Benefits in farmer 'herd'

A herd of buffalo can only move as fast as the slowest buffalo.

When the herd is hunted, it is the slowest and weakest ones at the back that are killed first, and this natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the removal of the weakest members.

In agriculture, it's typically the case that each farmer deals with a purchaser of their product at an individual level, or when it comes to buying products, such as fertiliser.

There are a range of areas where those in the ag sector are subject to the negotiating power of bigger businesses and the market generally.

This has the potential for each farmer to end up being treated like the buffalo at the back of the herd, with each being picked off and essentially given a 'take it or leave it' proposition.

Of even greater concern is that, depending on the business being dealt with, there can also be issues with getting paid for what has been provided.

We recently commented on the changes to the Competition and Consumer Act 2010, which provide protection to small businesses when entering into small business contracts with large businesses.

This is a positive step, but only applies to the terms of the contracts, not the prices being paid.

One of the ways farmers can enhance the benefits they derive from their hard work and improve the returns at the farmgate is to utilise co-operatives, collective bargaining and other forms of collaboration - become the 'herd of buffaloes'.

Co-ops and other forms of collaboration can be useful ways for farmers to 'pool' their resources with a range of potential benefits, ranging from greater negotiating power due to the quantity of product being bought (such as fertiliser) or sold, to opportunities to sell direct to the market. 

But there are potential pitfalls. What happens if there is a disagreement about what is being sold, to whom and when?

It is important that these types of issues are discussed before proceeding down this path.

It is also important to ensure that the correct legal structures and documents are in place so that everything runs smoothly. 

The federal government has recently introduced the Farming Together program, aimed at equipping farmers with a range of knowledge, skills and materials about co-ops, collective bargaining and other forms of collaboration.

Ag co-ops are becoming increasingly common in the United States and United Kingdom - it remains to be seen whether Australia will tread a similar path. 

By Anthony Kelly, Partner

This article was originally published in The Stock Journal on Thursday 9 February 2017

Practice Area: Farm Law

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