Fonterra shareholders' council representative Ian Brown says while he is confident farmers will give their support to the Trading Among Farmers scheme, there is some confusion around the plan.
When the idea was introduced two years ago, farmers generally understood the need for it, but no one thought it was going to take this long to be implemented, he says.
"As the proposal has developed over that time, farmers have started to really question the need for the scheme, and question their judgment.
"I wouldn't say there's a silent majority in support, but there is a silent majority of farmers who are waiting and watching carefully."
He says the council's challenge now is to ensure farmers understand the complexities of the scheme before they vote later this month.
Shareholders' council chairman Simon Couper resigned last week after a majority vote by the council supporting the TAF proposal.
He said the view clashed with his own, making his position untenable.
Fonterra has revealed more details of how it wants its Trading Among Farmers scheme to work.
Farmers will have to give a clear mandate of support because a vote of just over 50% will not be enough to implement the scheme, says Fonterra chairman Sir Henry van der Heyden.
But even if a clear majority of farmers give overall support to TAF, the board also requires 75% approval on some changes to the constitution, which seek to put limits on the scheme.
Farmers will vote on the plan on June 25. If passed it will allow them to trade Fonterra shares with each other, as well as with Fonterra itself.
Fonterra, New Zealand's biggest company, says the scheme aims to retain 100% farmer control of the co-operative.
As well as deciding on whether to support the TAF scheme, farmers will vote on several resolutions which would change the constitution.
These include tightening the limits of the size of the shareholders' fund, reducing it from 25% to 20% of total shares, and limiting the number of dry shares from 25% to 15%.
Sir Henry says this ensures shareholders retain 100% ownership and preserves the farmgate milk price.
“These are the two hot-button issues our farmers want to have a high degree of certainty over.”
Chief financial officer Jonathan Mason says the plan is to operate the fund at a size of 7-12% of total Fonterra shares on issue, but the fund size will be capped at 20%.
A higher limit is necessary because history shows their predictions of growth in any given year end up being inaccurate, such as this year where 3% milk growth was anticipated, but it actually reached 10%, he says.
“Twenty percent gives us some breathing room, but keeps the fund within a reasonable limit. Most years we will be operating between the 7-12% limit,” says Mr Mason.
Sir Henry reiterated the board wants a “clear mandate” from farmers when they vote on June 25.
“If it’s just over 50%, we will not be implementing TAF. That is not a clear mandate.”
However, he would not say exactly what percentage the board would be acceptable.
Mr Mason says if the proposal goes ahead, the plan would be to launch it in November.
However, he says this depends on market conditions, so if economic turmoil ensues in Europe, it will hold off until conditions are better.
The Fonterra shareholders market (FSM) will be established to provide a market for trading in co-operative shares.
The market will have its own rules which are based on the listing rules applying to the NZX, but have been adapted to suit the co-op.
The Fonterra shareholders' fund will be set up to operate alongside the market, facilitating liquidity relating to the trading of shares, leading to better discovered prices in the market.
Assets of the fund will be the economic rights of the shares – that is, the right to receive dividends and other benefits derived from the share – but not legal title to those shares.
How TAF will work
Farmers will be able to sell the economic rights of some of their shares to the shareholders' fund for cash.
To do this, they will transfer legal title of the shares to the Fonterra farmer custodian, which will hold the rights of these shares on trust.
They then receive a “voucher” that the economic rights have been sold, but there are limits to how many vouchers a farmer can hold.
Units in the shareholders fund will be issued to farmers and other members of the public, which can be traded on the NZX.