Fonterra's TAF scheme delay creates farmer confusion


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.

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9 Comments & Questions

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"Oh, what a tangled web poli's weave, when they seek to intervene.""
Who said that? I did (amongst a lot of others), in 2001when asked about the, then proposed, Labour Party/Cowcocky/Heath Robinson DIRA legislative jack up!!
So there!!.

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Fonterra are a mysterious outfit who are masterful at spin.They should not be trusted by farmers.I am a shareholder and are concerned at the lack of transparency and unknowns in all of this.Simon Couper the past Shareholders Council chairman has just resigned in opposition to this,Why??We are yet to be told.I have yet to see a balanced analysis of the pro's and con's for TAF,from either Fonterra or the Shareholders Assoc.Fed Farmers appears opposed,yet all Fonterra can do is slag them off in the media.Fonterra have got too big for their boots and farmer shareholders need to put them in their place.

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grow up you can supply another company if you want

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in response to you cane supply another company. why should we when we have already payed thousands to get this one up and running.As for TAF even the name's a lie it should be trading among investors.

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If you want independence you should ask John Hawkins from the NZ Shareholders Association to get involved. No-one attached to Fonterra will provide any independence, that is for sure.

And as an aside, didn't they seek 75% last time? Why the threshold drop to 50%+ this time around?

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Seems to me that TAF has little to do with Fonterra itself, but is a means of providing some level of liquidity for (some) of its cash strapped shareholders who have leveraged not only their shares, but their underlying business (land, plant and machinery and livestock) which supplies to the co-op.
No-one will be required to sell shareholding rights if they don't have a need or desire to release equity from their overall investment into the industry. Potential consequences of not having a mechanism like TAF, in times of lower milk payouts, may be more mortgagee sales of (potentially) good operators who have been forced to leverage up their assets to join the industry.
Without necessarily arguing for or against TAF, taken to its ultimate conclusion, it is likely that the need for such leveraging (or injection of further equity by individual farmers) will ultimately lead to a propensity of corporate farming rather than individual farmers. Does this yield economies of scale or does it destroy yet another Kiwi dream for the average man in the street ??

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TAF is a ridiculous scheme,Fonterra should be focussing on the processing and distribution of the farmers product,that is what they are there for, not grandious money shuffling schemes that are ultimately of little benefit to the farmer.

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How else is a monopoly to make money in a market facing lower global prices for their product?

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New zealanders love to knock success! we are such a short sighted Nation in acknowledging success. TAF will not only make our great cooperative greater, it will keep the wolf from the door for New Zealanders as a whole.
Fonterra is a gathering of very innovative shareholders, who over the past one hundred and thirty years have provided this Nation with the financial integrity it enjoys.
A vote against TAF is short sighted, we voted for the formation of Fonterra 11 years ago, let us continue to support these progressive initiatives. If you don't stand with us, you should have remained supplying Skeet road, Riverton, Dargaville and so on.

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