The Government has refused to support an attempt to put a legislative cap on the size of Fonterra's proposed shareholders fund.
The fund, which is part of the Trading Among Farmers plan, would allow outside investors to buy the dividend rights of shares deposited by farmers.
Fonterra itself has proposed limiting the size of that fund to 20% (from 25%) of the co-op's share value. That is still to be endorsed by shareholders in November.
In the meantime, the Labour Party has been arguing for a restriction on fund size to be built into legislation as well, to protect farmer control of the co-op.
However, primary industries spokesperson Damien O'Connor says it failed to get Government backing for that when the dairy industry amendment bill went through its committee stages in Parliament on Tuesday night.
The Dairy Restructuring Amendment Bill now needs only a final reading to become law.