First a quick introduction to Ponzi Schemes, recently made famous by the now notorious Bernie Madoff. A Ponzi Scheme involves paying the investors with equity, rather than genuine returns. The Ponzi Scheme survives by attracting more investment.
Fonterra has dropped their payout to $5.10 but they need to drop it further to combat their mounting debt and cash flow problem. However they are reluctant to do so fearing a back lash from farmers who budgeted on the $7 estimate they were given at the start of the season and are already struggling.
So what do they do to cover the shortfall? Here are the words from the official press release on the Fonterra web site:
“
..farmers must bring their shareholdings fully in line with this season’s milk production is expected to bring in around $400 million of additional equity by the end of the financial year.”
Never fear we’ll have that extra equity to help with the payout soon.
Here is the wonderful graph showing equity trending down. Doesn’t look sustainable.
- Whilst everything goes up Equity goes down!
Image Credit: www.agprodecon.org
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