Contract Milking: A Pathway to Equity Growth in New Zealand's Dairy Sector

A comprehensive analysis by DairyNZ reveals significant trends in the contract milking sector in New Zealand. Over a span of nine years, contract milkers have experienced both increased revenues and expenses due to rising costs and inflation. Despite these changes, operating profits have remained steady, indicating the resilience of contract milkers in maintaining financial stability.

According to DairyNZ's data from 100 contract milkers participating in DairyBase, the average equity growth during the 2023/24 period was $42,900, after accounting for taxes, farm costs, and salaries. This reflects a strong potential for building equity within the contract milking framework.

DairyNZ business specialist Sarah Brown emphasizes that contract milking offers a straightforward structure that is accessible and easy to manage, positioning it as an ideal introduction to the business side of dairy farming. The simplicity of the arrangement is complemented by a need for clear understanding and due diligence in contract agreements.

Paul Bird, a senior business specialist at DairyNZ, highlights the importance of financial viability for both the contract milker and the farm owner. He notes that the success of a contract milking arrangement hinges on it being a business partnership rather than a mere employment arrangement. This requires both parties to benefit and ensure that the contract is profitable for the contract milker, given the additional responsibilities and risks they assume.

To ensure successful contract milking, DairyNZ identifies several key principles: financial viability, mutual understanding of goals and philosophies between the farm owner and contract milker, clarity of expectations, and the requisite skill set for managing the farm. Furthermore, a collaborative 'win-win' mindset is deemed crucial for the partnership's success.

The study also notes that farms in the top 25% for equity growth are characterized by higher profit per kilogram of milksolid and lower withdrawals from the business, which supports reinvestment and careful expense management. DairyNZ provides various tools and training to aid contract milkers, including annual cash budgets, a contract milker premium calculator, and benchmarking through DairyBase.