Fonterra farmers must vote on TAF at a special meeting on June 25, to create a non-voting derivative instrument, tradable on the NZX, giving outside investors exposure to Fonterra's fortunes for the first time.
While an overwhelming majority of farmers supported the move at a vote in mid-2010, an increasingly vociferous opposition among some Fonterra farmers has prompted the second vote.
TAF is being sold as a way to reduce runs on the cooperative's balance sheet in hard times by giving farmers a way to release capital tied up in their so-called "dry shares", unrelated to milk production levels, other than seeking repayment from Fonterra itself.
But critics fear it is the thin of the wedge towards a public listing for Fonterra shares and the end of the cooperative model which is seen as underpinning its emergence as New Zealand's only truly multi-national corporate.
MPs also threatened to derail the vote if they had too little time to consider the detail of the TAF plan while they consider Dairy Industry Restructuring Act amendments which must be passed into law as one of five pre-conditions for the June 25 vote to go ahead.
However, the Fonterra won't see a final detailed proposal until May 22, of TAF isn't due to be discussed until a board meeting on May 22, with despatch to farmer-shareholders by May 31.
Concerned about breaching the Securities Act by sharing incomplete documents, the executive team was persuaded to share documentation in secret with the select committee to keep the legislative timetable on track.
The Fonterra executives were responding to a charge a fortnight ago by independent processors Miraka, Synlait and Open Country that Fonterra "funds an artificially high farm gate milk price via a cross-subsidisation of approximately $600 million per annum from its distributable profits."
This equated to between 40 and 50 cents per litre of milk solids by reference to what they described as a mythical "super-competitor," according to calculations for the group by accounting firm Deloitte. That would equate to a Fonterra share price would be $9 to $9.50 if it weren't being suppressed by the cooperative, from a current undiscounted level of $5.57 now.
However, Fonterra said in notes for the select committee that Deloitte had misunderstood how Fonterra calculates the milk price, which has gone through substantial revision over the last 10 years in an effort to create a transparent and market-derived milk price.
"Deloitte's conclusion on the share price mistakenly assumes that the share price was derived by reference to a milk price that reflected Fonterra's actual costs. This is not the case."
Fonterra had replicated Deloitte's analysis and, on that basis, found that while Fonterra's milk price in the 2011 financial year would have been 27 cents a kg lower than the actual price of $7.60.
"However ... the movement actually reflects improvements in Fonterra's performance over time".
This occurred through improved product mix and pricing decisions, which included wringing higher value from high quality New Zealand product on the global market through the success of the fortnightly GlobaldairyTrade auction system it had established.
