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Large Dairy Farm Business Governance

This research is motivated by the changing nature of the structures and operations of dairy farm ownership and management in New Zealand. Dairy farm businesses are becoming larger in scale.

The changes we have seen

Over the past 30 years until 2010/11 the New Zealand dairy industry has seen a tripling of herd sizes to 386 cows and an increase in total effective hectares under dairy from under a million to over 1.6 million.

Over the same period the number of herds dropped from 16,000 to 11,735 while the total effective hectares under dairy increasing from under a million to over 1.6 million (DairyNZ Economic Survey 2009-10).

Dairy industry expansion

This expansion of the dairy industry suggests greater scale and aggregation of dairy farm businesses within New Zealand. Alongside this there appears to be a steady decrease in owner operators (the traditional family farm) and an increase in alternative ownership structures.

These alternate ownership structures can be (but are not limited to) trusts, partnerships, equity partnerships, companies (family / multiple shareholder), family conglomerates, syndicates (often with non-farmer shareholders) and Maori Incorporations.

New business structures

These larger businesses may own multiple dairy farms which can be geographically dispersed (there is also increasing evidence of New Zealand farmers expanding beyond national borders). These operations presumably have (relatively) large numbers of staff and cows.

These new business structures suggests an increasing separation of ownership and control (Berle & Means, 1932) of farming operations with differing levels of interests and involvement in the management of the farm. There is the possibility of multiple shareholders with differing objectives. These operations may require the development of more bureaucratic structures requiring alternative governance arrangements.

What trends are emerging?

Alongside these developments there is a trend to increased variation in production systems (DairyNZ, New Zealand Dairy Statistics 2010-11). These factors along with others (e.g., environmental, employment, health and safety requirements) suggest greater complexity in the management and governance of these operations.

These trends will have an impact on the way dairy farms are operated in the future. New competencies may be needed of farm owners and farm managers.

Why is it important to understand these trends?

These entities, by implication, are substantial businesses in terms of assets under control, turnover and number of staff employed. Understandings of the success of these enterprises will be increasingly important to the New Zealand dairy industry. Given these trends an understanding of the governance of large dairy businesses will be increasingly important to the New Zealand dairy industry.

Such knowledge may be important to large farm business governors, investors and managers as well as rural professionals, agricultural educationalists, agricultural funders, industry stakeholders and policy makers.

The aim of this project

This project seeks to begin to understand the current knowledge of the governance of large New Zealand dairy farm businesses. From this knowledge a proposal for further research may be developed to gain an understanding of the composition, roles, relationships and behaviours of governing boards of large dairy farm businesses.

Discussion Thread

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Questions or comments?

We would welcome any questions or feedback that you may have on this research topic. Let us know what you think by using this discussion thread.

Ian Handcock

Is there formal specific training for agriculture governance skills and application of such skills related directly to farming? Successful communication with management should be at the top of the list to ensure risk management and profitability is met.

Reply

john millington

When businesses grow rapidly from sole traders through partnerships and onto companies how much planning is done on the governance front compared to backfilling at a later date ? what value can we put on the planning time taken to understand the business need and implement the right structures at the time of expansion?

Reply

Tom
Tom Phillips

John I think its possibly an area that is grossly under researched by farmers. Governance needs to be seen as one of the Farm Succession steps for a business. Governance is the strategic management of a farm business. The "Big picture" stuff.It's very difficult to do this effectively if you are still working full time "in" the business. In a bigger or more complex business having an "outside expert team" that follows procedures and demands measuring & monitoring can be very helpful.In NZ there is now a huge effort to encourage large dairy farm businesses to understand the benefits of a formal governance structure for their business. This takes planning & careful selection of people with a range of expertise that the owners don't necessarily have themselves. I suggest you watch the governance webinars by Christine Woods and Trevor Hamilton and the Adrian van Bysterveldt one on Large Dairy Farm Business project...see these in the Resources/video section on this website. Thanks for your question its a really interesting subject. Others might like to comment & join this discussion.Tom