allowed farmers to lower their share ownership even further would mean the 4x cap would need to be higher so that there would be enough buyers in the farmer-only market. This could potentially give rise to too much concentration in ownership with a small group of farmers, or some farmers not having the level of connection to the Co-op that keeps us strong together. » We have maintained some variables from our existing structure for simplicity and continuity, such as the three-season rolling average, and dividend and voting rights as we do not think these would need to change if we reduced the share standard. » We do not yet have firm views on the timeframe to share-up and share-down to the new standard. We are very open to your thoughts on what you would like to see here. Our current view is that we would want to see any timeframes captured in the Constitution rather than through Share-Up Over Time contracts. At this stage, we have suggested five seasons to share-up on joining the Co-op and five seasons to share-down on exiting the Co-op. Co-operative alignment » A Reduced Share Standard structure allows farmer owners to have
farmers are likely to hold more shares in proportion to milk supply than other farmers. » While all farmers would have some equity in the Co-op through the Reduced Share Standard, some may have greater equity than others. Retaining the payment of dividends on a “per share” basis and voting on a “per 1,000 kgMS backed by shares” basis, as they are today is intended to recognise this. » When it comes to voting rights and the potential for concentration of ownership, it’s important to note that because voting rights would be “per 1,000 kgMS backed by shares”, a farmer who continues to hold shares on a 1:1 basis relative to their supply in the previous season will retain the same voting entitlement as today, and a farmer who holds additional shares over the 1:1 basis (up to the maximum shares at 4x kgMS supplied) would only have voting rights up to the 1:1 level, not their full shareholding. » We welcome your views on whether there should be any other mechanisms to support greater alignment between farmers.
Tax impacts » Currently the Co-op can deduct, for tax purposes, dividends paid on supply-backed shares and shareholders are subject to tax on these dividends. » The number of supply-backed shares would reduce under a Reduced Share Standard, so there would be a tax impact under current tax legislation, in that the amount of dividend that can be passed through to shareholders pre-tax would reduce. » This would have the effect of increasing the Co-op’s annual tax charge, but is not expected to have a cash impact for the Co-op in the short term due to current tax losses the Co-op can use. » Once the Co-op has used those tax losses ($1.52 billion as at 31 July 2020), the Co-op would start paying tax on earnings on behalf of shareholders, and shareholders would receive imputation credits to pass on the tax paid. » The ability of individual farmer owners to utilise imputation
credits to offset their tax expense would depend on their individual tax circumstances.
Timing of Transition » We may want to transition to a
Reduced Share Standard over multiple seasons by gradually reducing the share standard, rather than reducing it all at once. This would help reduce supply-side pressure in the farmer-only market. We welcome your views on this.
different levels of capital invested in the Co-op relative to their milk supply which might mean that farmers have different interests in the Co-op. For example, some
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