Concern is growing among Fonterra's farmer owners about plans to allow outside investor exposure to the country's biggest company, says dairy farmer Lachlan McKenzie.
The Dairy Industry Restructuring Amendment Bill, which passed its first reading in Parliament last week, includes changes that enable Fonterra to move to its proposed Trading Among Farmers system, should the co-operative choose to do so.
Fonterra's proposal aims to remove redemption risk and provide permanent share capital, with farmers buying and selling shares among themselves rather than with the company.
Under the proposal farmers would be able to place shares with a Fonterra Shareholders' Fund and be paid the share value for the rights to dividends and any change in market value, while retaining voting rights.
The fund would raise the money to pay farmers by selling investment units, which would be managed through the stock exchange.
The proposed capital structure change was given 89.85 per cent support by farmers in 2010.
Farmers had accepted the concept of trading among farmers "but trading with outside investors doesn't go down at all well", McKenzie said.
McKenzie - a former chairman of Federated Farmers Dairy - said his concern in the short-term was with what the Government was regulating Fonterra to do.
The legislation said a fund had to be established and maintained, with securities issued on a registered market, holders entitled to distributions equal to the dividends they would get if they held co-operative shares and rules to permit shareholding farmers to exchange co-operative shares for fund securities and vice-versa, McKenzie said.
"If it has the same dividend as a share, has the same value as a share and can be traded for a share, pretty well looks like the same as a share, except for it hasn't got voting rights."
An investor company could go to Fonterra and say they were not paying a fair dividend, that it was paying too much for milk and put their investment on the market and crash the price, McKenzie said.
The shareholders' fund needed to be deleted from legislation and left as a choice for farmers, he said.
Concern was growing among farmers.
"As soon as you have outside investors then you have dual control ... one is to maximise return to investors which invariably, if everything else is status quo, reduces milk price to farmers."
Farmers had voted on the plans in principle, he said.
"We want to see the legislation changed and I want to see the proposal of [Trading Among Farmers] changed ... and when we see those two a second vote would approve it."
A 5 per cent bloc of farmers could force a special meeting. "We've got those numbers," McKenzie said.
Fonterra chairman Sir Henry van der Heyden said last week the company had a mandate from farmers.
"We're going through an extensive due diligence process and the core issue here for many of our farmers [is] 100 per cent farmer ownership and control and that is non-negotiable.
"What we're saying to the farmers [is] if it's any different to what farmers actually voted on of course we will go back to the farmers."
The proposed changes were an integral part of a strategy unveiled by Fonterra aimed at growing volumes and value, including a tighter focus on emerging markets.
Farmers would be able to place shares with a Fonterra shareholders' fund and be paid the share value for the rights to dividends and any change in market value, while retaining voting rights.
The fund would raise the money to pay farmers by selling investment units through the NZX.