A contentious bill allowing private investors to earn dividends from dairy industry giant Fonterra passed its final reading in Parliament last night.
Fonterra is New Zealand's largest company valued at between $12 billion and $14 billion and contributes the lion's share of dairy's 25 per cent of New Zealand export receipts.
The Dairy Industry Restructuring Amendment Bill changes the Fonterra co-operative's current share issue and surrender obligations system.
At present, farmers are paid for their milk, and are paid a dividend on the shareholding they must hold to supply milk to Fonterra.
Under the new system farmers will be able to trade some of their shareholdings among themselves and will also be able to sell the dividends of the tradeable shares to a non-shareholder fund that will be listed on the New Zealand stock exchange.
Farmer incomes, once the fund is established, could come from a wider source: for their milk, for the dividend on their minimum shareholding , from dividends of shares they might hold in the fund, or from selling the dividend-rights to a private investor.
The fund will initially be valued at $500 million and will be an independently managed subsidiary of Fonterra.
Primary Industries Minister David Carter said Fonterra initiated discussions with the Government in 2009 - during the global financial crisis - with a proposal to introduce Trading Among Farmers (TAF) because it was concerned about its instability under existing share issue and redemption requirements.
The ultimate decision about whether or not to proceed with TAF was Fonterra's and 66.45 per cent of shareholder voted last month in favour of it proceeding.
Mr Carter said the bill would also ensure there was contestability in farm gate milk prices and transparency in the way Fonterra set its prices, given that Fonterra's dominance meant its price was effectively the price other processors had to pay to attract supply from farmers.
"That is why, unlike the share price of any other co-operative, Fonterra's share price is of public policy concern.
Mr Carter accused Labour of"playing politics" with the issue and breaking with the tradition of bipartisan support for dairy industry legislation - a Labour Government established Fonterra under law in 2001.
Labour voted against the bill on the basis that the Government refused to include capping the limit of the fund at 23 per cent of the total amount of tradeable shares.
Fonterra's constitution already stipulates a 25 per cent limit.
Labour primary industries spokesman
Damien O'Connor said the 66.45 per cent vote for TAF was based on the total of milk solids supplied and if if was a vote of individual farmers it was probably more like 50 per cent for and 50 per cent against.
"That is not a clear mandate."
He said a redemption risk would be reduced under TAF - from $500 million $850 million down to $120 million to $200 million - but contrary to claims, it still remained.
Mr O'Connor believed tensions could emerge between farmers and investors
The officials advising to the select committee had been familiar with competition, he said, but not co-operatives and the committee's independent adviser James Morrison had told them: "This investor-supplier conflict of interest is why every co-operative that has introduced external investors to its capital structure has either eventually demutualised or reverted back to a full co-operative by excluding the external investors."
He said the open entry and exit provisions for farmers in the 2001 legislation "brought discipline on management to ensure they held the confidence of farmer supplier shareholders. We are changing that in this legislation and that is the risk."
Green MP Stefan Browning said the bill was "the thin end of the asset sales wedge, the setting up of the selling out of the co-operative and its family farmer members."
It was the dairy farmers' poor cousin of the Mixed Ownership Model Bill.
"Now we are selling out the actual fundamental dividend streams of one of New Zealand's main export industries."
Mr Carter should be asked: "Who else is he going to turn into serfs?"
YES - 65
NO - 57