There are plenty of opportunities in the Australian dairy industry, and this is something Matt Grant is happy to share with the next generation of young people looking to take the next step in their dairy career. 

Matt and partner, Renata Cumming, together with 9-month old son Alfie, milk around 500 cows on a 310 hectare property they lease at Naringal in South West Victoria. The couple opened their farm up in December for around 45 Young Dairy Network (YDN) members to come and hear their story, and how they have progressed over the years.

Matt and Renata have quite a story to tell, with Matt having experienced just about all facets of dairy farming; having spent years as an employee, taking the plunge into share farming, buying his own farm, and now taking on a long-term lease of a larger farm whilst using the originally purchased farm as a support block.

In late 2020 the pair were contemplating what they next step would be; they were sharefarming on a family farm near Timboon, and milking a small herd on the farm they owned next door. They had reached a point where there wasn’t a lot of growth opportunities left for them where they were, and they began looking at other options.

The couple shared with the group the large amount of research and number crunching they did before making the move to the Naringal farm. Together with their trusted consultant of 20 years, the pair analysed dozens of scenarios for their business going forward, running cashflow budgets for all opportunities.

Everything was on the table; from purchasing a bigger farm, downsizing and milking off their existing land, share farming, selling up, and finally the lease farm opportunity that become their perfect option.   

A real piece advice Matt and Renata had for the young farmers in the room was don’t be afraid to seek advice. There are plenty of free resources, and when it gets to the crunch point and you are looking to take a step into share farming or leasing, spend the money and get your agreement professionally reviewed and documented. Spending a few thousand dollars at the start could save you tens of thousands of dollars and a whole lot of headaches later.

Another thing the couple focus on is forging good relationships with their industry and suppliers. Westpac was the BBQ sponsor of the YDN evening and has been instrumental in Matt and Renata being able to expand their business.

The opportunity to lease their current farm was only one that came up because of Matt’s involvement in the broader dairy industry. For years he has participated in discussion groups, the YDN, supplier forums and more recently both he and Renata have been a part of the Proud to be a Dairy Farmer program. It was through these connections and relationships the leasing opportunity presented.  

Leasing cows

Aside from the emphasis on doing your due diligence each and every time you have an opportunity come up or a decision to make, the other discussion focus of the night was leasing cows.

Leasing dairy cows can be a great way to take a step into share farming, as it allows the lessee to generate the funds to purchase the cows through cashflow. The right set up can also provide tax benefits to retiring farmers, who are in effect able to stagger their stock sales over multiple financial years.

There are three main types of stock leases people might look to implement: an ageless lease, a depreciating lease or an operating lease. The best option for each scenario will depend what the aims of the party are. Template agreements and plenty of information can be found on the People in Dairy website leasing section.

AGELESS LEASE

This type of lease suits someone who has stock that they want to retain as an asset; eg an employee with some stock in the herd or someone taking a break from farming.

At the end of the lease period, the same number of animals, with the same age, breed, calving pattern and condition profile, which were provided by the Lessor at the start of the lease, have to be returned by the lessee.

In an ageless lease, it is important to understand that depreciation (losses and ageing) is a cost that the Lessee incurs and must be taken into account when assessing the viability of the proposal. There is no ownership of residual stock by the Lessee except any replacement stock above the number required to maintain the age profile of the rental group.

DEPRECIATING LEASE

As the name suggests, depreciation of the asset (ageing/loss of the stock) is taken into account. It is a common form of cow lease used to gradually change the ownership of the herd from the Lessor to the Lessee.

If stock is returned at the end of this type of lease, they will be older on average, but be of the same pregnancy status, condition and breed. In contrast to the ageless lease, all progeny produced during the term of the lease become owned by the Lessee.

The Lessee needs to assess if an adequate return on investment could be made at this rental rate. Since it is a gradual process, it is tax effective for both parties. The lease payments are fully tax deductible for the Lessee and the owner gradually trades out of the herd, rather than conducting a whole herd sale in one year.

OPERATING LEASE

This is a tax effective method of transferring stock between generations, and of financing the lease purchase of a herd when funds could not be obtained from a traditional lender.

An operating lease is very similar to the lease purchase of a motor vehicle. Rental payments are set to reflect interest and depreciation and a residual is agreed upon as the last rental payment. Only when the last or residual payment is made by the lessee, is the stock owned by the lessee.

Normally, a residual payment would be about 30 per cent of the total capital amount leased at the start.