Westland Milk's biggest shareholder, Southern Pastures, said it would abstain on the vote called to decide on whether the co-operative can be sold to China's Yili.

Southern - an investment fund - said the move would allow West Coast farmer-shareholders to decide its future.

Hokitika-based Westland said in March that it had signed a conditional agreement for the sale of the co-op, which will see the Chinese dairy giant pay farmer-suppliers $3.41 a share. The deal is worth $588 million.

Westland will seek shareholder approval for the proposed transaction at a special shareholder meeting in July.


Southern, which has former All Black Graeme Mourie as one of its principals, owns 5.5 per cent of the co-op, which would be worth $13.6 million under the offer.

Prem Maan, executive chairman of Southern, said the decision to abstain was the result of careful deliberation.

"Our Westland supplying farms are situated in Canterbury, and as such we are in the fortunate position of having options for who we supply," he said.

"Many of our fellow shareholders in Westland aren't so well placed. So, we believe we have a moral obligation to leave the critical decision on whether the offer should be accepted or not to those Westland shareholders on the West Coast who have and will have no other supply options," he said in a statement.

Maan said Southern felt that Yili had made a fair offer and Southern Pastures would consider working with Yili if they were successful.

"We will, however, be sad to see the demise of the co-operative if that were to happen," he said.

"We are strongly committed to the co-operative model and, in fact, joined Westland and formed our joint venture, New Zealand Grass Fed Milk Products LP, with it because it was a farmer owned co-operative," he said.

Southern is the largest institutional farming fund in New Zealand, owned primarily by European ethical pension fund investors.


The fund says it follows a high ethical code – for example, it has not bought phosphate from Western Sahara for human rights reasons, nor participated in the live export trade of cattle for animal welfare reasons.

Southern owns 50 per cent of specialised dairy company, Lewis Road Creamery.