This week's acceptance by shareholders of changes to the co-operative's constitution to allow share trading between themselves, would allow farmers to buy shares equivalent to 200% of their milk production, but the total number of extra dry shares issued would be capped at 25% of all shares with the Fonterra board having a target of a 20% maximum.
Shareholder capital as at August 1, 2009, was $4.6 billion, after it issued $766 million in new shares in the previous 12 months and paid out $506 million for surrendered shares.
Not all shareholders are expected to be willing or able to buy extra or dry shares, and Fonterra still expects its primary source of capital to be retained earnings, new shares associated with new milk supply and then farmers investing in dry shares.
While Fonterra was yesterday basking in its capital restructuring success, the chairman of meat company Silver Fern Farms, Eoin Garden, was looking on with some envy.
Mr Garden said the resounding vote showed Fonterra was adapting to challenges in the dairy industry, something the meat industry could learn from, given the sector's focus on maximising the number of animals processed.
"But, the meat industry's focus on production-driven systems and a limited view of the market and consumer needs has kept the handbrake on a sector that needs to take advantage of a growing global population and new opportunities in a range of markets," he said.
While raising extra capital is not Fonterra's goal from the constitutional changes, the reality is that it could be a consequence, especially if its performance generates healthy dividends from added value activities.
On Wednesday, the day of the shareholder vote to allow trading between farmers, Fonterra chief executive Andrew Ferrier spoke of the need for permanent capital to allow it to invest with confidence and not have a contingency fund to pay for surrendered shares.
He said the previous structure was like a farmer having to keep some capital on short-term deposit rather than reinvesting in their farm.
Fonterra is big business with an annual capital expenditure budget of $500 million.
Given he now has permanent capital, Mr Ferrier said he planned to invest more in production and supply chain efficiencies, such as its North Taieri centralised warehouse hub.
Other investments would be made in innovative new products and developing branded dairy products in Asia, the Middle East, Australia and New Zealand.
Edendale's fourth and newest drier cost $212 million, with that cost spread over four years, but Mr Ferrier said the cost of the project to the company in the 2008-09 year soaked up 27% of its capex budget.
The payoff would come from efficiencies, with the new 30-tonne-an-hour drier 30% more efficient than any of Edendale's three other driers.
Since 2001, Mr Ferrier said, Fonterra had invested $700 million in research and development, resulting in the creation of specialty cheeses, protein products for sports, cultured food, paediatric nutrition and pharmaceutical lactose, products which he said were timely given rising demand for healthy nutrition.
