An exhibition featuring a 3D model project that identified problems within a chosen cooperative and proposed solutions, based Fonterra’s transition from the Trading Among Farmers (TAF) model to the 2023 Flexible Shareholding model.
Fonterra’s strength as a farmer-owned cooperative depends on having a capital structure that reflects the needs and realities of its members. Under the Trading Among Farmers (TAF) model introduced in 2012, farmers were required to hold one share for every kilogram of milk solids (kgMS) they supplied. While this system was originally designed to maintain farmer control and provide liquidity, over time it created barriers that limited flexibility, discouraged new entrants, and excluded important contributors to milk supply.
Farmers faced challenges adjusting their shareholding during changes in milk production, often due to weather, environmental regulations, or business decisions. The high cost of meeting the 1:1 shareholding requirement made it harder for smaller or younger farmers to participate fully in the co-operative. Additionally, sharemilkers, contract milkers, and other non-supplying contributors had limited pathways to ownership, weakening inclusiveness and long-term engagement.
There was also growing concern that as New Zealand’s total milk supply declined, more shares would end up in the hands of non-farmer investors through the Fonterra Shareholders’ Fund (FSF). This shift posed a risk to farmer control and the co-operative’s core principles.
The rationale for change was clear. Fonterra needed a more adaptable, affordable, and inclusive capital structure. The Flexible Shareholding model introduced in 2023 was developed to address these concerns by lowering the minimum shareholding requirement, capping the FSF, and opening ownership opportunities to a wider group of participants. These reforms aim to protect cooperative control while supporting the long-term sustainability of the business.
Fonterra’s previous capital structure, implemented under the Trading Among Farmers (TAF) model, required farmer-shareholders to maintain a 1:1 shareholding ratio based on the volume of milk solids supplied. While initially intended to strengthen farmer ownership and provide liquidity through the Fonterra Shareholders’ Fund (FSF), the structure became increasingly inflexible and burdensome. Fluctuations in milk supply, rising costs of entry, and limited access for non-supplying contributors such as sharemilkers created structural barriers. At the same time, a projected decline in national milk production threatened to shift a greater proportion of economic rights to public investors, undermining the cooperative’s core principle of farmer control. These challenges highlighted the need for a more adaptable and inclusive capital framework to support Fonterra’s long-term sustainability.
This report aims to:
In response to the structural and operational challenges posed by its previous capital model, Fonterra introduced the Flexible Shareholding structure in 2023. This new framework was designed to provide greater flexibility, improve access to ownership, and protect long-term farmer control of the cooperative.
Under the Flexible Shareholding model, the minimum shareholding requirement was reduced from one share per one kilogram of milk solids (kgMS) to one share per three kgMS. This change significantly lowered the capital burden on farmers and made it easier for new and existing suppliers to maintain or adjust their shareholding in line with production changes.
The model also introduced a maximum shareholding limit of four times a farmer’s annual milk supply, preventing excessive concentration of ownership while allowing farmers with capital capacity to invest more. Importantly, Fonterra extended shareholding eligibility to associated shareholders, such as sharemilkers, contract milkers, and farm lessors, giving them a formal pathway to engage with the cooperative.
To maintain farmer control, the Fonterra Shareholders’ Fund (FSF) was capped, and the option for farmers to exchange shares for units in the fund was removed. This prevents further dilution of ownership by non-supplying investors while preserving existing public investment without expansion.
Overall, the flexible shareholding model addresses the need for a more inclusive, adaptable, and future-proof capital structure. It supports a wider range of contributors within the dairy sector, encourages longer-term investment, and safeguards the cooperative’s governance and ownership principles.