At Revved Refunds, we’re dedicated to supporting New Zealand’s farming communities with insights and resources that matter. Sharemilking has long been a cornerstone of the dairy industry, serving as a stepping stone for farmers aspiring to become landowners. In this blog, we’ll explore the key types of sharemilking agreements, including variable order sharemilker and lower order sharemilker arrangements, their benefits, and considerations for choosing the right fit.
What is Sharemilking?
Sharemilking is a partnership where a sharemilker operates a dairy farm on behalf of a landowner. The sharemilker is responsible for running the farm but does not own the land. Instead, they receive a share of the income generated from milk and other farm products, such as silage.
The relationship between the farm owner and sharemilker is that of principal and independent contractor, not employer and employee. This distinction means sharemilkers must handle their own tax obligations and cannot rely on employment law for dispute resolution. Payments are distributed according to a negotiated percentage share of the farm’s income.
Types of Sharemilking Agreements
Sharemilking agreements in New Zealand generally fall into two categories:
1. Variable Order Sharemilker Agreement
In this arrangement:
The farm owner provides the land, buildings, milking plant, water supply, and most of the equipment.
The sharemilker supplies labour, covers shed expenses, and may provide some equipment, such as bikes or tractors.
The farm owner takes on the majority of costs and responsibilities, including fertiliser, building repairs, and weed control.
The income split is negotiated, with the farm owner typically receiving a larger share due to their higher investment in resources and costs.
This agreement is ideal for:
Sharemilkers seeking less financial risk, as they don’t need to supply a full herd.
Farm owners wanting to maintain greater control over farm operations.
Downsides:
Sharemilkers may have limited financial returns compared to herd-owning agreements.
Negotiating the income split can be complex and may vary significantly between farms.
2. Herd Owning (50/50) Sharemilker Agreement
Under a 50/50 agreement:
The farm owner provides the land, buildings, and essential infrastructure.
The sharemilker supplies the herd, machinery, and all farm operating costs.
Income from milk production is split evenly (50/50), with the sharemilker keeping all revenue from livestock sales.
This agreement is ideal for:
Experienced sharemilkers with the capital to invest in a herd and equipment.
Those looking to build equity and work towards farm ownership.
Downsides:
Significant financial risk for the sharemilker due to fluctuating milk prices and global market conditions.
High upfront costs for purchasing a herd and machinery.
Considerations for Sharemilking Agreements
Farm Owners: Ensure the agreement clearly defines roles and avoids creating a lease, which could limit your access to the land.
Sharemilkers: Be prepared to manage your own taxes (GST and IRD registration) and operate as an independent contractor. Having a robust, detailed agreement is key to avoiding disputes and ensuring smooth operations.
Earnings for Sharemilkers
Pay for sharemilkers varies depending on milk production and global market conditions. Here’s a general guide:
Variable Order Sharemilkers: Paid based on a percentage of milk income. Their earnings reflect their contributions, such as labour and shed costs.
Herd Owning Sharemilkers (50/50): Typically earn between 40% and 60% of milk income, plus revenue from livestock sales.
On average, sharemilkers in New Zealand earn between $64,000 and $97,000 annually. Contract milkers, who manage farms and negotiate a set price per kilogram of milk solids (kgMS), may earn differently based on the farm size and operational costs.
The salary of a sharemilker in NZ depends significantly on the type of agreement and farm size. Variable order sharemilkers often earn less than herd-owning sharemilkers but benefit from lower financial risk. Lower order sharemilkers, a subset of variable agreements, typically provide only labour and are compensated accordingly.
At Revved Refunds, we’re here to support New Zealand’s sharemilkers and farm owners alike. Whether it’s saving on fuel costs or navigating your farming journey, we’re here to help. For more information about sharemilking, check out resources like DairyNZ for additional guidance.