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.
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.
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 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.
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.
If you are a farm owner looking to take on a sharemilker, here are some tips to making the agreement work: