June 19, 2009

Buying and selling a dairy herd: A guide for purchasers and vendors. Part 1: Introduction.

Agriculture, farming, husbandry, management, business, trading, buying, selling, practical advice, purchasers, vendors, contracts, avoiding pitfalls.

Part 1: Introduction

By Dr Clive Dalton

Dairying is New Zealand’s “knowledge economy” and the trading of livestock is an essential part of it. 

Small numbers of animals are bought and sold by farmers throughout the year, but there is also the major trading of whole herds, which is both a large strategic operation and a very big financial transaction.

Who buys herds?
Herds are bought in New Zealand by new people entering the dairy industry who have either purchased or leased a farm, then by ‘sharemilkers’ moving up from ‘lower order’ (e.g. 25%) to 50:50 when they provide the herd, or by established farmers who are expanding their operations.  These herd purchases can take place at any time of the year in New Zealand, but delivery is for June 1 which is taken as the start date for the new season.

Who sells herds?
Herds are sold by people who want to make a capital gain to reinvest in farming e.g. by buying land. They may have bought cows when prices were low to sell when prices rise again. Herds are also sold when people move on from farming to other businesses, and when they retire.

Moving into dairying
Moving into dairying is an exciting time, but you must know what you are doing. The best way to find this out is not by making costly mistakes. You need to learn from those with many years of experience in the industry, who understand your circumstances and who will look after your money. In any case, the money is most likely not yours but will belong to the bank!

Moving out of dairying
Moving out of the industry is no less exciting.  It’s a time of life when you cannot afford to make mistakes, as you need to get full value for what could have been a lifetime of hard work and dedication to your stock. This final transaction can also be tinged with emotion and sadness, but eased greatly by knowing that your herd is going to good young people who will farm them well.

Herd Managers’ Course
In the 1990s, ‘buying and selling a dairy herd’ was an important topic in The Waikato Polytech’s Herd Manager’s course, which I ran in the 1990s.  The course ran at five venues in the Waikato and over seven years with around 700 mature students keen to enter the industry completing it.  The students had come into the dairy industry from other trades by choice, or were already in the industry and wanted to upskill.

Guest tutor for these classes was Mr Ric Dawick, former Dairy Co-ordinator of Waikato Farmers, (now Allied Farmers Livestock Limited - renamed Allied Farmers Rural Limited 1/7/09).  In this role Ric had pioneered the drawing up of a legal contract to cover the problems that regularly arose in a dairy herd trading transaction.  He had experienced all of these.

Ric had enormous empathy with young people entering dairying, and from his 40-year career in the stock and station industry he was able to deliver the straight facts with no ‘spin’!  He had seen and could relate, the very best and the very worst of what could happen when buying and selling a dairy herd.

Keys to success
I strongly recommend anyone in the business of buying or selling a herd of cattle to read and digest the following words of wisdom by Ric Dawick. If you are a purchaser, make sure you read the information for vendors, and vice versa.  Appreciating what’s involved in the other side of a transaction can be invaluable in avoiding problems.

You need to seek help from as many sources as possible and keep asking questions wherever you go.  Be prepared for conflicting advice, and for things that sound too good to be true – they usually are!

Seek help from reliable people who will get a lot more satisfaction from helping you before you make a move, than trying to dig you out of what can be a very expensive and stressful legal hole.

This material is provided in good faith for information purposes only, and the author does not accept any liability to any person for actions taken as a result of the information or advice (or the use of such information or advice) provided in these pages.

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