TAKE YOUR PARTNERS
FOR A BETTER WAY TO WORK
Forming a joint venture
between two dairy units
has secured a core labour
force, cut overhead costs,
improved the quality of life
of all partners and increased
profit. Jessica Buss reports
YOU know that feeling, when you share a problem with someone you trust and the discussion gets you back on track?
Now imagine that applies to your business every day and you may have some idea of the less quantifiable benefits a joint venture partnership can bring.
The more quantifiable benefits include being able to share the workload, fewer employed labour concerns and lower overhead costs, say the three partners of a Devon dairy business.
Graham and Jo Hocking and David Dayment began their joint venture partnership four years ago. Before, Mr and Mrs Hocking ran 140 cows and youngstock at Malborough, Kingsbridge, on an owned unit. Seven miles away, Mr Dayment was managing 70 cows, plus youngstock, on his familys tenanted unit.
The three had worked together previously, as Mr Dayment had been employed by the Hockings before attending college and returning home.
Both the Hockings and Mr Dayment were keen to expand. But the different constraints on each unit have made expansion more viable when working together.
"We were renting grazing for youngstock and were finding it difficult to find quality staff, with the added problem of a falling milk price, yet having to commit to high wages for a herdsman," says Mr Hocking.
"We had enough buildings to expand the milking herd if we could find somewhere else for youngstock," adds Mrs Hocking. A new 16:32 parlour had been installed in 1995.
But finding somewhere suitable was difficult, as little suitable land came on the market and it was being sold in small lots.
Mr Dayment had invested in his unit to cope with more cows, but felt threatened by quota. "It was difficult to justify keeping more cows on leased quota at 15p/litre." The abreast parlour was also in need of replacement to cope with more cows.
The Hockings were encouraged to approach Mr Dayment by Tony Evans, partner of Melton Mowbray-based Andersons Farm Business Consultants. His main argument was that overheads would be reduced, as the equipment for 150 cows was the same as for 250 cows.
"Profit, capital employed, enjoyment and lifestyle in farming, like any other business, are all essential," says Mr Evans.
So many pluses
"Joint ventures do not suit everyone or all circumstances, but in this case there was a need and an opportunity to change. It offered so many pluses that it had to be given a go by two businesses and three people who wanted to succeed."
The partners sat down with Mr Evans to decide how it could work and were able to agree a formula for sharing profits, based on the valuation of assets at the beginning of the agreement.
"We valued machinery, livestock and deadstock. Quota was converted to kg of fat and combined. But land remains outside the partnership." The first step on the formula for profit sharing ensures a return for the Hockings owned land and Mr Dayments rent.
But it was vital to get the agreement right in case of any disagreements later. As it was one of the first such ventures, the solicitors took some time to draw up a contract to ensure that it was fair for all concerned.
"It also had to be easy to put it all back, if it did not work out," says Mrs Hocking.
It also had to cope with future investments from profit, adds Mr Hocking. Any capital spent on land or buildings is shared in capital accounts within the business, according to their share of the initial valuation.
Almost a year after their initial discussions, the agreement begun with cows moving to Malborough and youngstock to Mr Dayments farm at Bantham, in August 1998.
Four years on and they have no regrets. Mr Hocking and Mr Dayment share the milking on a rota, with their full-time employee. This allows them regular time off and holidays, safe in the knowledge that someone with a committed interest in the cows and business is responsible.
It also means that the labour charge to the business can be reduced in times of low milk price, as partners salaries are easier to reduce than employees wages, says Mr Hocking.
Youngstock are managed with assistance from Mr Dayments father, who still works part-time and helps with seasonal work when required.
"Any day-to-day decisions are made each morning, as we have breakfast together," says Mrs Hocking. "Its like many traditional family farming partnerships."
But unlike a family business, there is a voting system and a maximum amount that any partner can spend without agreement from the others. Although there have been no disagreements yet, they stress. All partners are also equal, although their roles differ.
Regular business meetings with a business consultant are also scheduled as part of the agreement. "But now the venture is up and running, we only need meetings to plan changes, such as taking on extra land, capital expenditure and annual budget review," says Mrs Hocking.
Giving up some of their independence has not worried any of the partners. "Even though many locally thought we were mad to do so," says Mrs Hocking.
"We recognise that we are not always the best people to make decisions and do not know all the answers. We have always used consultants to help run the business."
"Joint decisions dont trouble us," adds Mr Hocking. "We were already members of the South Hams Dairy Co-op, which sources most of our inputs, and Milk Link. And many other businesses are run by more than one person."
It is more important to get on and have the same mindset, says Mr Dayment, who also used consultants and was in a buying group before the venture.
But the partnership has allowed both Mr Hocking and Mr Dayment to continue their individual interest in pedigree breeding. The two herds were in the top 1% genetic ranking, so both prefixes have been retained allowing cow families, owned for generations, to continue.
Cow numbers now stand at about 260, with 80-100 heifers kept as replacements each year, allowing some milking cows to be sold. The herd average is about 8000 litres and with the limitations on buildings and only 32ha (80 acres) available for grazing milkers the aim is to increase yield. "We would like to achieve 9000 litres, but must remain focused on profit rather than yield," says Mr Hocking.
Now confident in their ability to work together, the partners believe that they will continue to expand the business together, rather than look for opportunities outside the partnership. *
Being able to agree a farm policy and setting out a formal contract using a solicitor are key to the success of a joint dairy farming venture, say David Dayment and Graham Hocking.
The joint venture has allowed partners to retain pedigree breeding interests.
• Shared workload.
• Formal agreement essential.
• Need same mindset.