Koromiko Dairy Heifer Grazing

September 2014

A tailor-made result focused heifer grazing business

Koromiko Grazing is a multiple-owned farm business in the King Country specialising in dairy heifer grazing for many of its dairy farming shareholders.

The 2400ha farm is owned by 17 different shareholders, and has been running for the past five years. It finishes 3500 dairy heifers each season, and these are owned by the shareholders. It also runs 3000 ewes and 200 beef cattle.

Four of the shareholders make up the board of directors. Dean Boros, who has been with the business from the start, is the farm manager and there is an administration person and five other staff. Dairy farmer and shareholder Mike O’Connor chairs the company.

The farm is doing a good job of delivering dairy heifers back to its shareholders, and doing a good job of being commercial. They use Minda weights as the measure of each heifer’s potential, and these are key performance indicators for the business.

The heifers come onto the farm in December as weaned three to four month old calves, and stay on the farm until they are 21 to 22 months old and are delivered back to their home farms in-calf. The farm is a stand-alone business, paying shareholders a small dividend. There are about four shareholders with no stock.

It has a good yards complex, with a troughed water reticulation system.

Greg Glover, board member and former dairy farmer says the average dairy farmer grazes dairy heifers off the farm on a runoff or pays for grazing, so this set-up is quite different. The benefits of it are:

  • A fully managed commercial operation and the ownership of it provides the security of grazing which dairy farmers need.
  • If there is a drought, the farm takes care of the extra feed needed. Its job is to deliver heifers back to the farmers at the best possible weights. This doesn’t alter the cost of grazing to the dairy farmer.
  • Because each dairy farmer owns a share of the farm they can’t be kicked out of the grazing arrangement.

Greg says the organisation has a good board and good systems in place for planning and financial management.

The interesting issue for this farm is that the shareholders are both investors in the company and dairy farmers paying for the grazing service, so they need to wear two hats at times. “This puts a discipline on the shareholders that we haven’t been used to operating under, but it’s a very good discipline,” says Greg.

Shareholders with an issue have to go to the board and the board then gives the farm manager direction. “It’s important to us that he doesn’t get pulled in 20 different directions, so we have a very definite delineation between the service and the governance part of the system.”

“When we set up the company nearly six years ago the initial recommendation was that all 17 shareholders were on the board. Fortunately some wise heads amongst the shareholders prevailed and we decided on a board of four with the ability to co-opt another person. It’s an enjoyable investment, as is the team and the way the business operates, and what we are striving to do is provide an excellent service for dairy farmers.”

“There have been some difficult times with pressures from banks and dairy payouts and we have managed to run the business without requiring any more capital. The shareholders made one initial investment, and the farm is able to live within its budget. It was a very good farm when we bought it and we’ve put more infrastructure in, including electronic weighing, electronic readers for ear tags, some more subdivision fencing, and extensions to the water supply. It’s a very stable business, and when we have done a budget we can rely on the outcome, and returns to shareholders have become much more predictable.”

“Before this company was set up we personally had 230 to 240 heifers out grazing on three different properties. Finding someone who could take that many at once was a bit of a challenge, as was finding someone who would concentrate on those 240 animals first.”

“This business gave us the opportunity to bring 17 like-minded farmers together who wanted to put all their heifers in one place, and not have to go through the hassle of negotiating with the grazing provider. It’s like a buyers club for grazing, and on it we have imposed our expectations and requirements for our heifers. It is very, very clear.”

“We have had two quite severe droughts in the last five years and during these times, the company has kept the heifers through the whole season. We used to find that other grazers would get into a feed pinch or drought and that became our problem as the heifers would have to come home early, which compounded the problem on our own farm.”

“One shareholder says he can physically see the impact of when the grazing started in his herd by the size of the cows and he is absolutely thrilled with the service he is getting.”

“We have developed a lot of intellectual property around the business and what makes it successful. It would be nice to be able to replicate it if we could find a property and a group of farmers interested to work together.”

“To have the business stick together so well over that period is a reflection of the leadership of Mike O’Connor.  We have learned that communication with the 17 shareholders is vital, as is doing what we say we will, and being absolutely honest about things that have gone right or maybe gone wrong as well. When we have our board meetings we have a set agenda and we have moved our favourite topics such as financial results and farm management down the agenda. Instead, we talk about things like health and safety and compliance first, to ensure they are dealt with appropriately and have enough resources put into them.”

“We also have some other stock classes on the farm, and they graze areas which are not suited to grazing the heifers but our prime focus is the heifers. We also take in some casual grazing of heifers to keep our numbers consistent for the year, but our priority is our shareholders’ heifers.”

“As a dairy farmer while you might have a grazing arrangement with somebody, you don’t know how much it has cost you until the end of the year when the heifers come home. Compared to that, our system is a one-stop shop. At the beginning, the shareholders used to visit their heifers once a month, but now they might only see them twice a year. They get reliable farm reports, they believe the information they are receiving and are very comfortable with the service, and this makes it a very good value organisation.”

“The governance is the core strength of the business. Good governance practices are key. As an employer if you don’t have a good relationship with your farm manager, they go and find another job. If you have a really good honest and healthy relationship with them they tend to be happier and produce good results. We keep the line of communication with Dean as clear as possible. We want to see him absolutely thrive and build a fantastic reputation, and we help him to do that. Once a month there’s a board meeting and once a year a day is spent setting the management plan and setting the budget.”

“With so many shareholders, each has a different set of circumstances around their farm such as autumn calving, early calving, the number of calves, and their personal circumstances and these are all subject to change, so we have had to figure out how we can adapt to that change. We have tight contractual arrangements with all our shareholders which defines our and their responsibilities. A disciplined approach really does help. Now we have people wanting to become investors in the farm if the opportunity presents itself.”