WORDS & IMAGES PROVIDED BY FEDERATED FARMERS
Dairy farmers weighing up a move into share farming next season should take time to know their numbers before signing on the dotted line, Federated Farmers leaders say.
“Going sharemilking or contract milking is a really exciting step, but it’s crucial to crunch your numbers and make sure a job will be profitable before you sign,” Federated Farmers National Sharefarmer Chair, Sam Ebbett says.
“I know budgeting and financial stuff isn’t everyone’s favourite thing, but it’s probably the most important step before you move from a wage-paying farm manager job into share farming.”
He says having a crystal-clear understanding of all the income and expense figures, and checking them with someone you trust, like an accountant, could make all the difference.
“You simply have to make sure the role is financially viable—that you’re actually going to make profit from the job.
“Knowing your numbers first could well prevent you from getting into the season and suddenly discovering you’re not making any money.”
Ebbett says he’s seen too many contract milkers, in particular, get into trouble because they haven’t done the financial groundwork beforehand.
“It’s not uncommon for new contract milkers to get a massive overdraft and then, by the time August comes around, they’re $50,000 in the hole before they’ve even started making money.
“Then they get a $40,000 pay cheque from Fonterra or the farm owner—whoever is paying them—and they’ve never had that much money in their hand at once, and they go and blow it on a new ute.
“That kind of stuff is still happening, unfortunately.
“You need to be able to budget well and set aside money to pay for your costs, including tax and GST, or you can end up over your head.”
Federated Farmers National ShareFarm Owner Chair John Numan says, there are great opportunities for progression in the dairy sector, but a lack of basic financial skills is holding some share farmers back from succeeding.
He agrees with Ebbett that knowing your numbers inside out is critical to succeeding in share farming and continuing to progress through the industry.
His personal view is that young farmers should focus on saving and investing hard before moving into contract milking or sharemilking.
“It’s my belief that, if you need an overdraft to take on your first contract milking or lower-order sharemilking position to cover the first few months when there’s little income, perhaps you continue managing for a while longer.
“I think it’s better to have saved some surplus funds to get you through that period, unless you require an overdraft facility because you’re investing your savings into profit-making opportunities.”
Numan says there are plenty of excellent resources available to help young farmers upskill in finances, like DairyNZ’s contract milker premium calculator.
“That’s been developed to show your potential earning ability in a contract milking role compared to a management role.
“It tells you the premium you’d expect to receive for being self-employed and covering for your own time off, all the costs involved and so on.”
DairyNZ Business Specialist Paul Bird, one of the developers of the contract milker premium calculator, agrees there are still many farmers who don’t crunch their numbers properly before signing agreements.
He says the premium calculator is an easy and sure-fire way to do it.
“Farmers need to be very careful before going into a partnership—it can be an amazing opportunity, or it can be disastrous.
“With the calculator, you plug in the offered contract rate or variable order percentage, and the costs you think you’ll pay. It will then provide an estimate of the premium you’d receive over and above a management wage.
“If the premium for being self-employed isn’t enough, then working with the farm owner, you can tweak it by lifting the contract rate or negotiating some of the costs until the premium is satisfactory.”