The Waikato-based dairy co-operative Tatua is calling for fewer restrictions on the sale of regulated milk to independent processors.
It also says the set milk price should be ditched in favour of an auction system.
The Ministry of Agriculture is reviewing the raw-milk regulations that require Fonterra to sell up to 600 million litres of milk a year to other processors at a regulated price.
Fonterra is seeking changes so it no longer has to sell milk to processors who have their own supply or who are not servicing the local market.
Tatua in its submission is taking the opposite tack. Its chief executive, Paul McGilvary, points out that before Fonterra was created and the raw-milk regulations came in, processors commonly traded milk and dairy products with each other.
With demand outstripping the supply of Fonterra milk, he says, a monthly auction would be the fairest way of deciding who gets the milk.
Mr McGilvary says it should be run exactly along the lines of Fonterra's global dairy trade auction.
"That way you could ensure that the maximum price for the milk was achieved - that anybody who wanted or had an interest in accessing it could do so...in a way that is economically efficient."
The way being proposed by the ministry, he says, involves too many rules and regulations.
New entrant begs to differ
However, the newest entrant to the dairy industry says it's essential Fonterra continues to be required to sell milk at a regulated price to other processors.
Miraka Ltd, which has a processing plant at Mokai northwest of Taupo, began operating five weeks ago.
A spokesperson, Peter Fraser, says that when the current system was established it was clearly set out that regulated milk would be available from Fonterra on a non-discriminatory basis.
Mr Fraser also argues that "as long as Fonterra is adequately compensated for its milk, it should be indifferent as to whoever actually gets it and what they do with it".
