Sharing way to make a start in dairy farming

John Sexton is the share farmer in the 100-cow share-farming arrangement set up by Teagasc and Shinagh Estates in Bandon, Co Cork.

Sharing way to make a start in dairy farming

John Sexton is the share farmer in the 100-cow share-farming arrangement set up by Teagasc and Shinagh Estates in Bandon, Co Cork.

After years of being an employee on dairy farms, John now owns his own cows.

He is 18 months into the share-farming arrangement on the 34-hectare farm at Gurteen, near Bandon, which is owned by Shinagh Estates Ltd, which is in turn a company owned by the four West Cork dairy co-ops.

In 2015, Shinagh Estates invested €250,000 to convert what was then an out-farm into a 100-cow dairy unit.

John explains the project in an article in the current edition of Today’s Farm, the bi-monthly magazine produced by Teagasc and the Agricultural Trust.

“The aim was to demonstrate how a share-farming model could provide a good income for the farm’s owners but also enable a person with some capital to start a dairy farming business,” says John, in the article compiled by Paidi Kelly of Teagasc Moorepark, and John McNamara, Teagasc adviser, Clonakilty.

“The farm shouldn’t be confused with either the agricultural college in Tipperary or the nearby Shinagh Dairy Farm, which was set up by Shinagh Estates and Teagasc in 2011, to show how leasing land can facilitate profitable expansion.

The Shinagh Dairy Farm is a great success, but it required very substantial startup capital and other models, like the one at Gurteen, are needed, to help people make a start in dairying.

After a lengthy selection process, which took into account his education, energy, enthusiasm and experience, John Sexton was selected for the share-farming model.

Share-farming arrangements can last any period of time, but typically contracts are signed for a minimum of three years.

In this case, the contract is seven years long, which was the timeframe John required to secure the debt on his 93 cows, which he provided for the arrangement, as well as being responsible for the ongoing farm management.

“In theory, I could move on before the end of the agreement, in which case I must give at least six months’ notice,” says John.

His home place is a fragmented 28-hectare farm at Donoughmore, Co Cork, where he has 36 heifer calves from 2017, and 30 in-calf heifers born in the spring of 2016.

This amounts to €52,000 worth of young stock (depending on market values) to go with the equity he has in the herd at Gurteen.

“The aim is to build equity and potentially move to another opportunity at the end of the current agreement,” says John.

His departure would generate an opportunity for someone else.

Share-farming

The principle of share-farming is that the landowner provides the land and infrastructure (milking parlour, wintering facilities, roadways, etc) for dairying, and the share farmer will provide some or all of the livestock, all the labour and management of the farm. Machinery can be provided by either party.

Each party gets a percentage of the milk cheque.

In this case, the split is 60:40 to John.

Stock sales are his, as he owns the cows, and all of the Basic Payment goes to Shinagh Estates.

Shinagh Estates cover costs relating to their assets, such as roadway repairs, while John covers costs relating to his assets, such as animal health costs.

Costs associated with producing milk from the farm, such as feed and fertiliser costs, are split in the same ratio as the milk cheque.

All of these splits are described in the legally binding share-farming agreement, templates of which are available on the Teagasc website.

Teagasc developed this template specifically for dairy share-farming in Ireland.

“It is vital that both parties complete a business plan and seek the advice of a Teagasc advisor, solicitor and tax accountant during the formation of the arrangement,” says Tom Curran of Teagasc.

Splitting expenses

In some share-farming arrangements, income and costs are split at source, such as for milk sales, the milk processor will issue a milk statement to both the share farmer and farm owner with their percentage of the milk for that month.

The financial expenses are monitored using a specially modified version of the Teagasc cost control planner programme.

For inputs, the supplier may invoice each party for their share, for example, if ordering six tonnes of fertiliser, three tonnes will be invoiced to each party.

Alternatively, income and expenses can be split at farm level. For example, the milk cheque is paid to the farm owner, and they then pass this on to the share farmer, recording the transaction with a short invoice and receipt.

Or the fertiliser is charged to one account and, at the end of the month, the farm owner and share farmer meet up, to keep accounts up to date.

This is how the Gurteen share farming is operated, with Shinagh Estates being the initial point of contact for suppliers.

“On top of the legal agreement between the two parties, there are other principles of how share farming works, which need to be adhered to for a good working relationship,” says John McNamara, Teagasc adviser, Clonakilty.

These principles are: Respect for John to look after the farm as if it was his own, and respect for Shinagh Estates to give John freedom to manage the farm, within reason, once certain key performance indicators are met.

To ensure a good working relationship, it is advisable to have a third party, such as a consultant/adviser, as an independent party who will monitor how the farm is performing relative to targets, and how well both parties are meeting their obligations.

In this case, John McNamara fulfils the role and he facilitates a monthly meeting with both parties, to review performance.

Performance to date

“2016 was a difficult year for establishing farmers, never mind a new start-up,” says John’s local Teagasc adviser, Grainne Hurley.

John had put a herd together at the end of 2015 which comprised 50% first lactation heifers.

The average age of the herd last year was 1.9 lactations.

Last year, 342kg of MS per cow was sold, after feeding 460kg of meal per cow.

This year, John is hoping to sell 380kg of MS per cow, and has fed only 200kg of meal per cow to date.

A total of 11% of the herd was empty after 12 weeks of breeding last year, so only 10 first-lactation heifers were bought in this year.

Cash was tight last year, with the poor milk price, and John went to interest-only repayments.

“The lift in milk price means the outlook is much better this year,” says John.

“I’m hoping to achieve a return on investment of 10% in 2017.”

As the herd matures, performance will continue to improve, as will John’s return on investment and net worth.

“After a difficult start, I’m confident of making significant progress over the next few years on the Gurteen farm.”

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