Owning and operating a dairy farm comes with special conditions: working all public holidays and weekends, starting at 5am and finishing at 6pm or so.
Your duties include animal husbandry, machinery and agronomy skills, coupled with the managerial responsibilities of a business that turns over about $800,000 annually.
But, erm, your pay? If you’re lucky, you get paid. As ABARES notes:
“Over the 10 years to 2015–16, the proportion of dairy farms recording negative farm business profits averaged 51 per cent a year.”
– ABARES, Farm Financial Performance
Since only half of us make a profit in any given year, many farmers simply do not pay ourselves for all the hours we work. Officially, though, we are due the grand sum of $28 per hour. This is the value of “imputed labour” – the work done by family members like Wayne and me that is unpaid.
As Dairy Australia explains in its DairyBase fact sheets:
“Imputed labour hours are valued at a standard rate per hour and reflectwhat it would cost to replace those hours with paid labour.”
It’s rather a lot less than the median $34.60 an hour paid to Australian male full-time employees. And, strangely, I can’t see how I could replace Wayne or myself for $28 per hour if one of us fell seriously ill.
Assuming we could find someone who, “under the direction of the owner or manager uses their expertise and skills in order to supervise and maintain the operation of a dairy farm,” that would be a Farm and Livestock Hand, Level 8 (FLH8).
Under the Pastoral Award, the minimum rate is $22.80 per hour, with time-and-a-half for overtime and double time for Sunday milkings. Assuming Wayne and I were only working 50 hours per week (the official industry standard for one FTE), the numbers look like this using Dairy Australia’s calculator:
That’s dizzyingly close to $28, isn’t it? But it doesn’t include the 9.5 per cent superannuation guarantee payment. That brings the hourly cost up to $30.43, well over the imputed labour cost of $28.
But we’re still not finished. Full-time employees are also entitled to annual leave and sick leave. Unlike some businesses where things can be put on hold for the odd sick day or even week off, we’d have to hire a casual to fill their shoes. That tots up to 25 days.
Let’s assume that a person who can work unsupervised at FLH5-level (no management responsibilities) can cover those absences. If the fill-in person works the same hours as the employee on leave and is paid the minimum award rate with the 25 per cent loading for casual rates, it looks like this:
If the casual works the same 50 hours per week as the permanent for four weeks of annual leave and another week of sick or personal leave, the cost of those entitlements is $7620 per annum.
Amortised over the 2552 hours worked by the replacement for me or Wayne each year, that adds another $2.99 to the imputed labour cost.
The bottom line
So then, at the minimum rate, the replacement for Wayne costs $27.79 plus $2.64 superannuation plus $2.99 in “fill-in labour” to cover leave. That’s $33.42 all up, without worker’s compensation costs!
Of course, I have made a lot of assumptions here, including that:
- the owner-operator only works a 50-hour week (in line with industry standards)
- the owner-operator works weekends and public holidays
- farm work, which does not involve feeding and watering cows (such as milking), takes six hours on Sundays
- there’s not a good-sized gang of other staffers who can take up the slack while the main person is on leave
- someone of skill level FLH8 is needed full-time
- you can recruit and retain a skilled FLH8 who is happy to accept the minimum rate under the award
- the owner is still able to guide the business
These assumptions are based on the likely scenario for an average-sized farm, which milks 261 cows. Because there is about one FTE for every 100 milkers, there are only two-and-a-half FTE equivalents on the average farm.
Staffing such a farm with a mix of FLH8 and FLH5 creates two permanent full-time roles and other part-time family labour or maybe a relief milker. In the real world, you can’t divvy up that FLH8 role into several positions with lower pay scales.
The going rate
I asked CFM Dairy Recruitment‘s Fiona McIlveen for the going rate to replace myself or Wayne. Upwards of $80,000 per year, she said, which is the equivalent of about $31 per hour.
“For a smaller farm milking 180 to 250 cows, you’d be looking at a range of $80,000 to $90,000,” Fiona said.
“For more than 300 cows, it would be more like $80,000 to $120,000.”
Where does $28 come from?
Dairy Australia Workforce Development Program Manager Sally Roberts explained it this way:
“It is important that dairy farmers can make informed commercial decisions when entering into share farming or leasing agreements,” Ms Roberts said.
“Dairy Australia’s Fairness Affordability Calculator and the Leasing Property Calculator give farmers the tools and information they need to help safeguard the profitability of their business and manage some of the risks associated with such agreements.
“The imputed labour description used in both calculators provides an accurate market rate for the cost of labour on a commercial dairy farm.
“Dairy Australia recognises that farmers involved in the running of their businesses undertake the full range of activities within the dairy business. Some of their work is at CEO level, some is at production manager level and some at farm hand level.
“All of the work is vital to the effective operation of the farm business, but it all has a different value commercially.
“While both calculators were developed off a strong research base, they are intended only as a guide and, given the complexities involved in share and leasing agreements, there will be situations where other considerations come into play when calculating imputed labour costs.”
- The value of $1.00/kg MS to $1.10/kg MS is based on an analysis of DFMP and private consultant data detailing labour costs for dairy operations that were entirely dependent on paid employees to carry out the work of the business.
- It is important to note that the value comes from the total amount spent on labour, including but not limited to wages, bonuses, work care insurance and superannuation.
- Publicly available data on this topic is available from the Dairy Farm Monitor Project.
- The data indicates the total commercial labour cost for a farm fully dependent on paid employee labour ranged from $0.86/kg MS to $1.44/kg MS, with an average cost of $1.09/kg MS.
- These calculations were based on data obtained from dairy farms in Tasmania and Victoria in 2013/14, which was when the Share Dairy Farming in Australia Model Code of Practice was released.
- DFMP for the 2016/17 financial year shows dairy farm businesses relying entirely on commercial labour have paid between $1.03/kg MS and $1.23/kg MS, with an average of $1.13/kg MS
- Dairy Australia is in the process up updating both the Fairness and Affordability Calculator and the Leasing Property Calculator to reflect the most up-to-date data.”
What does this mean?
Using Dairy Australia’s own calculators, it’s pretty clear that you could not legally replace me or Wayne for $28 per hour and Dairy Australia’s own process for arriving at the figure does not appear to take employment law into account.
Why it matters
Such a low figure for imputed labour distorts the view of profitability at the farm gate.
If we “pay ourselves” at this rate, we look more profitable than we really are, which means policy makers can continue to shake their heads as farmers demand a greater share of the pie.
More importantly, what message does this send to the next generation of farmers?
Twenty-eight dollars an hour would not be enough, even if we were to earn it in real life rather than on a spreadsheet.