Legally-bound contract best way to ‘outsource’ heifers

MICHAEL called in to me in the office. He said that because milk quota would be abolished in 2015, he wanted to maximise his land to produce as much milk as possible.

Michael was considering contracting-out the rearing of his heifers.

He said he could keep more high-margin cows if the replacement heifers were removed from the milking platform, and he was wondering what issues should be covered in a legal agreement.

My advice is to make initial enquiries, seek out a rearer with a good reputation, walk the farm with the rearer, to satisfy yourself that the standard of grassland is good, check with the Department that the two previous herd test results are clear, observe the quality of previous stock that the rearer has raised, and make a note of the boundary fences, etc.

Then, if you are happy, it is time for a written agreement.

The arrangement, in simple terms, involves a dairy farmer entering into a contractual agreement with another farmer, and the replacement stock is reared on the other farmer’s holding.

In all cases, a written agree-ment is critical.

Without a contract, or with badly drafted contracts, or incomplete contracts, ambiguity and disputes can occur down the line.

Drafting a contract also allows both parties to explore the issues and practicalities in advance of animal transfer, allowing potential problems to be addressed and ironed out at an early stage.

It might take time and money, but it is important to get both parties’ expectations and responsibilities down in writing before any arrangement commences.

As I explained to Michael, each agreement will vary, and should be tailored to each set of circumstances, but some of the important questions to ask are as follows.

How long is the agreement for? The normal rearing period is usually in or around 19 months.

What about animal health? The farmer’s animals must come from herds that are TB-free, and animals must have had a clear test within the previous 12 months.

Evidence of this should be produced to the rearer, in advance of entering into the agreement.

The rearer, in addition, may guarantee that they will not have any stock belonging to any other herd-owner during the period of the agreement.

What about vaccinations? Normally, the heifers will have been vaccinated, as necessary, when received.

If the animals have not been vaccinated prior to transporting to the rearer’s holding, the rearer will arrange vaccination, and charge the farmer for the cost and administration of the vaccine.

Evidence should be produced to the rearer that the animals have been vaccinated prior to the commencement of the agreement.

What about targets? This needs to be negotiated between the respective parties.

This should be specific. Will the heifers be weighed, and, if so, by whom and at what stage?

Target live-weights at specific ages should be set down.

Charges are agreed in advance, dependent upon the system, and normally will be on a per-head per-day basis, or per kilog ram of live weight-gain basis.

There are different types of contracts, but the most common arrangement is per animal per day, or per kilogram of live weight.

If the rearer is to receive a bonus for reaching target weights, this should be detailed in the agreement.

What about tagging and dehorning?

All stock should be tagged and dehorned on delivery to the rearer, and the rearer is responsible for replacing any damaged/lost tags.

What about breeding? The farmer is normally responsible for semen and other breeding costs.

The rearer is normally responsible for heat detection, insemination costs and pregnancy-diagnosis costs.

Mating procedures need to be decided upon, for example, if stock bulls are to be provided.

The breed and number of stock bulls should be agreed in advance.

The agreement may provide that the rearer must notify the farmer, should any heifers not be in-calf following scanning.

What about animal deaths? Who covers the cost of disposal?

Is the contractor paid for rearing the heifer up to the date of death, or will the rearing costs be refunded?

Knackery charges are usually the responsibility of the rearer.

The farmer should be notified within one day of the death of a heifer.

If losses arise of more than 5% of a herd, the rearer should refund, in full, any fees paid.

What about veterinary costs?

Who is responsible for these?

Veterinary tasks and medicines are normally at cost to the farmer, except while these have been brought about through the negligence of the rearer, in which case the rearer is responsible.

The rearer should notify the farmer before seeking veterinary assistance, unless in the case of emergency, where the farmer cannot be contacted.

Now is a good time to start preparing for contract agreement

With contract rearing usually kicking off in or around April, it is important to start getting your agreement in place now.

No contract is foolproof, but many of the issues that can cause difficulties can be addressed and ironed out by having a written agreement in place.

If targets aren’t achieved, who is at fault? Whoever is at fault, it is without doubt the farmer that will lose out the most in the long term.

He or she needs to ensure that a written contract is in place to ensure that targets and time periods are crystal clear.

If a rearer establishes a good reputation, and is producing a quality service, it will also be in his or her interest that a written contract is in place.

Who is responsible for the transportation of the animals?

Normally it is the farmer who bears this cost, both for delivery and return.

What about insurance? The rearer is responsible for insuring the animals for injury and loss suffered as a result of the farmer’s animals being on the rearer’s lands.

The farmer should ensure that evidence of insurance is produced to him before the commencement of the agree-ment, and should be entitled to seek copies of the up-to-date insurance throughout the agreement.

What happens if the grass doesn’t grow? What happens if the summer if too wet or too dry?

The existence of a contract unfortunately cannot dictate the weather.

A rearer should ensure that he or she has enough feed, in the event of undesirable weather.

Some of the other issues that should be addressed in an agreement are the following: ownership of the animals, what happens if a dispute arises, dates of arrival/planned removal of animals to/from the contractor, how often will the owner visit the contract rearer’s farm to check the heifers, what payment method is most suitable to operate?


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