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Rydberg, Charlotta (2009) Changing Fonterra's ownership model? Other thesis, SLU.

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Abstract

The purpose of this thesis is to examine the reasons behind the recent capital restructure proposal in Fonterra as well as the members' rejection of this proposal. This thesis gives background information on Fonterra and a brief description of the New Zealand dairy industry and its development. During the last decade or so, a number of studies have been conducted concerning the problems of traditional co-operatives, which have become large and which have got complex business operations. The core of these studies is the notion that collective ownership creates so-called property rights problems. However, the specific attributes of Fonterra may imply that these theoretical studies do not apply to Fonterra or only limitedly so. The theoretical part is based on a number of articles about co-operatives. These studies have a few common denominators. They all treat large co-operatives with complex business activities, working in very intense competition. In order to survive they have to grow persistently, and the increasingly large size as well as the complex nature result in heterogeneous memberships with low member involvement. As a result of this the members lose trust in management and the Board. Members become hindered in their control of the company and this leads to dissatisfaction and low involvement. The specific attributes in Fonterra are the fair value share, the Shareholders Council, no existing congruent isomorphism and that there is still a need for a co-operative in New Zealand to keep transaction costs down. This study consists of an empirical study, the aim of which is to investigate whether these specificities of Fonterra may be the cause of the members' opposition to the Board's proposal. The main part of the empirical material was collected during a trip to New Zealand during January 2009. Interviews were carried out with representatives from the Board, the Shareholders' Council and dairy farmers from Fonterra. Two persons with co-operative insight were also interviewed. The empirical study shows a clear distinction between the wants and needs of the members and the Board. Members are afraid of losing control over their co-operative and the Board feels that it needs to change the capital structure in order to secure the future for Fonterra's members. In this process the Shareholders' Council played an important role and members are in general very happy with its work. The fair value share causes some issues within Fonterra, members do not understand the valuation method and the high value is now starting to cause redemption. In the past decade Fonterra has been the only option for many farmers and hence there has been a need for a co-operative to lower transaction costs. New options are now emerging in New Zealand and are weakening Fonterra's position. From the Board's side Fonterra is a typical co-operative with typical co-operative problems. However, members are not alienated and very much feel that Fonterra is their co-operative. The question whether a pure co-operative can survive in today's society remains but attributes like the Shareholders' Council to a great extent help members remain in control.

Item Type: Thesis (Other)
Keywords: Ownership structure, Fonterra, shaddow board, fair value shares, congruent isomorphism, transaction costs
Subject (faculty): Faculty of Natural Resources and Agricultural Sciences > Dept. of Economics
Divisions: SLU > Faculty of Natural Resources and Agricultural Sciences
Depositing User: Jerker Nilsson
Date Deposited: 14 Sep 2009
Last Modified: 18 Aug 2015 10:16
URI: http://ex-epsilon.slu.se/id/eprint/3389

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