Federated Farmers warns milk drinkers will feel the pinch if the policy settings for pricing at the farm gate become arbitrary.
Primary Industries Minister David Carter this week tabled a new bill detailing proposals to oversee Fonterra's farm-gate milk price-setting and ensure a more transparent and efficient dairy market.
Federated Farmers dairy chairman Willy Leferink said if such policy settings became arbitrary "then it'll not only shoot our largest export industry in the foot, it will directly affect the price consumers pay for their milk".
Carter said the bill would primarily embed Fonterra's milk-price governance arrangements in legislation, require the dairy co-operative to publicly disclose information on its milk price-setting and introduce annual milk-price monitoring by the Commerce Commission.
"Because of Fonterra's dominance in the New Zealand market, the price it pays its farmers for milk at the farm gate effectively becomes the default price that all dairy processors must pay to attract supply from farmers," Carter said.
"The Dairy Industry Restructuring Amendment Bill will oversee how Fonterra sets the price it pays its farmers, thereby ensuring a competitive and innovative dairy industry."
Fonterra Shareholders' Council chairman Simon Couper said the industry had always done best when reform was farmer-led and the council would look to ensure the Government had taken shareholders' submissions into account when preparing the first draft of the legislation.
The bill included changes enabling Fonterra to move to its proposed trading among farmers system.
Fonterra plans a capital structure change aimed at removing redemption risk and providing permanent share capital, with farmers buying and selling shares among themselves rather than with the company.
Leferink said Federated Farmers largely backed many of the proposed changes to the bill, apart from some aspects of trading among farmers.
The organisation had made it clear during consultation that changes relating to trading among farmers were premature until farmer shareholders had a clear understanding of the value proposition involved, Leferink said.
During an internal consultation many farmers had said they did not trust the Government to look after the best interests of Fonterra's farmer-shareholders, he said.
"It's why we view Commerce Commission oversight as potentially a good thing. Legislation must not lead Fonterra's capital restructure and its shareholders must be left to determine that process without interference."