.

As for the International Co-operative Alliance, it’s preparing its ammunition. It is currently assembling a group of high-level experts to watch out for the demutualization menace and advise members if necessary. Until now, studies have clearly shown that those who benefit from demutualization are first and foremost the consultants while leaders place a close second. Imagine that! Did you know that Fonterra’s president is also on the board of the New Zealand Stock Exchange? The least we can say is that this is not exactly reassuring in terms of his cooperative convictions.

 

Colette Lebel, agr.
Director of Cooperative Affairs
La Coop fédérée
Email: colette.lebel@lacoop.coop
Fax: (514) 858-2025
 



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