The Bill, which was tabled in Parliament earlier last week, detailed proposals to oversee Fonterra's farm-gate milk price setting and ensure a more transparent and efficient dairy market, Primary Industries Minister David Carter said.
But the shareholders council, which speaks for the co-operative's 10,500 farmer-shareholders, said it could not support it.
The Bill would primarily embed Fonterra's current milk-price governance amendments in legislation, require the co-operative to publicly disclose information on the setting of its milk prices, and introduce an annual milk-price monitoring regime, to be undertaken by the Commerce Commission.
Shareholder council chairman Simon Couper said while some parts of the Bill had been welcomed, provisions on how farmers' incomes were to be regulated risked doing irreparable harm to New Zealand's export effort and needed to be axed.
The Bill had nothing to do with the retail prices of milk.
Many farmers agreed the retail prices were too high, with many retailers charging four times what farmers were paid.
Instead, the Bill is about government-regulated committees determining how much farmers will earn from Fonterra's overall business, 95% of which is exported and which is universally agreed to be the most efficient dairy industry in the world.
"We haven't seen that sort of thing in New Zealand since the 1970s, and no-one will increase their investment in an industry at risk of such government intervention," Mr Couper said.
All New Zealanders would be rightly outraged if the Government set up committees to determine their incomes - especially if that would do nothing to reduce prices in supermarkets - and that was what dairy farmers felt was happening.
Mr Couper agreed with Federated Farmers dairy chairman Willy Leferink, who earlier last week said if the policy settings for milk pricing at the farm gate became arbitrary, it would shoot New Zealand's largest export industry in the foot.
• More than 800 submissions were received, mostly in relation to the raw milk regulations. Many of the submitters were concerned about foreign ownership of independent processors competing against Fonterra in offshore markets and taking profits out of New Zealand.
