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An Australian dairy industry monitoring website says Fonterra is taking a gamble with the trading among farmers (TAF) scheme.
In a post on Xcheque, agribusiness expert Dr Jon Hauser and Kai Tanter argue TAF does not remove the redemption risk as Fonterra says it will and that it is possible the market valuation of Fonterra shares will drop, potentially destroying the wealth of many Kiwi dairy farmers.
"Alarm bells are ringing here," they say.
On Monday, shareholder farmers will vote at meetings around the country on whether to approve the most significant change to New Zealand's largest company in recent years.
The importance of this should not be understated. If it works, Fonterra will gain the permanent capital it needs to finance its global expansion, which benefits New Zealand farmers and the economy.
However, as many farmers have said, the risk is that the very nature of the co-operative could be compromised through allowing non-farmers to invest, and having a focus on capital and investment, rather than the milk price.
Fonterra chairman Sir Henry van der Heyden has constantly reiterated the board wants a "clear mandate" from farmers, and a mere 50% majority won't be enough.
He has been criticised, however, by former shareholders' council chairman Simon Couper - who resigned over the issue - for being too vague and not putting a percentage on it.
This is the second time farmers will vote on whether to approve the scheme. They approved it in principal in 2010, but few details were available then, hence the second vote.
One of Fonterra's concerns about its current capital structure, which TAF is designed to offset, is redemption risk.
According to CEO Theo Spierings, if the co-op was to return to a fair value share model its share value could skyrocket, leaving Fonterra potentially struggling to find the money to pay farmers who wanted to redeem their shares.
One way to mitigate this is to widen the pool of investors and increase liquidity, resulting in permanent capital, which is what TAF is supposed to achieve.
However, Xcheque suggests because TAF promotes trading among farmers instead of with Fonterra, the redemption risk is merely transferred (not eliminated), from a collective risk to the whole co-op, to a risk to the individual farmer.
It says Fonterra doesn't even need permanent capital for capital security because other measures are sufficient.
These include allowing farmers to own up to 200% of their capital requirement, up from 120% now, which would be calculated on a three-year rolling average.
"These changes alone, plus the ability to pay farmers out at their discretion and/or at the same price they bought in, would likely be enough for Fonterra to mitigate redemption risk," says Xcheque.
Another problem with TAF could be that it divides Fonterra into two types of owners - "low capital milkers and the high capital super shareholders", both of which will be able to vote.
"There's a very high chance that a large voting block will be created whose interests lean towards income from capital rather than income from milk. In our view that is not what a milk co-operative should be about."
Finally, moving from a model where the value of Fonterra shares is set administratively to being set by the market risks lowering the value of those shares.
"This would destroy the wealth of many New Zealand dairy farmers - an unacceptable situation for the farmers and their bankers," Xcheque says.
"The solution will be to increase the proportion of income going to dividends. This again undermines the prioritisation of milk price over capital returns - and that is a sippery slope for co-operatives."
The authors point out their views could merely be philosophical, but there are a lot of risks associated with TAF.
"If Fonterra don't get it right they are gambling away the future of their co-operative as a co-operative. It doesn't seem like a risk worth taking."