Feasibility of innovative sharemilking arrangements

Schröer-Merker, E. and Tozer, Peter (2019) Feasibility of innovative sharemilking arrangements. Animal Production Science.

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Abstract

Sharemilking is an entry point for new dairy producers in the New Zealand industry, and, traditionally, most sharemilking arrangements have been a 50 : 50 arrangement. These structures are rigid in the share of milk income and apportionment of operating costs between the land owner and sharemilker. With milk-price volatility rising, these types of arrangements increase the financial and business risks, particularly for sharemilkers. These risks are further compounded because the value of the primary asset owned by sharemilkers, i.e. cows, declines to a much greater extent than does the value of land with a fall in milk price, reducing total wealth. We tested the hypothesis that flexible sharemilking arrangements will reduce the variability of income of sharemilkers, making for a sustainable income pattern. A synthesised dairy farm system was used to compare an innovative arrangement where milk revenue was divided on the basis of milk payout price, rather than simply on the basis of contribution. Stochasticity was incorporated into the model to capture milk-price volatility through the use of a stochastic price simulator. This approach allowed decision rules to be built into the model on the basis of revenue sharing, so as to reduce income variability. The identified innovative structures could be used by new entrants, sharemilkers and land owners to encourage alternative forms of sharemilking revenue sharing, and to provide information and education to the dairy industry. These alternative structures could be beneficial to industry sustainability, given that the dairy industry contributes a significant amount to New Zealand’s economy and export earnings, and price volatility is expected to continue to increase.

Item Type: Article
Keywords: dairy, income volatility, net profit, resilience, risk, sustainable
Divisions: Land, Farm and Agribusiness Management
Depositing User: Ms Kath Osborn
Date Deposited: 23 Aug 2019 15:12
Last Modified: 23 Aug 2019 15:12
URI: http://hau.repository.guildhe.ac.uk/id/eprint/17439

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