How to draw up a good heifer-rearing contract

Contracting out heifer rearing may be an attractive option for a number of reason, writes Dairy Group senior business consultant, Christine Pederson.

For farmers rearing their own heifers it might enable resources such as land, buildings and staff to be used to expand the milking herd.

For those operating flying herds it may also appeal, because the farmer is able to determine the genetic merit and fix the price of herd replacements.

The potential to gain from the rearer’s livestock experience and, in many cases, sole focus on the heifer-rearing enterprise, should not be ignored.

See also: Rearing heifers on farm

DairyCo studies indicate the average cost of herd replacements on UK dairy farms is about 2.6p/litre and contract heifer rearing can be more expensive than home rearing, so it should only be embarked upon following detailed cost benefit analysis.

In my experience, most agreements specify that the farmer pays a flat fee per animal per day. But, what exactly should be covered in a heifer-rearing contract?

First the length of the contract – whether it is annual or evergreen – should be included. While the latter is desirable in most cases, any contract should be reviewed annually, particularly the rearing fee.

For both parties the rearing fee is important to the success of their respective businesses. Using actual production costs will assist in more accurately determining a fair arrangement.

In most cases this means the enterprise is accurately costed, including the cost of own labour, by the rearer and forward budgeted (as fees are generally set for 12 months forward) before being agreed by both parties.

The number of stock to be reared is critical to the calculation, normally expressed as cost per animal per day. For this reason the number of stock to be reared should be included in the contract.

The contract should also include payment details and how unpaid fees will be dealt with – for instance, payment will be made monthly to the rearer on X day upon receipt of a suitable invoice.

Interest will be payable on all fees not paid within X days of the due date at a rate of whatever agreed percentage above prevailing Bank of England base rate.

Given the potential disease risks farmers may wish to have exclusive contracts with rearers, although in some cases the rearer may continue to keep their own livestock (depending on species).

In any case, a heifer health plan including vaccination, worming and fly treatment schedule should be appended to the contract.

Which party bears the cost of and provides labour for these as well as vet bills, other medicines, dehorning, freeze branding, AI, semen, stock bulls, pregnancy diagnosis or scanning and transporting stock to and from the heifer rearer should also be included.

It is imperative that required performance levels – targets for growth rates, age and weight at bulling are clearly defined to ensure these targets are met.

Heifer-rearing contracts may start with calves pre- or post-weaning and heifers will normally return to the farmer pre-calving and the rearer is responsible for daily observation of the heifers, providing a balanced diet, adequate clean water and suitable housing to meet growth rate targets. The contract should also clearly define both parties’ responsibilities.

The contract should provide clear guidance for dealing with unforeseen events – for instance, how mortality should be accounted for, action in the event of TB movement restrictions, action if heifers do not hold to the agreed number of services. Responsibility for insurance must be clearly defined.

Both parties should be aware of, and abide by, all legal and statutory obligations pertaining to cattle identification, movement and TB restrictions.

It must be clear who is responsible for record keeping – and format of records – cross-compliance (generally each party is responsible for their own cross-compliance) and both parties should agree to meet farm-assurance requirements.

The agreement should also stipulate how a dispute will be settled (generally by an arbitrator) if it cannot be resolved through dialogue.