Contract Milking explained - a smarter way to share the risk

Brent Boyce
FarmWise Nelson/Marlborough

Contract Milking (CM) agreements have overtaken Variable Order Sharemilking (VOS) in popularity over the past decade, largely due to the harsh lessons from the 2014 dairy payout crash. When the milk solids (MS) payout dropped from $8.40 to $4.50 per kg/MS, many VOS businesses took a big hit. In contrast, CM offers more income stability.

Under a CM agreement, a contractor is paid a fixed rate per MS (e.g. $1.50 on 200,000 MS = $300,000). This shields them from payout fluctuations. If production drops due to unforeseen events like drought, most CM contracts ensure the contractor still receives about 70% of their expected income.

The Contract Milker is self-employed, running their own business while following the farm owner’s (FO) overall policies. This makes compatibility between CM and FO crucial. A well-written Farm Policy Document is key, outlining the FO’s expectations clearly. If farming philosophies don’t align, it’s best not to enter an agreement at all.

Typically, a CM supplies labour and covers running costs such as electricity, consumables, light machinery, admin, ACC, and insurance. Their payment per MS needs to cover these costs plus a reasonable income—often $20,000 to $50,000 more than a salaried farm manager, to reflect the extra responsibility.

Some agreements include hybrid models, combining a base MS payment with a share of payout profits, offering a balance of stability and opportunity. Others are tailored to support new CMs with upfront payments early in the season, before milk revenue starts to flow.

Becoming a Contract Milker is a step up from managing a dairy farm and comes with increased responsibility. The CM has ‘skin in the game’ and requires solid farm skills, including animal and pasture husbandry, sound machinery ability, financial know-how, and strong people management as well as the ability to undertake and carry out compliance needs. It’s critical to understand the contract- no one wants a surprise- and get expert advice before signing.

Tools like DairyNZ’s online CM calculator will provide an indication of what the financial outcomes will likely be.  There are reputable versions of CM Agreements available from both Federated Farmers and FarmWise.  These are proven and reliable; and can be easily filled out.

Contract milking can be a great stepping stone toward herd ownership and eventually farm ownership. With the right support team and reputation, the path forward is promising. All the best for the end of the season!