Friday, March 29, 2024

Avoiding arbitration made easier

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The clarity of a new Federated Farmers contract for herd-owning sharemilkers and farm owners should knock many disputes on the head before they get to the hugely expensive arbitration stage, its architects say.
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The new document, being signed off by dairy industry parties and lawyers after a year’s work, will be available for next dairy season. It replaces a 2010 document described as clunky and convoluted.

As well as letting each party stipulate their responsibilities much more clearly than before, the new contract seeks to align agreed responsibilities with common law, the organisation’s sharemilkers’ employers chairman, Tony Wilding, and sharemilkers’ chairman, Neil Filer, said. For example, the agreement stipulates that no alteration or variation to the contract will be valid or effective unless in writing and signed by both parties.

Reflecting the increasing number of extreme weather events such as drought, there’s a strong focus in the new contract on each party’s obligations over feed supply, cultivation, harvesting and grazing off-farm.  

Among other big changes in the new contract are compliance checklists for both parties at the start and end of the dairy seasons, and clearly defined responsibilities for each, from everyday onfarm operations to targets and expectations.

For example there is provision at the start of the document to nail-down figures and facts from the agreed maximum and minimum cows, to final calving date, stock grazed off the land, minimum condition score targets for the herd, and machinery to be supplied by what party, and dairy company shares and vouchers.

There’s also provision for agreed amounts of feed made, purchased and sold by both parties, the amount of feed left on the land by the sharemilker at the end of the term, grass cover, weed management responsibilities, and fertiliser and effluent management specifics and payments.

A page is devoted to agreement of the insurance obligations of both parties.

Health and safety obligations and notification requirements have been moved up to the front of the contract.

Other changes result in the contract clearly defining the responsibilities of each party as to management of the farm and labour. It also requires the sharemilker to put in place a drug and alcohol policy for the farm and do their utmost to police it.

The contract is silent on Fonterra-related matters, such as dividend-related payment adjustments, capacity charges and the new guaranteed milk price scheme.

The recent annual meeting of the federation’s sharemilkers section heard this was because the document would also be used by many dairy farmers not supplying that co-op.

The agreement review group had also recognised that regular changes to Fonterra arrangements were on the cards and trying to provide for them in an over-arching contract would be burdensome and complex.

Wilding said it had been agreed that Fonterra made the changes so it would advise its suppliers of any more. The situation was further complicated because capacity adjustments were now embedded in Fonterra’s milk price where before they were separate.

Wilding said two provisions in the new contract, clauses 7.3 and 8.1, would give protection to sharemilkers if the farm owner decided to move away from the usual milk price payment contract with a processor, such as via Fonterra’s guaranteed milk price scheme.

Clause 8.1 says: “The parties will share milk payments paid by the dairy company for the milk produced under this agreement in the agreed percentages as set out in (another, earlier item in the contract).”

Clause 7.3: “The owner will not agree to any variation to the terms and conditions of any supply agreement unless the sharemilker agrees in writing.”

Other provisions offering protection to sharemilkers around payments include:

Clause 8.3: “The owner must not change in any way the instructions given to the dairy company in respect of the sharemilker’s percentage of the milk payment without written notification to the sharemilker.

Clause 8.5, described by federation dairy policy analyst Ann Thompson as a get out of jail free card, says “If there is any change to the way any payments are calculated and paid by the dairy company to the owner or to the sharemilker and the change results in the sharemilker being financially disadvantaged, the agreed percentages (earlier item in contract) will be revised to ensure the sharemilker is not financially disadvantaged by the change.”

The new agreement, drafted under the guidance of the federation’s lawyers Phillips Fox, gets down to the nitty gritty of farm and land management in terms of each party’s responsibilities.

It clearly states the responsibilities of each, from repairs at the beginning of the term, to maintenance, irrigation and capital improvements. 

Responsibilities for livestock condition scores, numbers and general health, calf facilities and breeding bulls are also included for mutual agreement and signature, extending even to provisions for working dogs and other animals on the farm.

Wilding said the costs of arbitration when a relationship between sharemilker and farm owner broke down could be horrific, having grown as farms have got bigger and feed shortages more common.

Use of an arbitrator could cost up to $8000 a day.

The new contract is 10 pages longer than its predecessor but the price has stayed at $69 for two copies for federation members,

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