Supply of 400 million litres of milk each season to independent processors at cost price was originally held out by the Government as a trade-off for the merger escaping Commerce Commission scrutiny.
A precise formula was set down to calculate that default price.
But last year, after Fonterra lost several major legal disputes over the regulations, the company said it would ask the Government to change the rules. In August, Parliament's regulations review committee called for changes.
Agriculture Minister Jim Anderton this week outlined three options for new rules and said he favoured continuing to offer a higher amount of milk - 600 million litres - but mainly to the highest bidders, which would mean milk went to the most profitable use.
Other options were to continue the original supply of 400 million litres at cost price - set down in the original legislation - or to keep a level of 600 million litres at cost price, with rules for rationing in the event of shortages.
In either case, the minimum price would be that paid to farmers, with an additional premium calculated according to a formula.
The Government last year lifted the amount from 400 million litres to 500 million when it became obvious the lower figure could not satisfy demand this season, and raised it to 600 million litres for the 2008-09 season.
Fonterra's main rival, Goodman Fielder, gets 250 million litres for its Meadowlea brands, and other independents can each seek up to 50 million litres. Existing regulations provide for up to 5% of Fonterra's milk to be sold to rivals - about 750 million litres at current production
levels.
Mr Anderton said the Government's preferred third option would use auctions to manage excess demand.
"This is seen as the most likely to arrive at a fair and efficient price and result in a smooth transition to a post-regulated milk environment.''
There could be measures to assist and protect small or niche processors that may find an auction "incompatible with their business models'', he said.
Up to 15 million litres would be reserved for niche processors using less than 2.5 million litres a year.
In 2010-11, Goodman Fielder would get up to 275 million litres, and independents up to 75 million litres.
Mr Anderton said there had been continuing disputes over the pricing of regulated milk and he would rather see companies spend their money on scientists and technologists.
"Access to regulated milk was only ever intended as a temporary measure until a sufficient level of competition was reached, at which point Fonterra's legal obligation to supply regulated milk ceases,'' he said.
