How much is a dairy farmer worth?

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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 reflect
what it would cost to replace those hours with paid labour.”
It’s about the same hourly rate promised to a fill-in nine-to-five handyman.
Handyman

 

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:

PayRates

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:

PayRatesCasual

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.”

“Background:

  • 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.

13 thoughts on “How much is a dairy farmer worth?

  1. As someone who collects DFMP data it’s refreshing to hear a farmer argue that their imputed labour rate should be higher. Too many farmers are prepared to undervalue their time to look profitable. Looking at EBIT often creates some discomfort.

  2. Marion, well said, and one there is no easy answer to. What is blatantly obvious is that Australia does not value its farmers. The big challenge in this is that how do we value them at? Farmers in Australia traditionally undervalue their own worth whereas in other countries they have become quite militant and use the power of media to get there message across

    A big mistake farmers have allowed happen is we have let our value be undervalued. In other countries direct and indirect employment takes in every aspect of the value chain right through to when the product is either consumed or exported. The USA uses a figure that every dairy farmer directly or indirectly employs 74 .people where as in Australia the figure used is 5.So why the difference? Here we don’t really count anything past the farm gate, all the other jobs are called manufacturing. Now if I wanted a government to listen I would think I would have a lot more power using the American figures than the Australian ones!

    The calculation came to the fore recently when there was discussion regarding the removal of an extra 450 gigalitres of water from the Murray Darling system for the environment and the consultants said it would result in the loss of nearly 200 jobs in agriculture. 200 jobs, more likely 2,000 jobs as a minimum.

    Think about a town like Leongatha and tell me 1 job there that does not in some way relate back in some way to farming. Then think about the jobs on the Melbourne wharves. People conveniently forget that the largest export from there is agriculture and if we are serious about it the largest single export from there is dairy products.

    Think about Victoria and ask what we actually manufacture and what we actually export. Apart from some highly subsidised aluminium out of Portland I wonder if anyone can name something other than agriculture.

    So why don’t we count those jobs as being part of agriculture instead of manufacturing?? Other countries do and that is why they have so much power with their governments.

    Until we can get the value of farmers really recognised as a lifeblood industry employing people from on the farm into the towns through to the cities and even on ships we will be undervalued.

    It is time for change and action

  3. A dairy farmer is worth everything in the world. I keep telling people if they aren’t willing to pay a fair price for their milk they will shortly find themselves drinking UHT and will do so for the rest of their lives.To drink a glass of fresh milk is the most delightful beverage available. To get up in the morning and have a cup of tea with fresh milk in it, is as wonderful as a beer at the end of a hard days work. I lived in Israel for sometime working on a kibbutz rearing calves and milking. The fresh milk was sent off the kibbutz so we only got ‘cooked’ milk to drink. I drank black tea for 6 months in the kibbutz dining room but was allowed to drink fresh milk in my tea in the mornings in the dairy/refed where I worked. This was OK as I was an adult at the time. The children of the kibbutz were given only pasteurized milk. Fresh milk with an egg beaten into it with some vanilla essence is the best food available when one as certain ailments.

  4. Marian,
    The partnership both yourself and Wayne and your children have is an inspiration on a continual basis, so thank you. That alone is priceless. Your analytical skills along with the skills required to run your enterprise i believe would put you in a salary caterogry of approx $150k/Annum. How do i come up with this number….. I deal on a regular basis with some people in the Dairy/FMCG/ Food industry who are earning that sort of money and you put them to shame………… The under performance of their business’s attest to that.
    My interest in your industry comes from generations of Dairy farmers in my family. My father oftened reffered to his brothers milking cows as the closest thing he knew to perpetual motion. As a society,we need to get a grip on the longer term, not short term…………… And reward people for it..
    Thank you again and i hope the season turns well for you….

  5. Interesting. If it were not for being one’s own boss and the lifestyle, the “value” would just not be there. I would be interested to see how a similar analysis for crop farms would look. There would not be the expenses of dairy equipment but there would be a bunch of other machinery needed, plus seed, fertiliser etc

    At least one could sleep in on Sunday. I well remember my dad said that he slept in once till 6am!

  6. So all this highlights that farmer’s efforts and social capital are not valued highly by the supermarkets and the general public. The race to the bottom with $1.00 milk and 80 cent /kg cheese is doing great harm at a social and wider community level. Along with the devaluation of and respect for the individuals effort. What the supermarkets are doing with how they price farm produce is no different to the franchise practices of other major retailers. Creating onerous working conditions for the franchise with little reward for the franchisees or the employees working for them, it’s a race to the bottom. But they require highest environmental/animal welfare standards with little regard for the people that try to up hold those standards for the border communities benefit. So in my view its time that the supermarkets retail and supply chain pricing dominance is tared with the same brush that is putting the spotlight on the draconian work practices of the companies misusing the franchise model to make windfall profits at the expense of ethical and fair vale for a persons time and effort in their daily working lives

  7. A very timely piece, only the other day my partner who grew up in Melbourne who has a business background, asked me ‘what does a successful dairy farm look like?’. I immediately found myself out of my depth trying to explain the complexities of a farming business and the topics you’ve touched on. When I said most farmers won’t make a profit and that farmers often invest their income back into their business, his immediate response was ‘how does the business survive? The situation then got more difficult to explain, so thanks for writing the post Marian, now I can pass this information onto him.

  8. The dairy industry is not alone in this. The undervalue anomaly is right across the AG industry. I know a beef and wool producer in SW QLD who owns and manages a 40,000 acre property with just him and his wife and they have averaged $30k total nett profit ($15k each before tax) per year over the past 5 years. Poor farm gate prices and the cost/stock loss impact of drought means that they cant afford to employ anyone to do any work for them. In addition to feeding stock thru the drought and branding and marking and shearing etc. between them they have also constructed 52 kilometers of new dog fencing by themselves in the past 2 years as they cant afford labor or contractors to do the work. And these people are considered to be in the “top 1% of “good farmers”. Then I read just yesterday where a small crops farmer in central coastal QLD sold 400kg of sweet potatoes as “cow feed” for $20 because the potatoes were rejected by the markets because they were “too big” or the “wrong shape”

  9. Marian the most pertinent point to me is not only can we not afford to replace ourselves but can we find someone with the required skills? My husband is seriously ill and we are struggling to find anyone that has high animal welfare skills, tractor skills and good animal husbandry. Meanwhile the rest of us just work longer hours. It also brings up the point that millions of dollars have been spent by Dairy Australia on training programmes for very little result, nearly every farmer I know is constantly on the look out for quality employees.

    • I’m so sorry to hear about your husband’s illness and all the added stress of trying to keep things going, Deborah.
      I hope he turns the corner sooner rather than later.
      I think that until we learn to value ourselves more highly, it will continue to be difficult to attract and retain good people.

  10. Hi Marian,

    It is a well argued case, and clearly there are many views when it comes to imputed labour and the real value of what we do; however, there may be some omissions in the discussion:

    Nobody forces us, nor any body else, to run a small business. I suspect that if you did a National analysis of small business operators with a turnover between $500k and $2 million (which would cover most dairy operations other than the very large and multi site operations), the discussion would look similar. Consider retail or food trade… mostly leased properties with few, rapidly depreciating assets???

    Straight out profit discussions don’t take account of the rest of the asset allocation or performance over the life cycle of a dairy farm. Similarly, the imputed labour discussions look at the here and now and are not a like for like replacement…. ie they don’t consider investment decisions, risk/reward trade offs and lifestyle choices… all the “skin in the game” type issues and the reasons we choose to be owner operators.

    Don’t get me wrong, I want to run a sustainably profitable operation and to be able to afford a certain lifestyle – family, education, travel… FUN!… It is good to have these discussions and also good to put some aspects of the DA programs under the microscope periodically.

    However, there is a risk of feeding the unbalanced view of any profession’s value to the community. Imputed labour is like the ‘book value’ of an item… it might be an innocuous item, or it might be THE centre of the operation. The book value of the item bares no resemblance to the value of the item to the business today, nor its replacement value or cost. It is a ‘ball park’ figure which is sensible when other considerations are taken in to account (eg depreciation, borrowings, lifecycle…).

    So, imputed labour is a ‘book value’, it may or may not resemble the actual value of you, today, to the operation, but is a sensible, ‘ball park’ figure. How you rate your value when you consider the assets under management, debt, capital growth and the long term business and personal strategies and goals is a different discussion????

    Let’s face it Marian, whether we earn, or a worth $20, $30 or $50 has no bearing of why we do what we do – by hey, more would always be nice!!! WE just have to learn to do it better ’cause nobody is going to give us a free ride.

    Tyran

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