Sharemilking and Dairy Farming
WHAT IS SHAREMILKING?
Sharemilking has been a cornerstone of the New Zealand dairy industry for over a century. It is when two parties come together to run a dairy operation: the person who owns the land and the sharemilker, the person who runs the farm and milks the cows. In its heyday it was the pathway for young dairy farmers to build experience and wealth, with the aim of buying out the landowner over time, or building equity in order to buy their own farm. On the other side of the coin, renting out pastures and dairy sheds to sharemilkers was a way of earning income for former dairy farmers.
DIFFERENT TYPES OF SHAREMILKING AGREEMENTS
HOSM or 50:50
Herd owning sharemilking (HOSM) is when the sharemilker owns their own cows, but does not own the land, and takes them from farm to farm. Once upon a time, this was the quickest way to farm ownership but it is becoming less and less common with positions decreasing by 50 per year over the last 5 years.
VOSM
Variable order sharemilking (VOSM) is highly susceptible to fluctuations in milk price as it is difficult to agree on a fair percentage that works for both the sharemilker and farm owner. Because of this, many farms have chosen contract milking agreements over VOSM. The choice between the two comes down to how much risk you are willing to take on. VOSM arrangements allow sharemilkers to share profits with the farm owner in the hope milk prices rise.
Contract Milking
Contract milking is technically not sharemilking as there is no sharing of the profits; it is an agreement where the milker agrees to milk the cows for a certain $ rate per kilogram of milksolids. However, it is becoming more and more common and the agreement of choice in dairying because it offers a more stable arrangement for both milker and farm owner. The risk here is that if milk price rises during the season you are stuck earning at that lower agreed rate.
THE FUTURE OF SHAREMILKING
Increased financial risk and pressure on dairy farms brought on by unstable and falling global milk prices, has led some to question the viability of sharemilking in the years to come. On Gypsy Day in 2016 (the time for moving farms, normally 1st June) many sharemilkers, contract milkers and managers did not change jobs, opting instead to stay where they are; with farm sales down and no new conversions there were very few jobs available.
However, sharemilking is still a viable pathway to progression according to a report funded by DairyNZ and Federated Farmers.
A well-structured arrangement can provide good opportunities for wealth creation. Farm ownership may not be the ultimate goal and sharemilkers are still managing to find ways of gaining wealth through running multiple operations or growing investment in the dairy industry. View the report here.
HOW TO GET THE RIGHT SHAREMILKER
If you are a farm owner looking to take on a sharemilker, here are some tips to making the agreement work:
- According to AgriSpecialists NZ Ltd, sharemilking partnerships are most commonly ended due to attitude. Sharemilking is a shared business venture so when looking for a sharemilker, you are essentially looking for a like-minded business partner with similar goals and values that align with your own business and lifestyle principles.
- If recruiting for a large herd (500+), a potential sharemilker’s ability to hire, train and manage staff should be a deal breaker. Ask questions relating to their experience in this area when interviewing and checking references.
- Be clear and up front from the beginning about your objectives and expectations; what is important to you? E.g. farm safety, animal welfare, record keeping, weed control, pasture management, house maintenance, machinery care, etc. Including these expectations in the written agreement is a good idea.
- Agree on what level of input each party will have into farm strategy, management and day-to-day activities.
- Agree on formal reporting and communication times and methods. Informal chats are all well and good until things go off track; that’s when mix-ups and misunderstandings lead to much deeper issues and it’s difficult and awkward to restart the conversation. To help in this area, many find benefit with the inclusion of a neutral third party e.g. farm advisor, consultant or mentor, in all formal meetings and farm strategy discussions as it can add real value and transparency to the farm owner/sharemilker relationship and they can be valuable sounding boards for new ideas.