A beginning dairy farmer may choose to begin by initially renting land and facilities while building equity in cows. Alternatively, a new dairy farmer may enter into a sharemilking agreement, where he or she operates the farm on behalf of or along with the farm owner for an agreed upon split of income and expense.
Rental or sharemilking agreements can be used to help a beginning dairy farmer build capital while gaining the experience that will one day allow them to have their own dairy farm. There are a number of things that need to be carefully considered when entering into these types of agreements.
Dairy Rental Agreements
The North Central Farm Management Extension Committee reported in their 2014 Farm Building Rental Rate Survey that the average rental rate paid for milking parlor and cow housing was $12.16 per cow per month, with a range of $6.25 to $16.67. The same survey reported the average rental rate for heifer housing to be $0.31 per head per day when no labor or feed were included in the rental agreement and $2.28 per head per day when labor and feed were included in the rental agreement. The survey assumed that building tenants would provide labor and management and pay the cost of utilities and minor upkeep, while owners would generally be responsible for major repairs and insurance coverage.
It is important to remember that the average rental prices above are only averages. Actual rental rates for a particular property will depend on many factors, such as; location, condition of the facilities, and who is responsible for utilities and repairs. To get a better idea of the rental value of a specific dairy, the North Central Regional Cooperative Extension Service publication Rental Agreements for Farm Buildings and Livestock Facilities provides guidelines for establishing a rental rate.
Establishing a Lease
To protect the interests of both the tenant and property owner, lease agreements should clearly define all terms of the agreement. Items that should be clearly spelled out in a lease agreement include:
- Who is responsible for major and minor repairs to the facility?
- Who is responsible for water, electricity, and other utilities?
- Who is responsible for manure disposal?
- Who is responsible for insurance?
- What is the duration of the lease agreement?
It is also advisable for the owner and tenant to walk through the facility together at the start of the lease and document any damage and areas of concern. Maintaining an open dialog between the owner and tenant will go a long way in maintaining good relations between the parties involved.
In some countries, sharemilking agreements have become a major pathway for young people with limited capital and sometimes limited experience to enter into the dairy industry. In a sharemilking agreement, the sharemilker may initially provide the cows, while the farm owner provides the facilities, equipment, and land. Sharemilking differs from renting in that both parties (the farm owner and sharemilker) remain active in the day to day management and operation of the farm, with the sharemilker taking on more responsibility as he or she builds equity and experience.
Before entering into a formal sharemilking agreement, it is advisable for the future sharemilker to start out as an employee of the dairy. This allows both the farm owner and future sharemilker the opportunity to learn how they work together. If personality conflicts exist between the parties it is better to find out before farm finances become too interconnected.
Similar to a rental agreement a sharemilking agreement should be well defined at the beginning of the partnership. Things that need to be considered include:
- Clearly define what each party brings to the agreement.
- When will the agreement begin and end.
- How will assets be divided at the end of the agreement or if the agreement needs to be ended prematurely?
- How will expenses and income be divided?
- How will the sharemilker increase equity and ownership in the dairy?