Federated Farmers: Contract promotes discussion

The sharemilker shares the profits of the business and is subject to milk price volatility. Photo / NZME.

Federated Farmers has just delivered its revised contract for contract milking.

It is a significant improvement on the previous version, with lots more to be discussed and decided on before signing the contract. We have done this because some contract milkers may need help in discovering what needs to be factored into their business costs. It also gives clarity on which party is responsible for what.

Contract Milker or Variable Order Sharemilker?
This question needs to be asked because the positions on farm are almost the same but the risks are different.

The sharemilker shares the profits of the business, is subject to milk price volatility and is protected by the Sharemilking Agreements Act 1937 and orders in council. The contract milker, on the other hand, is paid a rate calculated on an agreed price per kilogramme of milksolids produced, is free of milk price volatility and falls under commercial law.

Both work independently of the farm owner, albeit with some direction on matters regarding farm policy. This independence is critical to the contract milking situation, as too much farm owner control could shift the business arrangement into an employer/employee one, with significant implications regarding taxation and the laws that come into play.

Another consideration for the contractor is to do the sums before signing up, making sure the income from the milk will cover the costs of doing all the work.

The new contract for contract milking includes a number of improvements.

Estimated net revenue table
As noted above, one of the most important tables to fill out is the one where costs are considered. Expenses such as administration costs, ACC levies, insurance premiums, and electricity costs associated with irrigation should prompt careful consideration, along with the expected costs of maintenance materials and replacement milking plant parts. This table is extremely important for those smaller herds.

Farm policy
The farm owner will have a policy on such things as the farm system used, and herd management. This policy needs to be given to the contractor so that they can follow it. If the farm owner significantly changes this policy, then a conversation between both parties must be had as any changes shouldn't be detrimental to the contractor's bottom line. It may be that costs can be shared on something else to satisfy both parties during the term of the contract.

Calves
The ability of sharing in the profit of calves is offered within the contract as some farm owners are keen to provide their contractors another way of adding to the bottom line.

Feed
There is more certainty around what to do if there's too little feed at the beginning of the season when the contractor first comes on farm, and if there's a shortfall during the season.

Other points to note are:

•Health and safety and the drug and alcohol obligations are at the front of the contract.

•Failing to care for the herd properly may lead to the contract being breached.

•The dispute provisions align with the Variable Order Sharemilking Agreement 2012 and the Herd Owning Sharemilking Order. This is backed by the courts in general law.

•A Dispute Resolution Flowchart is included for when things go wrong. Both parties can see the value of sitting down at the kitchen table to find a solution to a problem. Parties who go down the arbitration path don't always get what they think they deserve and end up out of pocket. Our advice is to read the contract thoroughly, get advice and reference check the position to test the sustainability of what you are being offered.

The review was carried out by representatives from Federated Farmers Dairy, the Sharemilkers' Section and the Federated Farmers Sharemilker Employers' Section and written by legal partners, DLA Piper.

Ann Thompson is the Federated Farmers' dairy policy advisor.