Commercial Agriculture Program

 

Fall 2009

Sharemilking, an opportunity for Missouri’s Dairy future

By Michelle Proctor, Senior Information Specialist

"The conventional definition of management is getting work done through people, but real management is developing people through work."

Joe Horner, University of Missouri Extension Commercial Agriculture Program, dairy economist, quoted a famous banker, as he explained the concept of Sharemilking to hundreds of participants gathered in Joplin for the Missouri Dairy Grazing Conference in July.

Horner believes that the future of some Missouri dairies may lie in the adoption of a career path similar to the traditional New Zealand system, involving sharemilking leading to ownership.

Sharemilking historically began in Scotland and was imported into New Zealand in the late nineteenth century. The concept of sharefarming is not new in the United States either. Farmers have been sharecropping for centuries. Beef cow share leases are common in the United States. Sharemilking contracts probably achieved such success in New Zealand’s dairy industry because clean, robust contracts are simpler to create with grazing dairies than with confinement dairies.

In the traditional New Zealand Dairy Career Path a potential dairyman begins as an employee, proceeds to manager, contract milker, 20% low order sharemilker, 50% sharemilker, dairy owner, then to an equity partner in a larger dairy.

A 20% low order sharemilking arrangement is one where the owner provides the assets while the sharemilker provides all labor and perhaps some management. The milk check and some key operating expenses are shared 80% to the owner, 20% to the sharemilker.

The next step would be to move up to a 50% arrangement where the sharemilker purchases the herd and equipment. The milk check and some key operating expenses are split 50:50 between the landowner and sharemilker.

Contracts are not limited to dividing the milk checks exactly 80:20 in the low order arrangement or 50:50 in the higher order. The key is to divide the proceeds according to the contribution.

For some dairymen, the next step up the ladder to farm ownership may mean selling the herd and machinery to another sharemilker and using the cattle and machinery proceeds as a down payment toward owning a farm, giving the next sharemilker an opportunity to populate the new farm with his cattle.

Jeff Hayes served as a panelist at the Missouri Dairy Grazing Conference discussing his experiences as a sharemilker. Jeff found out about the Grasslands Consultants career program by word of mouth. He interviewed, was hired, and began as a manager.

Sharemilker's home on premises at Wilson Springs Dairies, Carthage, MO, owned by Grasslands Consultants, LLC

Jeff spent four years learning about dairying and grass farming before becoming Grassland’s first American sharemilker in January 2008. He currently milks 550 crossbred cows on a seasonal pasture based dairy near Wentworth, Missouri. Grasslands Consultants LLC has three other similar sharemilkers on other farms in Southwest Missouri.

The final stage of dairy ownership is known as the equity partnership. In this agreement, a group of investors, large or small, pool their resources to provide equity for a larger dairy farm. Building a new dairy farm requires a significant amount of capital. Equity partnerships allow more money to be pooled, thus allowing a larger operation to be created. Larger operations may be able to achieve economies of scale for the farm.

"A key strategy in forming a successful equity partnership is to involve people with different skills. One investor might be very good at cow health and management, another at forage management, and a third might be best at finances." Horner says. By bringing this sort of a group together as an equity partnership, the operation can benefit from each set of unique skills.

On September 11, at the University of Missouri Southwest Center Field Day in Mt. Vernon, Horner asked, "Given today’s financial realities, how can we create a viable dairy pathway for the next generation? How can we overcome the ‘Dairy Dilemma’?

To solve the ‘Dairy Dilemma’ we must enable older dairymen to retire without losing their lifetime’s accumulation of dairy specific investments. We must also enable potential young dairyman to get an ownership foothold in the industry, even if they don’t have the equity necessary to create a minimally viable sized dairy."

Sharemilking provides an opportunity for potential young dairyman who cannot find financing to start dairying. The lump size equity necessary to leverage and create a minimal sized dairy is beyond the reach of most people in their 20s and 30s.

Joe Horner answers questions on sharemilking at the Southwest Center Field on September

Sharemilking helps dairy owners find and keep motivated workers. It gives an incentive to older dairymen to reinvest in their facilities after age 50 because they know the dairying business can continue generating returns after their looming retirement. It allows those who want to remain connected to the dairy business an opportunity to stay involved without having to bear all the financial risk or labor.

Horner recommends written contracts. "Discuss and work out all the physical and financial responsibilities of each participant before entering into an agreement." The University of Missouri Extension Commercial Agriculture Program has created a website to help dairymen learn about sharemilking and other steps on the dairy career path.

The sharemilking website is available at: http://agebb.missouri.edu/dairy/grazing/sharemilking/index.htm.

MU also maintains a site called Missouri Dairy Business Opportunities, http://agebb.missouri.edu/dairylink/opportunities/, for linking potential dairy producers with established dairy producers.

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