The pros and cons of contract rearing

GEOGRAPHIC and demographic factors around land availability present a barrier to expansion for many farmers.

The solution may lie in collaboration. Collaboration between dairy and non-dairy farmers in replacement heifer production may offer scope for a substantial increase in milk production while also presenting non-dairy farmers with a reliable new income opportunity.

Contract rearing will generally be considered only where access to land is a serious impediment to expansion.

However, contract rearing may also be an attractive option for those with adequate land but with a labour or infrastructure deficiency as it can allow a dairy farmer to concentrate solely on maximising his/her enterprise’s total milk production.

The arrangement in simple terms involves a dairy farmer entering into a contractual arrangement with another farmer.

Replacement stock are reared on the other farmer’s holding.

All variable and overhead costs (associated with rearing) are incurred by the rearer -for example, bedding, feed, fertiliser for grazing land etc.

Sometimes the stock owner (the dairy farmer) will cover the extra costs of specific vaccinations and breeding.

Charges are agreed in advance, dependent upon the system, and will be on a ‘per head per day basis’ or ‘per kg of liveweight gain’ basis.

The system of rearing will be agreed to by both parties in advance as will target growth rates.

Like any system, there are benefits and weaknesses which both parties must carefully weigh up.

BENEFITS

÷Where land availability is limited, it can offer the opportunity of increasing cow numbers by 20 - 25pc. ÷Where labour availability or farm infrastructure is deficient, contract rearing could be an option. ÷Removing drystock, i.e. replacements, will simplify the entire farming system, particularly grassland management. ÷The dairy farmer can focus his skills and capital on producing milk and the contract rearer on rearing stock. ÷Will provide labour savings for the dairy farmer. ÷The quality of heifer coming into the herd may improve. ÷The rearer has the assurance of a set price. ÷Could be an ideal opportunity for retiring dairy farmers. ÷The dairy farmer is utilising his own stock thereby retaining control of his herd’s genetic profile. ÷The arrangement is regulated by a formal contract with clearly defined roles and responsibilities.

÷Reduced control over the rearing of stock ÷Heifer quality may actually disimprove Future productivity of herd can be partially influenced by the abilities of the stock rearer. ÷Requires frequent communication, management and interaction with the rearer ÷Increased possibility of stock coming into contact with other animals on the contract rearer’s farm, whereby disease issues may arise post return ÷The consequences of disease issues arising on the contract rearer’s farm. ÷Disputes can arise

Martin O’Sullivan is the author of the ACA He is a partner in O’Sullivan Malone and Co, accountants and registered auditors. www.som.ie. Ph: 051 640397 THE COSTS of production as set out at table 1 and are based on the cost of rearing a heifer post weaning to a target weight of 530kg at calving at 24 months.

Contract rearing arrangements may vary in terms of the age that the calf leaves the farm and the amount of time prior to calving that she returns. Typically, it is recommended that the calf is transferred post weaning and returns within four weeks of calving, thereby spending in the region of 630 days on the rearer’s farm.

Table 2 sets out the amount that the contract rearer will be paid per heifer produced over the duration of the contract. The contribution towards fixed overhead costs is based on the typical fixed costs for a 40 hectare drystock farm stocked at 0.5 hectares per livestock unit.

In this example, the contract rearer is getting a total of €645 in respect of a return on land, labour and a contribution towards fixed overheads for each heifer returned. Needless to say this figure is negotiable and will vary from case to case.

Table 3 sets out the total cost to the farmer after taking account of the value of the calf to start with, mortality and the rearing costs to the point of transfer.

Financial benefit

Contract heifer rearing, at first glance, will appear far more expensive than home rearing because the farmer will not include a charge for his land, labour or overheads.

However, each heifer contract reared can be replaced by one cow and table 4 sets out the financial benefit accruing.

In addition, the dairy farmer will enjoy labour savings and will be in a position to concentrate his focus entirely on milk production which should result in improvements in dairy gross margins. Table 4 sets out the direct financial benefit per heifer replaced amounting to €265. At a 20pc replacement rate this will have the effect of improving the annual gross margin per cow by €53 which amounts to €5,300 for a 100-cow herd.