Source: Radio New Zealand
On average the payout was calculated to be around $400,000 each. RNZ / Cosmo Kentish-Barnes
Fonterra’s thousands of shareholding dairy farmers are being encouraged to spend their Mainland Group capital return wisely with a focus on farm resilience.
Tuesday marked the payday for around 8000 shareholders of the co-operative for the divestment of its consumer brands business of well-known products like Anchor butter and Mainland cheese, to French dairy giant, Lactalis.
Proceeds to farmer-shareholders will vary, but the payout was calculated to be around $400,000 on average each, which is now trickling into bank accounts.
It followed overwhelming support for the deal, with 98 percent of shareholders voting in favour of it, in February.
ASB chief economist Nick Tuffley expected to see farmers pay down debt, and maybe some maintenance or capital spending for the farm.
He said rural communities in key farming areas would benefit from the cash injection.
“This is a big, one-off payment.
“It will take time for some of the spending impacts to flow through, but that is going to benefit rural communities. And also, we think it’ll put the dairy farming sector in a more resilient position.”
Tuffley said some older farmers were planning their departure from the industry.
“It will also set up some dairy farmers for their future as well, particularly if they’re looking at diversifying and putting that money to use in other ways that will help them at that time of life if they move off the farm.”
Nick Tuffley (right) with Infometrics chief executive and principal economic Brad Olsen (left) and ANZ chief economist Sharon Zollner (centre) at a panel discussion at the New Zealand Economics Forum. Supplied / Screenshot
‘Never hard to spend money on a dairy farm’
Meanwhile, John Dawson, a Morrinsville-based farm management consultant of nearly 30 years, said paying down debt would be the number one priority for most of the farmers.
He said others were also planning on re-investing the money into their farm operations, like the cow shed.
“It’s never hard to spend money on a dairy farm. There are often deferred maintenance issues that need to be attacked, things like fencing and milking plant maintenance.
“There are compliance issues, which you can throw a lot of money at, perhaps upgrades to effluent systems and environmental initiatives.”
He said another option could be opportunities for improvement projects, like new buildings or upgrades to machinery.
“The other thing is that there’s the opportunity for expanding the business, you know, more cows, upgrades to cow sheds.”
Dawson said the payout also represented a chance for succession planning, which a few clients were looking at.
How to keep the payments tax-free
The payments were not considered income or a dividend, so would be tax-free for shareholders.
But much of the shareholding will be held within farming companies, which could funnel payments through the farm company bank account.
Tax adviser Craig Macalister of Southland firm Findex said tax implications could bite farmers if they spent their payments from the farm bank account on a personal asset, like a new holiday home or a holiday.
“There hasn’t really been a lot of discussion on what happens when people want to take that money out of their dairy milking company, and that’s where the tax implications could bite,” he said.
“Capital can go into a company, but it can’t come out in any other form that is not taxable unless you effectively wind that company up. That’s the problem that people will face.”
Macalister recommended farmers speak with their accountants before spending up.
From the sale of Mainland Group to France’s Lactalis, the 8000 or so farmer-shareholders will get their split of $3.2 billion, while the remaining $1b will go into the co-op.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
