Meeting to explain new payouts to sharemilkers

Fonterra is hosting a meeting for sharemilkers in Stratford next week to explain how they should deal with issues arising from milk payout structure changes that could affect their income.

Federated Farmers is warning that sharemilkers who don't do their homework on changes to the way Fonterra pays the dividend portion of its payout could lose thousands of dollars in income.

Under standard sharemilking agreements farm owners and sharemilkers split the payout, made up of a milk production portion and a value-added share based on actual profit, equally between them.

The change, voted in at Fonterra's annual meeting in November, means the value- added portion has become a dividend which can be paid only to the shareholding farm owner.

The federation says the average 50-50 sharemilker agreement on a farm producing 150,000 kilograms of milksolids a year could potentially lose $15,000 next year. But if prices remain high and that portion of the payment grows as Fonterra predicts, they could potentially be out of pocket by $50,000.

Taranaki sharemilking advocate Lorette Astwood- Davidson is urging sharemilkers to attend the meeting, in the Stratford TET centre, at 10am next Wednesday.

"Sharemilkers who are entitled to a portion of the dividend have until February 28 to get the Dividend Related Payment Adjustment form to Fonterra," she says.

"If this form doesn't get actioned, it could potentially be difficult for some sharemilkers to get their money off the farm owner. This could create unnecessary paperwork and potential GST traps.

"Without a doubt, neither sharemilkers nor farm owners should sign any new share- milking agreements until a professional (i.e. Federated Farmers or a solicitor) has reviewed the document first. Each party needs to be 100 per cent clear about what they are signing and what their entitlements are under the agreement."

Ms Davidson says she has heard of farm owners who are also considering having their future sharemilking agreements based on a higher percentage of the milk price, and 0% of the dividend. This could work in the favour of the sharemilker, as it eliminated their exposure to retentions taken from dividends.

"I think communication is the key," Ms Astwood-Davidson said. "Sharemilkers need to approach and talk with the farm owner, and show them why they are entitled to the dividend portion of the payout - providing their sharemilking agreement says they are entitled.

"I feel some farm owners may be unclear as to why their sharemilker is actually entitled to a portion of the dividend. "Considering the owner has invested the share capital, on the face of it, it could appear unfair to the farm owner that the sharemilker receives a portion of the dividend. This means the sharemilker will need to explain clearly to the farm owner why they are entitled to a portion of this income."

Meanwhile, Federated Farmers is reviewing the Variable Order Sharemilking Agreement. Scottie McLeod, Federated Farmers national sharemilker employers chairperson, says the federation's intention is that sharemilkers should not be disadvantaged in the changes.

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