Fonterra Shares and TAF

Understanding Fonterra Shares and Fonterra Units
This Guide has been prepared by the Real Estate Institute of New Zealand (REINZ) for its members who are asked to provide information or advice about Fonterra Shares and Fonterra Units. Our members are real estate professionals who can advise you on your property sale or purchase. REINZ members are licensed professionals who work under strict codes of conduct and the supervision of the Real Estate Agent’s Authority to provide the best possible service to people who are buying and selling property in New Zealand.

As members we can help potential sellers to price their property competitively, market their property to buyers and assist with the  paperwork involved in the negotiation process. We help potential purchasers understand the local market, understand pricing expectations for properties and negotiate a sale and purchase agreement. We are however not Authorised Financial Advisers qualified to provide financial advice on Fonterra Shares and Fonterra Units. For comprehensive information we recommend you consult your accountant.

Fonterra’s Trading Among Farmers Scheme – What you need to know
This guide will help you understand Trading Among Farmers (TAF) and what the law allows your real estate agent to advise you on when you are considering buying or selling a dairy farm. This guide answers some of the key questions about TAF, and provides general information only. This is not financial advice or legal advice. You should seek appropriate advice before you make any decision to buy or sell a dairy farm or any financial product which includes Fonterra Shares and Fonterra Units.
In this Guide we have used capitalised terms. These terms are defined in the glossary at the end of this Guide.

Out with the old, in with the new
Farmers who supply milk to Fonterra used to be limited in the number of Fonterra Shares that they could hold. Essentially, that number was based on the amount of milk produced by a farm. When a farm was sold, the Fonterra Shares would be transferred to the new owner, or redeemed by Fonterra. The principle of open entry and exit into and out of Fonterra meant that Fonterra had to be able to pay a Farmer for the Fonterra Shares at any time. TAF was introduced in late 2012 to change the way in which Farmers bought and sold Fonterra Shares. This has had a flow-on effect for people who are buying and selling Dairy Farms.

What is TAF?
TAF is a way for Farmers to enter and exit Fonterra by selling Fonterra Shares between themselves. TAF is made up of two key parts:
1) Fonterra Shareholders’ Market – the private, farmers-only, market where farmers can trade Fonterra Shares. Farmers must hold the number of Fonterra Shares appropriate for their level of milk production. This is also called the “Share Standard” and, under TAF, is now calculated over a three-year rolling average. Farmers can also hold additional Fonterra Shares, up to 200% of their Share Standard; and
2) Fonterra Shareholders’ Fund – open to dairy farmers and also the public. The Fund enables a wider group of people to trade in Fonterra Units.
Fonterra Units can be created when Farmers convert some of their Fonterra Shares into Fonterra Units and vouchers. The vouchers represent the voting rights and obligation to supply milk. The Fonterra Units are securities which can be traded on the New Zealand Stock Exchange. The Fund enables non-Farmer investors to participate in Fonterra, and provides Farmers with an opportunity to exchange some (there is a limit) of their Fonterra Shares for additional capital. The Fund facilitates the trading of certain of the economic rights in Fonterra Shares, but not the obligation to supply milk to Fonterra.

For more information on TAF, we suggest you read the information provided by Fonterra on its website: This is a complex area. What is right for each individual Farmer shareholder will depend on each Farmer’s unique circumstances.

What does this mean if I am buying or selling a Dairy Farm?

Previously a seller of a Dairy Farm was required to transfer the relevant Fonterra Shares to the new owner, or sell the shares to Fonterra. Under TAF, Farmers sell their Fonterra Shares on the Market. Farmers used to have to sell Fonterra Shares when they stopped farming, now they have three years within which to sell them.
There are now more issues to consider when thinking about buying or selling a Dairy Farm in New Zealand.

  • Fonterra Shares and Fonterra Units are bought and sold through NZX-Operated Markets, and Farmers have more options in terms of holding on to Fonterra Shares, purchasing additional Fonterra Shares over the required Share Standard, converting Fonterra Shares to Fonterra Units, and generally structuring their investment in Fonterra.
  • All investments carry risks, and Fonterra Shares and Fonterra Units are no different.
  • Fonterra Shares and Fonterra Units are a “Category 1 Financial Product” for the purposes of the Financial Advisers Act.

Who can provide advice on Fonterra Shares and Fonterra Units?
The only people who can provide advice on whether you should buy or sell Fonterra Shares or Fonterra Units are Authorised Financial Advisers (AFA). An AFA is an individual who is authorised by the Financial Markets Authority to provide personalised financial advice in New Zealand. They can give you personalised advice on the options available to you when buying or selling Fonterra Shares or Fonterra Units.

To understand the best options for you when you are buying or selling a Dairy Farm, we recommend that you not only seek advice from your real estate agent, but get advice from an AFA. The Financial Markets Authority has a list of all of the AFAs on its website:

The Real Estate Institute of New Zealand is a national, voluntary membership organisation providing products and services to approximately 12,500 real estate professionals. Our members include residential, residential property management, rural, commercial and industrial, and business broker licensees. Over 100 years old, a key focus of the institute is to promote professional excellence within the real estate sector.
List of the terms used in this Guide
Authorised Financial Adviser (AFA) Is an individual who is qualified under the Financial Advisers Act 2008 to provide financial adviser services.
Category 1 Financial Product:  A category 1 financial product is a type of financial product, generally considered to be a “complex” financial product. Category 1 financial products include securities such as the Fonterra Shares and Fonterra Units.

Financial Advisers Act:  The Financial Advisers Act 2008 which governs the way that financial adviser services can be provided in New Zealand.

Fonterra Shares Before TAF:   the shares were nominally-valued shares that were linked directly to milk production. Following TAF, the shares can be either:
(a) linked directly to milk production – known as “wet shares”; or
(b) held by Farmers in excess of the amount of wet shares required for a farm as an investment – known as “dry shares.”

Fonterra Units:  The units are securities in the Fund. The units have certain of the economic rights of the Fonterra Shares (the right to receive dividends paid by Fonterra), but none of the voting rights or right to supply milk to Fonterra (these remain with the Farmer who converted his or her Fonterra Shares to units).

Fonterra Shareholders’ Fund:  the market where Farmers and the wider public can buy and sell Fonterra Units.

Fonterra Shareholders’ Market:  the “farmers-only” market where Farmers can buy and sell Fonterra Shares.

NZX-Operated Market:  A market operated and governed by NZX Limited where people can buy and sell listed securities (subject to the particular rules of the market).

TAF:  The Trading Among Farmers scheme in respect of Fonterra Shares and Fonterra Units.