Massey University's professor of agribusiness thinks Fonterra's Trading Among Farmers (TAF) system will play into the hands of independent dairy processors, including Chinese companies, setting up new milk powder plants in New Zealand.
Two Chinese companies have been cleared by the Overseas Investment Office to establish plants in South Canterbury and northern Waikato processing milk for infant formulas.
Hamish Gow does not think they will have a problem finding a supply of milk from local farmers.
He say with the way Fonterra has organised its milk and dividend payments under the scheme, some suppliers will be considering whether they can get a better return by selling their milk to another processor who does not require them to buy shares.
Professor Gow does not think the return on the capital farmers have invested in Fonterra shares is appropriate and the co-operative will have to address that if it doesn't want to lose suppliers.