Changes Ahead For Sharemilking

10 April 2006

Changes Ahead For Sharemilking

Good communication between sharemilkers and their employers is vital during the switch from Fonterra peak notes to a capacity adjustment next season, say sharemilkers and sharemilker employers.

“Both parties to sharemilking agreements must communicate with each other and work towards an outcome that maintains a harmonious and successful business arrangement,” said Dean Bailey, chair of the Sharemilkers Section of Dairy Farmers of New Zealand (DFNZ).

“Sharemilkers supplying Fonterra must not be disadvantaged by the introduction of a capacity adjustment next season.”

Fonterra will from June replace peak notes with a capacity adjustment. Each shareholder will be able to provide a certain volume of milk over the peak without having to pay a capacity adjustment. If a farmer supplies more than this volume, the farmer will pay a capacity charge. If less, farmers will receive a payment.

For the majority of sharemilkers, the switch to a capacity charge or payment from June 2006 will result in very little change.

“But there will be a minority of sharemilkers who could be adversely affected, such as new dairy conversions, or farms which are expanding to increase production. These sharemilkers will receive a lower payout because their share of the total milk payout will be lessened by a capacity charge,” Mr Bailey said.

However, there will be farm owners with a low peak curve who will receive an enhanced payment. Some may choose not to share this premium with their sharemilker.

“It is therefore essential that both sharemilkers and farm owners are fully informed about how the capacity adjustment will affect the bottom line returns for their respective businesses,”said Michael Joyce, chair of the Sharemilker Employers Section of DFNZ.

“With the implementation of the capacity adjustment, it is important that sharemilkers are not placed in a worse financial position by this method of payment.

“One way of ensuring this is for the farm owner to elect that the sharemilkers will not be charged or share in any charges or payments resulting from the capacity adjustment,” Mr Joyce said.

“Any adjustment to payment must be agreed by both parties and must be nominated by the farm owner in the "Change of Sharemilking Arrangement" form available from Fonterra.

“It is important to note that if you do not notify any change to your sharemilking arrangement, payments between shareholder and sharemilker will be split under the current arrangement. This could result in the sharemilker receiving less income,” Mr Joyce said.

Finally, sharemilkers and employers must be aware that failing to discuss the effects of the change could result in a breach of their sharemilking agreement.

Sharemilkers and employers wanting to know more about the implications of the capacity adjustment should contact their local Fonterra field representative 0800 65 65 68.

DFNZ is the dairy arm of Federated Farmers of New Zealand.

ENDS

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