Federated Farmers: Contract milking an alternative option

Contract milkers work as independent contractors.

Variable order sharemilkers are crossing over to a contract milking system at this early part of the season.

That is what our recent survey and talking with dairy farmers on how the low milk price is impacting suggests.

Many will revert to the sharemilking arrangement when conditions improve as they believe in the sharemilking system in the long run.

For those who have never used a contract milker I thought it would be useful if I set out what it entails.

The variable order sharemilker and the contract milker may have similar responsibilities.

The first is covered by the Sharemilking Agreements Order 2011 and the Sharemilking Agreements Act 1937, which gives a level of protection for the sharemilker.

The contract milker sits under Commercial Law and carries more risk.

A contract milker is paid a fee calculated on an agreed price based on the amount of milk produced, expressed as the number of cents per kilogramme of milk produced. They work as an independent contractor.

This independence is the same as that of the sharemilker and is critical to this type of business arrangement. Not allowing the contract milker to work independently has consequences for the farm owner, because it shifts the relationship to one of employer/employee, which means the farm owner will then find themselves responsible for such things as holiday pay and sick leave.

As in the sharemilking arrangement, the contract milker works to implement the farm owner's farm policy.

They are responsible for engaging staff and running the farm.

They will also be liable for agreed costs (including ACC), which should be made clear during the discussions when setting up the contract.

Regular reporting on such things as feed on hand and the health of cows will help the farm owner stay in touch with how the farm is running.

Those farmers who chose this option to help their sharemilker, by shifting the business arrangement over to a contract milking one, will continue their business relationship with the person they picked to run their farm this season.

Little should change in the way the farm is run except for the way in which the profit from the business is split.

The farm owner now carries all the risk/benefits of milk price volatility while remaining a 'hands-off' farmer and the now contract milker continues on as before but has more certainty of cash flow without the volatility risks/benefits.

This change of business arrangement will not suit everyone and should only be done after full consultation with professionals and the other party.

Yes, Federated Farmers does have an up to date contract for contract milkers, but this article is not about selling a product.

We want farmers to find the best option that suits their business and this is just one of them. Having good information helps find solutions.