As they receive their portion of the $4.22 billion their cooperative was paid for the sale of its retail brands, Fonterra shareholders are deciding how best to reinvest.
Most are likely to opt for at least one of three broad options, as Andrew Patterson of PGG Wrightson Real Estate, Invercargill explains.
“From mid-2013 to 2022, Fonterra shares dropped from over $8 to below $3. With this distribution of equity many farmers are only regaining the capital they invested at those high levels. They will either drop some debt; buy additional land; or invest in improving productivity. The latter might include fixing fences, upgrading the dairy shed, building a cow barn, buying a new ute or tractor, or investing off-farm for succession purposes.”
Dairy debt is already lower than it was a few years ago. In the six months to March 2025 dairy farmers repaid almost $1.7 billion, reducing sector average debt from around $22 per kilogram of milk solids produced in 2016 to $18.40 in 2025. Fonterra’s divestment is set to improve farmers’ collective liquidity still further.
However, the rationale for reinvestment will be strong, reckons Brent Irving of PGG Wrightson Real Estate, Dunedin, who was a rural banker before establishing a real estate career.
“For most of us, receiving a lump sum is a rare occurrence, and something we don’t often experience. For bankers, this is also an unusual scenario. With this capital distribution, their dairy farming customers nationwide are improving their balance sheets by $3.2 billion.”
Where appropriate, banks are encouraging their customers to reinvest that money, to put it to work, reckons Brent.
“We are seeing more bankers attending farm open days, looking at rural properties, supporting clients they would ultimately provide loans to,” he says.
Trevor Kenny of PGG Wrightson Real Estate, Hamilton says dairy farmers have worked hard, and are now benefiting.
“They deserve it. Many have done it hard, and now here comes a lump sum with a big number in front. Will they have a wee splash? Some will!”
Though buying property is not the priority, some will leverage their newly acquired equity to buy a neighbouring block, or extra hectares for dairy support grazing, says Trevor.
“That is already happening. Both potential vendors and prospective purchasers are recognising this is an opportunity, and the banks are obviously in favour,” he says.
Tim Croskery, of PGG Wrightson Real Estate, Timaru, who also has a banking background, is seeing the prospect of the Fonterra money prompting recent rural property transactions.
“In addition to confidence in the industry from a record milk solids payout and a productive growing season, this divestment is giving farmers extra assurance to progress land purchases.”
In the last two to three years, Tim says, farm balance sheets have strengthened markedly, putting most dairy farmers in a solid position, prompting bankers to counsel dairy farming customers to seek the right advice and plan carefully.
“Whatever farmers chose to do is ultimately their decision. With balance sheets so healthy, and banks willing to lend, there are plenty of opportunities for those with a growth mindset,” says Tim.
He sees some farmers using their newly acquired equity to improve productivity: upgrading irrigation, putting a feed system into the dairy shed, and other measures to reduce a farm’s labour input.
“On-farm investment might also include additional housing, while solar is another frequent conversation now. Others are tidying up farm succession, paying out siblings, or maybe taking the divestment money off the farm, into a managed fund for example,” says Tim.
Dan van der Salm of PGG Wrightson Real Estate, Ashburton regards the Fonterra windfall as one among several positive factors reinforcing dairying confidence.
“Farmers have known for some time that this was coming. Those with larger businesses could receive well over $1 million. Combined with cash surpluses and balance sheet improvements, that is enough to consider further farm purchases, if available.”
Dairy property values are as high as they have ever been, says Dan.
“When listed for sale, a farm with the right characteristics will attract competition from many parties. All farms listed recently have attracted multiple offers. Competition is hot, from a long list of motivated buyers”
Even though the election this year may impact on perceptions, and the geopolitical situation is another distraction, the long-term outlook remains positive, Dan says.
“Return on investment is the biggest driver. A strong dairy payout while interest rates are comparatively low will result in raised profitability, which justifies the elevated demand and current farm values.”
Andrew Patterson says for anyone who wants to sell dairy property, now is the time.
“With bank assistance readily obtained, equity from the retail brands landing shortly, and the industry on a positive trajectory, if you are a serious vendor, you should talk to your real estate agent now,” he says.
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