John and Paul entered into a Contract Rearing of Heifers arrangement last year. John is a local dairy farmer. He wished to expand milk production, but did not have access to more land. Paul is a semi-retired farmer who was seeking a new income stream. Last March, John met with Paul on his farm. John checked with the Department that Paul’s previous two herd test results were clear, observed the quality of previous stock that Paul has reared, and was satisfied. They discussed the terms, and both decided that it was best to draw up a written agreement in relation to the contract rearing of heifers. The arrangement has proved very successful. John is happy with the quality of the stock. Paul has established a good reputation as a rearer. With the milk quota abolished this year, it is a win-win situation for both parties. With contract rearing of heifer arrangements usually kicking off in or around the month of April, John and Paul are now making arrangements to put in place another written agreement. They will need to instruct a solicitor familiar with contract heifer rearing. The arrangement in simple terms involves a dairy farmer entering into a contractual agreement with another farmer, and the replacement stock are reared on the other farmer’s holding.
Why should you have a written agreement in place?
* It provides a thinking platform, to explore possible scenarios and issues in advance of entering into an agreement.
* Potential problems can be addressed and ironed out before entering into an agreement.
* It outlines the responsibilities and expectations of both parties.
What should be included in an agreement?
Contracts should include the following:
1.Confirmation of the duration of the agreement.
2. Both parties’ responsibilities, obligations and expectations.
3. Animal health: the farmer’s animals must come from herds that are TB-free, and animals must have a clear test within the previous 12 months.
4. Vaccinations: the heifers should be vaccinated, as necessary.
5. Targets specifically defined: will the heifers be weighed and, if so, by whom and at what stage?
There are different types of contracts, but the most common arrangement is per animal per day or per kilogram of live weight.
6. 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.
7. Veterinary costs — who is responsible for this?
8. Disputes: how are they to be resolved?
9. Dates of arrival/planned removal of animals.
10. What methods of payment are most suitable to operate?
11. How often will the owner visit the contract rearer’s farm to check the heifers?The above list is not exhaustive.
There are many “what if” questions. What if weight targets are not met? What about insurance? Who is responsible for the transportation of the animals? The answer to all of these questions lies in a well-drafted contract.
Every situation is unique. However, what is critical is to ensure you have a written agreement in place. The success or failure of a contract heifer rearing enterprise can depend on the quality of the contract between the heifer rearer and the dairy farmer. Badly constructed contracts, incomplete contracts, or no contracts, often result in uncertainty, and ultimately a dispute between the parties.
Whoever is at fault in a dispute, it is without doubt the farmer who will lose out the most in the long-term. The rearer who establishes a good reputation and is delivering a quality service will need to protect his interest, by having a written agreement in place.
A year on, John and Paul’s arrangement is very positive. Paul is delighted to have a regular monthly income, and because he has an interest in dairy stock, he enjoys it. John has had the opportunity to expand production without suffering the burden of spending huge monies on acquiring land. John and Paul both agree, “A written contract is essential. It provided clarity between us in advance of entering into an agreement, and identified any possible roadblocks, so that any issues could be ironed out in advance”. Dealing with a solicitor who is familiar with contract heifer rearing is essential. April is fast approaching, so whether you are the dairy farmer or the heifer rearer, you need to start getting your written agreement in place now.
See walshandpartners.ie/blog for more!