But they weren’t getting maximum value, Montgomerie told the Future Farmers Conference in Wellington last year.
Both their families had been south Auckland and Waikato dairy farmers for several generations but nine years ago the Montgomerie family set up their own corporate-structured business in which the couple have a major shareholding. It has a 2250-cow dairy farm in north Waikato and youngstock grazing operation in south Auckland. Montgomerie is also member of the Fonterra Directors Remuneration Committee and a director of New Zealand Animal Evaluation.
The corporate structure stemmed from a strategic review in 2004. At that time the family owned 73ha in South Auckland under various titles from four to 15ha, leased 44ha next door, leased 30ha 15km away, and owned another 97ha property 50km away. They were split calving, winter-milking part of the herd, supplementing the feed with maize silage, grass silage, brewers’ grain and palm kernel, and rearing dairy beef.
Among the issues they faced were having 23 different neighbours and six road frontages. There was pressure from Auckland city’s expansion and two-thirds of their farm was on the opposite side of road from their dairy.
Their complex farm system required a high management input and labour and environmental issues were looming. They wanted to continue dairying but reduce day-to-day management demands, and they wanted a farm with the potential to grow and/or be subdivided. They sold some blocks of land to free up cash over two years, capitalising on a strong Auckland property market, but leased the blocks back and now run young stock on them.
The death of a family member opened an opportunity to invest in a 2250-cow operation at Orini and that’s when a more corporate style of governance took shape.
“From the start we knew we couldn’t get into this operation ourselves but the farm suited what we wanted,” Montgomerie said.
The answer was to find more shareholders, with the existing farm manager the first to take a stake. The shareholders then worked out the structure of the business, set out their objectives and talked to many people about taking a corporate approach. Banks, certain lawyers and accountants can give advice and he also completed an Institute of Directors course in company direction.
“I think doing this or the DairyNZ course is essential,”
More structural formal reporting systems – “less seat of the pants” – were developed.
“Everyone must know what we are doing and where we are going.”
The shareholders agreement was a vital document.
“You need to know how you are going to get out before you go in. And once you’ve worked out everything through that agreement, everybody knows the rules and everybody signs to it, so it’s not too hard.”
The company has three directors, an independent farm consultant as an advisor to the board and someone who is not a director to take minutes. Bank staff sometimes attend part of the three-monthly board meetings. Reports are distributed a week before meetings, dealing with financial and farm, health and safety issues along with capital requirements.
“That’s an easy one to miss but we know five years out what we may need to spend money on.”
The financial report is first to be dealt with.
“That’s the most important. If you can get that right then everything else seems to follow.”
A farm tour is conducted before each meeting so all directors can see how things are progressing.
“You must respect other shareholders,” Montgomerie said.
“Remember, they have money invested in the business as well.”
One final tip: large operations take longer and are harder to change
“Not only must you fix and solve the issues but you must take the people with you – your fellow shareholders, your management and your employees. But when you get it right …
“A five or 10% increase is massive and gives you a lot of scope to do things.”
