The $3.90/kg milksolids (MS) forecast payout is forcing people to find new ways to share expenses with farm owners or adjust the farm strategy to reduce farm working expenses.
The first group that raised concern when the payout forecast dropped last year was variable order sharemilkers and contract milkers who had little or no equity and relatively fixed costs, DairyNZ economist Angie Fisher says.
There had been a decrease in the number of variable order sharemilkers in the DairyNZ database from spring to autumn this year, with suggestions people had moved into contract milker positions or farm manager roles.
“Some people might feel it’s a sideways move, but it might be a holding pattern so you’re not going backwards,” Fisher said.
Others had stayed as variable-order sharemilkers, but had changed their expenses or the percentage in their contract, she said.
Heading toward Christmas it became apparent that herd-owning sharemilkers were also vulnerable with their equity position falling and their security with banks under pressure.
DairyNZ and Federated Farmers ran a series of What Are My Options events in February and March to give advice to all parties and brainstorm ideas.
It was an opportunity for farm owners and sharemilkers to come up with creative solutions to change how the farm is run to make it work, she said.
About 500 farm owners, sharemilkers and contract milkers attended, with a third of the audience being farm owners who were there to find out what people were doing or to offer creative ideas.
Some examples included sharing electricity or dairy costs, topping up the variable-order income to be equivalent to a salary, farm owners gifting their time as relief milkers, and giving their sharemilkers or contract milkers financial advice.
There were also suggestions to include bonus incentives or base the contract on the payout.
Other people had formed hybrid contracts, which were a combination of variable-order and contract milking. It was important to get legal advice when negotiating alterations or new contract stipulations, Fisher said.
Another negotiation tool people were using was the length of the contract.
There was a growing trend for short-term contracts this year. However, if people were looking to secure long-term contracts they were giving more concessions to the farm owner to be able to stay on, she said.
One of the big talking points at the meetings was farm owners and sharemilkers wanting to become less intensive or destock to try to cut costs.
When it came to big changes in farm policy, it was important for both parties to understand their obligations and some contract changes might be needed, Fisher said.
The problems happened when those changes were made without any communication and resulted in the contract being broken or put the sharemilker or contract milker under unnecessary financial pressure, she said.
Farm owners who wanted to shift from a DairyNZ System 4 to a System 2, for example, would understand it would alter production and ultimately the sharemilkers’ or contract milkers’ income and could require a change in the contract.
To start the conversation, the best thing a farm owner could do was be open and honest and share their own financial position.
Both parties should sit around the table and have a plan for the farm with some figures supporting it. It was important to be prepared and understand each party’s obligations under the contract and understand the other person’s position.
If necessary, people should involve a third party to help with negotiations and a plan for the farm going forward.
As difficult as the current season was, farm owners, sharemilkers and contract milkers who got through this season would have built a more efficient business for the future, Fisher said.
People were doing extra budgets and cashflows this year and having regular meetings with their bank manager and accountant. Everybody was also assessing their farm system and strategy in minuscule detail to find areas they could cut costs onfarm.
“If you come through this season your business is going to be stronger and more resilient. All that focus on your system and your financials is going to be strengthening your business.”
Farm owners at the meetings were supportive, particularly those in traditional dairy areas, Fisher said.
“All the farm owners we had in attendance were really positive. They were really supportive of sharemilkers and contract milkers. They want to help people progress in the industry.”
There were some suggestions from Taranaki farm owners, for example, to offer financial backing to their sharemilker to keep good operators onfarm.
Farm owners willing to do that should get advice and make sure there was transparency around financial information, she said.
The difficulty was multiple low payout seasons going forward would make it hard for farm owners to sustain their support for sharemilkers.
To see tips on cost cutting and more information on negotiating agreements visit www.dairynz.co.nz/farm/tactics and click on Sharemilking Events.
Sharemilkers and contact milkers can use DairyNZ Opportunity Calculators and budget tools to assess their financial position. Visit www.dairynz.co.nz/farm/financial/budgets
Variable-order sharemilkers can register for a free accountant session at www.dairynz.co.nz
