Is Fonterra's shareholders' council a watchdog or a lapdog?

Dairy section spokesman Elliot Cooper said farmers were shaking their heads in disbelief that the council gave Fonterra a pass mark of its half-yearly performance.

Mr Cooper said the council's pass mark had left farmers "wondering weather farmers have a lapdog or watchdog".

The report said while the economic climate had damaged Fonterra's payout, the co-op has put in place structures which will "enhance Fonterra's future performance".

But Mr Cooper said Fonterra needed to raise its game.

"Having depressed the market for months it is great that Fonterra have got rid of the stockpiles, but the fact is Fonterra's performance to date has been dismal," he said.

The council's report, released to farmers this month, acknowledged Fonterra sold left-over stock at a loss at the beginning of this season.

Part of that stock was left over from a burst of production at the end of last season when farmers were cashing in on a promised $5.33/kg milksolids payout. But a large part of it came from held-over stock which has been accumulating within the legacy companies for four years.

While the council labelled the stock reductions "overdue", it said: "It was the right move and should result in lower costs and better prices."

Shareholders' council deputy chairman Graeme Edwards said there was about five months inventory on hand on May 31 -- double what Standards and Poors says an efficient manufacturer should have had. Fonterra chief executive Craig Norgate said the increased sales volumes "reduced stock volumes and have been instrumental in helping Fonterra to credibly lead market prices to higher levels over the past few months".

The half-year result was seriously eroded by commodity prices which averaged 30 percent lower and a kiwi dollar averaging 15 percent higher than the same period last year.

"Some serious questions need to be asked about whether the shareholders' council is fulfilling its role," he said. "The shareholders' council must tell Fonterra to concentrate on its core business of processing and selling milk and start delivering a better result."

Farmers widely approved of the shareholders' council report on Fonterra's first full year in business last October.

The report singled out Fonterra's lack of timely information as one of the main stumbling blocks in putting together a meaningful report.

Since then the council and management have said the relationship has improved, with the co-op passing on more information more rapidly.

Fonterra chairman Henry van der Heyden has held weekly meetings with the council since December. He said there was a "healthy tension" between the two groups.

Mr Edwards agreed but said Fonterra's communication with farmers still needed work.

"Communication has definitely improved. We've been given access to slightly edited board papers.

"My personal view is that the management communication with farmers on day-to-day running issues is possibly the weakest link."

Management have put in place measures to combat the missed milk pickups and an inefficient call centre which dogged the co-op at the beginning of the season.

"But there's still a way to go. I think everyone underestimated the difficulties of integrating three large companies with different computer systems and different styles of communication," Mr Edwards said.

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