Fonterra's farmer shareholders today voted in favour of the 'Trading Among Farmers' proposal, approving plans to make its stock tradeable among themselves, freeing up capital for new investments.

Farmers met at key locations around the country today to consider the 'Trading Among Farmers' proposal, which will end Fonterra's obligation to redeem or issue shares tied to production or to pay out those leaving the industry.

Redemptions expose the cooperative to potentially hundreds of millions of dollars of risk each year.

"Right now, we can't put all of your share capital to work to generate the best returns," chief executive Andrew Ferrier told farmers today. "With permanent share capital, we can invest with confidence in long-term opportunities that build on our global competitive advantage and maximize the returns for your milk."

Fonterra's 10,500 voting shareholders have always resisted moves to invite other investors onto its register, holding fast to the cooperative structure in the belief it offers the best protection for their interests.

Still, chairman Henry van der Heyden said the capital structure will likely change in the future. Trading Among Farmers could be in place in little over a year if the plan is approved.

The Fonterra Shareholders' Council, which represents farmers' interest to the cooperative, backed the proposal as a way to "decisively address Fonterra's redemption risk," said council chairman Blue Read.

In urging a yes vote, Read sought to reassure farmers over their perennial fears - continued farmer control and ownership of Fonterra and confidence in the best possible milk price.

"Milk price is, and will remain, at the core of this cooperative and farmer confidence in milk price is a priority for all," Read said.

Today's vote is a "work in progress" for Fonterra in its capital restructuring, he said.

Fonterra's Shareholders' Council issued a press release saying the vote was a "great outcome" for the co-op.

"Successful implementation of the scheme would give Fonterra Among "a stable platform while making sure the business remains owned and controlled by farmers," said council chairman Blue Read.

"These initiatives will bring a new set of stakeholders into the dairy arena and there are preconditions that must be met before Trading Among Farmers can be introduced. The preconditions have been developed so that the interests of Fonterra farmers and all stakeholders can be safeguarded."

"Farmers are at the heart of Fonterra. The Council is confident this proposal will ensure our co-operative continues to be farmer owned, farmer controlled and farmer focused," said Read in a speech at today's shareholders meeting.

Fonterra faces increased challenges in the global dairy products market, van der Heyden said.

New Zealand's milk supply won't keep growing at the same pace forever, with physical limits on land available and increasing rivalry from other processors for pool of milk, he said.

Already, overseas rivals are lobbying against the share trading plan. US Dairy Export Council president Thomas Suber wrote in a letter to Agriculture Minister David Carter and subsequently released to the media, that the proposal could result in dairy products being excluded from the Trans Pacific Partnership free-trade deal.

Among details still to be nailed down in Fonterra's capital overhaul is how to ensure a liquid market for farmers to transact their shares. Fonterra has proposed the creation of a fund, with units available to outside investors, which would help boost liquidity without ceding ownership control.

Farmers would be able to hold a maximum of 200 per cent of production in dry shares under proposed changes, though total dry shares would be capped at 25 per cent with no one producer allowed to hold dry shares exceeding 5 per cent of total wet and dry shares on issue.

Farmer share-trading
What is it?
* Dairy farmer co-operative Fonterra was formed in 2001.

* At present, dairy farmers have to buy shares in Fonterra based on the level of their production.

* Under the proposal farmers would buy and sell shares among themselves through a Fonterra Shareholders' Market, rather than with Fonterra.

* A Fonterra Shareholders Fund would also be set up to enable farmers to sell the share benefits of distributions and changes in value but retain voting and milk payment rights.

* Farmers could be allowed to buy dry shares that do not have voting rights for up to 200 per cent of their production level.

Why do it?
* Remove the redemption risk of Fonterra having to pay farmers when they cash in shares.

* Provide the company with permanent share capital.

What's next?
* Proposal for share trading needs 75 per cent support. Farmers had the option of voting by post, on the internet or at today's special meetings around the country.

* It is expected to take at least 15 months to implement.