Opposition parties say the Government's proposed law to establish trading among farmers will weaken Fonterra and could lead to the demise of the dairy co-operative.
The Dairy Industry Restructuring Bill returns to Parliament today after being considered by a select committee and is expected to be slated by opponents Labour, NZ First and the Greens.
Under the proposed trading among farmers (TAF) scheme, dairy farmers would buy and sell co-op shares among themselves, rather than through Fonterra as they must at present.
But to ensure the farmers' market has enough liquidity the scheme introduces outside investors for the first time through a $500 million NZX-listed fund. The fund gives investors access to Fonterra dividends but no voting or milk supply rights.
The Fonterra board and the Shareholders Council are recommending farmers support the change.
Fonterra says TAF will mitigate redemption risk if farmers leave the cooperative.
However, NZ First agriculture spokesman Richard Prosser, who had an observer role on the select committee, said the scheme created an incentive for some farmers to cash up their shares, take the money out of the cooperative and supply their milk to an independent processor.
The scheme was a ''partial float in all but name''.
Fonterra farmers, who are due to vote on whether they take up the scheme on June 25, believed they would retain 100 per cent ownership and control of the cooperative, Prosser said.
''TAF in its current form cannot deliver that and it will deliver the exact opposite. There is a real risk farmers, who haven't been fully informed of the scheme, vote in favour of it, thinking it is the scheme they voted for before and it will lead to demutualisation.''
Prosser said there had never been a cooperative anywhere in the world that had allowed outsider investor capital and survived as a cooperative.
Labour's primary industries spokesman Damien O'Connor said the Bill was being rushed through Parliament and the select committee hadn't been given sufficient time to get expert advice on changes to TAF.
''This is a Bill which affects the biggest company and industry in New Zealand and it is really important we get it right.''
Trading by non farmers would create tension between investors and milk suppliers which Labour believed would lead to demutualisation, he said.
Labour would put forward amendments it hoped would mitigate its concerns but needed the support of one of the Government's support partners ACT, United Future or the Maori Party.
Primary Industries Minister David Carter said claims the Bill would weaken Fonterra were ''rubbish''.
''The cooperative will remain strong and if it was to weaken it, I don't believe the farmers would vote for it.''
It would not encourage farmers to leave the cooperative, he said.
There had never been a financial instrument such as TAF and Carter admitted the Bill was ''complicated''.
Federated Farmers dairy chair Willy Leferink said farmers wanted clarity around scheme.
Allowing outside investors to trade was a ''slippery slope''.
''This is a critical issue for the shareholders of Fonterra and I don't think there has
been any division like this before within Fonterra.''
A ''hell of a lot of safeguards'' had been put into the legislation but not everyone was satisfied with them, he said.
Federated Farmers didn't think the Bill would weaken Fonterra.
''If anybody will weaken Fonterra, it is Fonterra itself.''
A spokesman for Fonterra said the cooperative wouldn't comment until the Bill had passed.
- © Fairfax NZ News
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