Milk price volatility spurs flexibility

Some dairy farmers have turned their backs on sharemilkers, preferring contract milking, equity partnerships and leasing agreements since low milk payouts put pressure on farm finances.

Fluctuating milk prices over the past 10 years have led Northland dairy farmers to revise operating structures and consider options outside traditional pathways.

The downturn in dairy returns during the past decade reduced sharemilker numbers in the region and also led to many farm owners going back to milking their cows, according to Northland Federated Farmers dairy section chairman Ashley Cullen, of Maungaturoto.

With the milk payout now higher he knew of a couple of farm owners hiring contract milkers and expected others to follow.

"We've got to realise some people like to have a life."

"A lot of older farmers don't want the daily grind of milking, but where will the staff come from?" Mr Cullen asked. As he was on "the slippery side of 60" himself, he admitted he would be interested if a suitable contract milker turned up at his farm gate looking for work.

He was now milking just under 200 cows, but the herd size could be substantially increased if age hadn't eroded his enthusiasm for the extra effort involved in expansion.

Mr Cullen said Taratahi and other training organisations needed to entice more good people into the industry and older dairy farm owners had to realise young people were not eager to work the long hours many of his generation regarded as normal.

"We've got to realise some people like to have a life," he said.

There were 801 dairy farm owner/operators and 282 sharemilkers milking 280,435 cows in 1088 Northland herds at the end of 2014. But over the past two seasons the number of sharemilkers has dropped nationally to 27 per cent of herds - down from 33 per cent in the 10 years before that.

DairyNZ economist Angie Fisher says sharemilking agreements have been exchanged for contract milking arrangements and, in other cases, for equity partnerships or leasing agreements.

"This move to contract milking may revert back to profit-sharing variable order agreements in 2017-18 and 2018-19. It is too early to tell, but this illustrates the flexibility of farmers to move with milk price in both operating structures and, as we've also seen, in reducing farm expenses."

DairyNZ has created fact sheets to help farmers better understand options available, especially the variations across each operating structure.

"Working with AgFirst and partner organisations such as Federated Farmers, we've created resources that outline the options under four types of operating structures: pre-herd owning, herd owning, leasing and equity partnerships," Ms Fisher says.

"These are aimed at those looking to progress, and farm owners who are looking to step back from day-to-day operations and wondering if they should, for example, employ a contract milker or go down the sharemilking route."

No matter what option farmers choose, it was important to do thorough research before signing any agreement.

"It is vital to get the right fit between parties. Going in with your eyes wide open and clearly understanding your responsibilities will help improve the outcomes for everyone."

There are plenty of resources to help farmers do their homework before signing an agreement.

"For example, DairyNZ has a due diligence tool called Do Your Homework, and Federated Farmers produce industry standard contracts and agreements that cover sharemilking and contract milking arrangements," Ms Fisher says.

Also, DairyNZ's Dairy Connect service links farmers looking for information on a particular operating structure with another farmer with experience in that area.

For more information on farm business pathway options and other resources visit dairynz.co.nz/business-pathways