Tough conditions drive increase in contract issues

Two years of low payouts coupled with this season’s drought in Taranaki have highlighted risks to people working on farms under contract milking or variable order sharemilking agreements.

The number of contract milkers and sharemilkers seeking professional advice on potential disputes under their contracts is increasing markedly.

Some farm owners are not receiving correct professional advice as to what they are able to do under their contracts.

Owners need to understand their obligations before making decisions that affect the income of their contract milkers or variable order sharemilkers.

We are seeing far too many agreements that have not been completed fully and/or correctly.

A properly completed agreement can help to avoid disputes.

Management and control provisions in the agreements do not give farm owners the absolute right to alter material terms in agreements including:

❚ Minimum stock numbers

❚ Cow feeding requirements

❚ Method of payment

❚ Fertiliser to be applied ❚ The purchase of supplements Parties to sharemilking and contract milking agreements need to carefully consider the terms of their agreements and make sure that they are communicating well with the other party to negotiate through the difficult drought conditions and subsequent affect on their incomes.

At the end of a poor season regardless of payout or drought the farm owner still retains their farm asset.

Too many contract milkers or variable order sharemilkers will finish their season in debt even though they have managed their businesses efficiently,

If these people were employees they would have a guaranteed income, some weekends off and holidays,

Contract milkers or variable order sharemilkers who are physically working on someone else’s land must make a living or why would they continue to stay?

If the drought means that contract milkers or sharemilkers cannot make a living then they may walk off farms even though their agreement says that they are not entitled to do so.

Leaving the farm before the end of a season may be a better decision emotionally, financially and mentally than staying until May 31.

One way to protect variable order sharemilkers or contract milkers income would be to provide an income ‘‘floor’’ in their agreement.

This would provide that the owner guaranteed a minimum payment to the variable order sharemilker or contract milker.

For those under a contract milking agreement this amount could be based on say the farm’s average three year milk solid production multiplied by cents per kilogram of milk solids produced.

For example: 100,000kg/MS x $1.10 = minimum gross payment of $110,000.00 plus GST.

A variable order sharemilker could receive a guaranteed minimum income based on an agreed milk solid production figure multiplied by their agreed percentage and an agreed payout figure.

For example: 100,000kg/MS x 21 per cent x $5.50 = minimum gross payment of $115,500.00 plus GST.

If financial security cannot be guaranteed to contract milkers or sharemilkers who will farm the farm owner’s land in the future?

❚ Philip Armitstead is a Partner at Thomson O’Neil & Co Solicitors. The firm has offices at Stratford, Eltham, Opunake and Patea in Taranaki.