Jeff Kenny, of Christchurch Lawlink firm Wynn Williams & Co, discusses sharemilking in New Zealand.
Sharemilking is a kind of dairy farming unique to New Zealand.
A sharemilker carries out dairy farming work as an independent contractor in return for a share of the income from selling milk and other produce.
The milker's right to receive a share of the farm's income is a key requirement for a sharemilking contract. An agreement which gives the milker, for example, a fixed payment per season or per kilo of milk fat is not a sharemilking agreement because the milker's payment is not referenced to a share of the farm's income.
Types of sharemilking agreement
Sharemilking agreements can be divided into three classes.
1. The farm owner providing the herd
These agreements are governed by the Sharemilking Agreements Act 1937. In addition, the Shareholding Agreements Order 2001 sets out a model agreement. These types of agreements are sometimes referred to as contract milking agreements or 60/40 milking agreements.
2. The milker supplying the herd
There is no legal restriction on this type of agreement. Usually the land owner and the milker receive an equal share of the income under these agreements. They are usually called 50/50 milking agreements.
3. Hybrid agreements where the milker provides some of the herd and the owner provides the rest
These agreements are not common and the extent to which they are regulated under the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 is unclear. They are sometimes called variable agreements.
Sharemilking agreements usually create a licence, rather than a lease, to allow the milker to use the land. From the owner's point of view, it is important to ensure that the agreement generally creates a licence. If the agreement creates a lease, this will give the milker the right of exclusive possession of the land. Then the owner may have difficulty obtaining regular access to the land.
Sharemilking agreements create personal rights and duties between the milker and the owner. As a result it is not possible for one of them to dispose of their rights under the sharemilking agreement automatically. This means that if the owner wishes to sell the farm, the sharemilking agreement will need to state that that is possible.
Having a sharemilking agreement means that the milker is an independent contractor rather than an employee. Therefore the Employment Relations Act 2000 will not apply. Normally the sharemilking agreement will provide for disputes to be determined by arbitration.
60/40 Agreements
These agreements are usually closely based on the model agreement set out in the Sharemilking Agreements Order 2001. The reason for this is that if any clause of the actual agreement is different from the model, it will be ineffective to the extent that it is less favourable to the milker. However, clauses that are less favourable to the owner will be fully effective. Therefore it can be undesirable for the owner to agree to clauses in 60/40 agreements that are materially different to the equivalent clause contained in the model.
Traditionally the milker's profit share under these agreements has been 29% or 39% depending on whether the milker carried out general farm work as well as milking the cows. However, under the Sharemilking Agreements Order 2001, the profit share is negotiable if the herd is more than 300 cows and must be at least 21% if the herd is 300 cows or less.
The sharemilker and the owner can also select some other options related to expenses and returns that are set out in the Sharemilking Agreements Order 2001.
Under the Sharemilking Agreements Order 2001 there are now various controls on the amount of feed that must be left on the farm at the end of the sharemilking agreement.
50/50 Agreements
The parties are free to negotiate whatever agreement they wish where the milker provides the cows. There are a number of common agreements in use. The most common of these is prepared by Federated Farmers of New Zealand - Waikato Dairy Section (and others) and is called the "Waikato Agreement".
Under these kinds of agreement the owner is free to negotiate whatever terms he or she likes. Therefore the owner should attempt to have the agreement include the key aspects of the condition of the farm and production targets.
For example, the agreement may require a minimum amount of dry matter per effective hectare to be left on the property when the agreement expires. Similarly, the agreement may require that the milker meet a minimum milk fat production target each season (unless there are factors beyond his or her reasonable control).
From the milker's point of view the agreement ought to require warranties from the owner as to the animal health status and contamination of the farm.
The milker should also ensure that the owner agrees to allow the milker's financier access to the milker's cows under the milker's stock security.
All of these matters are issues that commonly arise but sometimes are not dealt with by the standard agreements.
From the owner's point of view, it is also important to ensure that if the milker is married or living in a de facto relationship and the partner has a claim on the cows, the milker and his or her partner both sign the sharemilking. Then the owner will have a contractual claim against both the partners if differences arise between them. If this is not done, the milker may be subject to a claim from his or her partner and this may lead to the milker being unable to fulfil the milking agreement. Neither the owner nor the milker may transfer their rights automatically under a milking agreement. If this is to be allowed as of right, the milking agreement must permit it expressly.
Variable agreements
Under these agreements the milker provides some of the cows and the owner provides others. The extent to which the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 applies to these kinds of agreement is unclear.
In order to avoid this uncertainty it is best for the owner and the milker to sign a cow lease. Here the owner leases cows to the milker, and signs a 50/50 milking agreement under which the milker is responsible for providing the entire herd. This will mean that the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 do not apply. The parties will then be free to negotiate whatever terms they wish (so long as they ensure that the profit share is 50/50).
Copyright The Lawlink Group Ltd 2001
Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters. Any reference to law and legislation is to New Zealand law and legislation.
Jeff Kenny is a Consultant in the Lawlink firm of Wynn Williams & Co. His areas of practice include company law, commercial securities, Securities Act matters, commercial property, joint ventures, and trusts.
Web site:
Wynn Williams
Email: jeff.kenny@wynnwilliams.co.nz
March 2001
Sharemilking is a kind of dairy farming unique to New Zealand.
A sharemilker carries out dairy farming work as an independent contractor in return for a share of the income from selling milk and other produce.
The milker's right to receive a share of the farm's income is a key requirement for a sharemilking contract. An agreement which gives the milker, for example, a fixed payment per season or per kilo of milk fat is not a sharemilking agreement because the milker's payment is not referenced to a share of the farm's income.
Types of sharemilking agreement
Sharemilking agreements can be divided into three classes.
1. The farm owner providing the herd
These agreements are governed by the Sharemilking Agreements Act 1937. In addition, the Shareholding Agreements Order 2001 sets out a model agreement. These types of agreements are sometimes referred to as contract milking agreements or 60/40 milking agreements.
2. The milker supplying the herd
There is no legal restriction on this type of agreement. Usually the land owner and the milker receive an equal share of the income under these agreements. They are usually called 50/50 milking agreements.
3. Hybrid agreements where the milker provides some of the herd and the owner provides the rest
These agreements are not common and the extent to which they are regulated under the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 is unclear. They are sometimes called variable agreements.
Sharemilking agreements usually create a licence, rather than a lease, to allow the milker to use the land. From the owner's point of view, it is important to ensure that the agreement generally creates a licence. If the agreement creates a lease, this will give the milker the right of exclusive possession of the land. Then the owner may have difficulty obtaining regular access to the land.
Sharemilking agreements create personal rights and duties between the milker and the owner. As a result it is not possible for one of them to dispose of their rights under the sharemilking agreement automatically. This means that if the owner wishes to sell the farm, the sharemilking agreement will need to state that that is possible.
Having a sharemilking agreement means that the milker is an independent contractor rather than an employee. Therefore the Employment Relations Act 2000 will not apply. Normally the sharemilking agreement will provide for disputes to be determined by arbitration.
60/40 Agreements
These agreements are usually closely based on the model agreement set out in the Sharemilking Agreements Order 2001. The reason for this is that if any clause of the actual agreement is different from the model, it will be ineffective to the extent that it is less favourable to the milker. However, clauses that are less favourable to the owner will be fully effective. Therefore it can be undesirable for the owner to agree to clauses in 60/40 agreements that are materially different to the equivalent clause contained in the model.
Traditionally the milker's profit share under these agreements has been 29% or 39% depending on whether the milker carried out general farm work as well as milking the cows. However, under the Sharemilking Agreements Order 2001, the profit share is negotiable if the herd is more than 300 cows and must be at least 21% if the herd is 300 cows or less.
The sharemilker and the owner can also select some other options related to expenses and returns that are set out in the Sharemilking Agreements Order 2001.
Under the Sharemilking Agreements Order 2001 there are now various controls on the amount of feed that must be left on the farm at the end of the sharemilking agreement.
50/50 Agreements
The parties are free to negotiate whatever agreement they wish where the milker provides the cows. There are a number of common agreements in use. The most common of these is prepared by Federated Farmers of New Zealand - Waikato Dairy Section (and others) and is called the "Waikato Agreement".
Under these kinds of agreement the owner is free to negotiate whatever terms he or she likes. Therefore the owner should attempt to have the agreement include the key aspects of the condition of the farm and production targets.
For example, the agreement may require a minimum amount of dry matter per effective hectare to be left on the property when the agreement expires. Similarly, the agreement may require that the milker meet a minimum milk fat production target each season (unless there are factors beyond his or her reasonable control).
From the milker's point of view the agreement ought to require warranties from the owner as to the animal health status and contamination of the farm.
The milker should also ensure that the owner agrees to allow the milker's financier access to the milker's cows under the milker's stock security.
All of these matters are issues that commonly arise but sometimes are not dealt with by the standard agreements.
From the owner's point of view, it is also important to ensure that if the milker is married or living in a de facto relationship and the partner has a claim on the cows, the milker and his or her partner both sign the sharemilking. Then the owner will have a contractual claim against both the partners if differences arise between them. If this is not done, the milker may be subject to a claim from his or her partner and this may lead to the milker being unable to fulfil the milking agreement. Neither the owner nor the milker may transfer their rights automatically under a milking agreement. If this is to be allowed as of right, the milking agreement must permit it expressly.
Variable agreements
Under these agreements the milker provides some of the cows and the owner provides others. The extent to which the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 applies to these kinds of agreement is unclear.
In order to avoid this uncertainty it is best for the owner and the milker to sign a cow lease. Here the owner leases cows to the milker, and signs a 50/50 milking agreement under which the milker is responsible for providing the entire herd. This will mean that the Sharemilking Agreements Act 1937 and the Sharemilking Agreements Order 2001 do not apply. The parties will then be free to negotiate whatever terms they wish (so long as they ensure that the profit share is 50/50).
Copyright The Lawlink Group Ltd 2001
Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters. Any reference to law and legislation is to New Zealand law and legislation.
Jeff Kenny is a Consultant in the Lawlink firm of Wynn Williams & Co. His areas of practice include company law, commercial securities, Securities Act matters, commercial property, joint ventures, and trusts.
Web site:
Wynn Williams
Email: jeff.kenny@wynnwilliams.co.nz
March 2001
November, 2001
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