As a result of last years Fonterra restructure, the old payout is now broken down into the milk price and the dividend. Because sharemilkers had been paid a percentage of the payout, the issue arose between owners and sharemilkers as to whether the sharemilker should still be entitled to the dividend component of the payout. For example, is a 50/50 sharemilker entitled to 50% of the dividend?
These issues eventually find their way to Fonterra. The response is a form for owners who wish to direct Fonterra to pay a percentage of the dividend to the sharemilker.
We did not like the first form they used as it did not seem to cover every possibility and did not include the preferred option of being based on production. In the past, the dividend component (previously value-add component) was paid on production in that season, irrespective of the owner’s shareholding.
In the August issue of Farmlink, Fonterra endeavoured to correct that error by including another box in the payment direction part of the form entitled Production. There is a well-written article at page 22 entitled New Dividend-Related Payment Adjustment Option which explains this change.
Behind the form and the advice given in Farmlink, there are two important issues that owners should be aware of:
- The owner should appreciate that if they tick the box Production, the sharemilker will be entitled to a percentage of the dividend based on production, not on shareholding. If the owner owns fewer shares than the amount of production in that season, then the owner will not receive the dividend from shares not owned in that season, but the sharemilker will receive a payment equivalent to the dividend funded from the milk price.
- The amount to be paid to the sharemilker is a percentage of the dividend paid by Fonterra, not the actual amount of money received by the owner. Retentions are deducted from the dividend, not the milk price. Fonterra will only apportion the distributable profit between the owner and the sharemilker (the dividend less any retentions). The sharemilker could still be entitled to a share of the full dividend, without the retention deducted, if not properly addressed in the sharemilking agreement.
Therefore, these are further payments to the sharemilker that the sharemilker would not have received under the old system.
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