Farmer share trading plan worries Fonterra's rivals

Dairy industry players have voiced concerns to the Ministry of Agriculture and Forestry about plans by Fonterra to start share trading among farmers.

The co-operative's farmer owners last year gave 89.85 per cent backing to the proposal which would see farmers buy and sell shares among themselves through a market, rather than with the company.

The plan aims to remove a redemption risk of the co-operative having to pay farmers when they cash in shares and provide the company with permanent share capital.

However, an act of legislation will be needed to allow Fonterra to change its capital structure.

MAF called for submissions on potential regulatory options and tools designed to ensure the freedom of farmers to enter and exit Fonterra is maintained, while allowing the chance for the co-operative to implement its proposal. Submissions closed on Friday.

Synlait Milk said it strongly disagreed with the premise that as long as the trading among farmers platform was sufficiently liquid competition policy objectives would be preserved.

"It is Synlait's experience that due to the downward revaluation of Fonterra's share price that the market for farmers' fresh milk is already characterised by over-easy entry and sticky exit," the company said. "Proceeding to the trading among farmers' platform will merely institutionalise this problem."

Open Country Dairy said trading among farmers was the latest example of anti-competitive conduct by Fonterra. "It is designed to further restrict competition in the domestic processing market by exchanging the right to redeem with the right to trade."

Tatua Co-operative Dairy Company said it had no specific objection in principle to Fonterra's proposal.

"We do, however, see the need for controls to be imposed to ensure that any change made does not further weaken the anti-competitive protections currently afforded by the [Dairy Industry Restructuring Act 2001]."

Agriculture Minister David Carter, speaking earlier this month, said the Government was working closely with Fonterra.

"We have agreed that we want to see trading amongst farmers developed because it will stabilise Fonterra's balance sheet and give them opportunities that they're at a disadvantage now because of the redemption risk."

The proposal would need legislation which Fonterra wanted the Government to pass before the November 26 election, he said.

Fonterra was working towards implementation of trading among farmers between late 2011 and late 2012.