Call for Papers: FAO Contract Farming
Obtaining sufficient equity capital to buy a farm is a major challenge for most aspiring farmers and many need family assistance. Sharemilking, a form of share leasing, is a recognised pathway to dairy farm ownership in New Zealand. Many sharemilking arrangements are family arrangements undertaken by parents as they approach retirement. The sharemilkers, the next generation, may purchase the farm following a period of sharemilking.
The path followed by many young people on family farms in the dairy industry has been to first acquire practical skills by working for wages on the family and other dairy farms. The positions of herd manager and dairy farm manager both offer the opportunity to manage a dairy industry business and gain experience. An alternative management opportunity is as a variable order sharemilker. The duties of a variable order sharemilker are much the same as those for a dairy farm manager. As a variable order sharemilker on the family farm the farm would be managed by the parents who own the land, livestock and machinery, and who will make most of the decisions.
Typically the next step would be a 50:50 sharemilking contract; buying the livestock and machinery from the parents and providing the labour and most of the management in exchange for a fifty percent share of the milk income. As a sharemilker he/she would also receive the income from sale of surplus stock, and pay the expenses associated with the herd and milking and anything else agreed to in the contract. The purchase of the herd and livestock is financed by savings, bank borrowing, and perhaps a loan from the parents. The parental loan may be forgiven, in part or entirely. After a few years the sharemilker may have repaid all debt and the livestock and machinery assets would be unencumbered. Using these assets, together with additional savings and further borrowing from the bank and perhaps the parents, the land and buildings are purchased and the parents retire.
The above pathway to farm ownership has been widely followed in the dairy industry. Sharemilking owes its existence to the simple fact that few dairy farmers wish to spend their entire working lives milking cows twice daily (Gardner & Shadbolt, 2005). It enables a farm owner to discontinue milking cows while retaining a reasonable income and modest return on investment. The sharemilker enters into a contract with the farm owner who can be confident that the farm duties will be undertaken. This confidence does not always exist if a manager/employee is hired; the latter may terminate their employment at any stage possibly at a most inopportune time. The sharemilkers are also seen as being a relatively cheap labour force on an hourly basis, they produce more than a waged worker and therefore increase, or at least maintain, the value of the property and they enable the farm owner to release capital for other purposes.
Sharemilking can be attractive to young people, being a link in the chain from farm worker, “variable order” sharemilker, “50:50” sharemilker, cash lessee to perhaps farm ownership. This path provides the opportunity to learn practical skills (as a farm worker) to enter into a farming business with minimum capital (as a “variable order” sharemilker); to accumulate capital and to be rewarded according to skill and effort (as a “50:50” sharemilker). The benefits to the sharemilker have, historically, included the opportunity to earn a level of income that will enable them to purchase a farm, and the benefit to the industry is a level of motivation leading to greater productivity and minimal industrial unrest. In 2008/09 the percentage of herds run by sharemilkers was 36%, an indication that this form of contract farming is strongly supported and a necessary method of invigorating the industry.