Dairy co-operative Fonterra is recommending a change to its plans for share trading in a bid to allay concerns from its farmer owners.

Fonterra is planning a capital structure change - given 89.85 per cent support by farmers - aimed at removing redemption risk and providing permanent share capital, with farmers buying and selling shares among themselves rather than with the company.

But farmers have raised concerns about an aspect of the changes, which are expected to kick in this year.

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 it is understood would be managed through the stock exchange, giving investors the opportunity for exposure to NZ's biggest company.

When a farmer wanted to place shares with the fund he or she would place a sell order on the fund market and once a trade was matched with a unit investor the farmer would transfer the share to a custodian, which would hold the legal title.

Farmers could regain the economic interest of shares by buying new shares or units, which could be converted back into shares by applying to take them out of the custodian's "locked box".

Federated Farmers last year said there were concerns about the transfer of shares to the custodian, including who would run it and whose interests it would have at heart.

Fonterra last week held about 50 meetings around the country, attended by about 3000 farmers, to outline three options for the custodian.

Fonterra chairman Sir Henry van der Heyden said the first option, as per the existing plans, was for Fonterra to own the custodian.

The second option was for a farmer-controlled trust to own the custodian - which Fonterra said was relatively straightforward to implement and explain, and was being recommended by the board and management.

The trustees would be farmer representatives.

The third option would involve farmers retaining legal title to shares they placed with the fund and in effect becoming the custodian.

This option would give the perception it would be even harder for any external party to exert influence because fund shares would be dispersed across a large number of farmer shareholders, Fonterra said.

But it also said the option posed challenges, including that investors would want comfort that benefits such as dividends paid to individual farmers would be passed on to the fund.

The third option would make trading among farmers more complicated, more expensive to administer and would require more time and effort by farmers, Fonterra said.

The options were open to feedback for a couple of weeks and the reaction from farmers at the meetings had been muted, van der Heyden said.

"There's a wide majority of farmers that just want the board to get on with trading amongst farmers," he said.

Fonterra was planning for trading among farmers to go live in about November, subject to legislation and getting more than 50 per cent support from the Shareholders' Council.

"They're [council] taking feedback from farmers, they're doing their own due diligence, we're doing our own due diligence," van der Heyden said.

Shareholders' Council chairman Simon Couper said that generally the meetings had been overshadowed by news related to the Dairy Industry Restructuring Act.

* Fonterra is planning a capital structure change aimed at removing redemption risk and providing permanent share capital.
* Farmers will buy and sell shares among themselves rather than with the company.
* Farmers will be able to place shares with a fund and be paid for the rights to dividends and the change in market value while retaining voting rights.