Author Topic: Leasing, milk-sharing, management (non-outright ownership) of land and cattle  (Read 3705 times)

Offline ArnaudForestier

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Not sure where to put this.  Just an open invite to (well, selfishly, request for) anyone with experience in, or knows of someone with experience in, managing control over dairying assets - herds, equipment, pastures/land - as opposed to ownership of those same assets.  Following on the heels of Greg Judy, Allan Nation, et al - managing milk herds and the land they forage upon, rather than searching for outright ownership.

This is intended to be a brainstormer, for anyone interested in the subject.
« Last Edit: May 19, 2011, 09:47:48 PM by ArnaudForestier »
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Are you looking for anecdotal evidence or legal help? Or tax help?

Offline ArnaudForestier

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I'm looking for experiential evidence, of structures and arrangements people have successfully created and sustained, without owning the land, livestock or equipment assets.  Bottom line, per our discussions my friend, acknowledging the reality that I doubt I'll ever be in the position to own enough land to sustain enough cattle to produce enough milk the way I want to do it, to produce the pounds of cheese in my lineup I aspire to earn, I'm just tossing it out to the universe, for people without equity in an enterprise like this who have nevertheless satisfyingly - I stress, satisfyingly, not satisfactorily - accomplished this kind of control; as described in Judy et al's paradigm. 

Man, was that tortured.  Hope it's clear, what I'm asking after.
- Paul

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the structure is the same as in any business. You have two ways to go:

1) Ownership
2) Rental

For ownership, to become an owner, you have two options
1) Contribute capital
2) Contribute services

For renting, you have a few options
1) Straight leasehold, largely unconditional use, rights and responsibilities enumerated
2) Lease to own, where you retain an option to purchase and a portion of your rent goes to the purchase price

Within all of those structures, you can arrive at many hybrid creations. For example
1) Ownership where you contribute only service and are paid in milk.
2) Non-ownership and non-lease where you barter your services for milk at a set exchange rate
3) lease where you retain control over the animals and all their milk but not kids, damage could be insured or you could guarantee a part of it (meaning you take care of animal death)
4) Lease with partial buyback. Where an existing market exists for the milk, and you lease animals who produce too much for you to use, so lessor "pays" you for any bonus milk produced

etc, etc. All of this is contract law. You can set it up largely however you want. Start thinking about the legal structures first. Meaning:

lease vs buy vs barter

and within each category go through the variations I posted above. It comes down to what do you have to trade in lieu of or in addition to capital, and what entitlement and reward do you receive in return.

Offline ArnaudForestier

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Good.  Great, Pav, thanks.  I've drafted some pretty complicated leases in my time, though nothing involving livestock - always, restaurants.  You show the reasoning is the same, thanks; a very succinct and useful way to think of some things, moving forward. 

I think with this thread, too, I was probably just also looking for some real world examples, models - "when we came to Paradise Pastures, we had no equity to contribute and only a plan to turn their calving replacement business profitable.  We showed them how our brilliance would yield a generous ROI in 3 minutes, and they immediately drafted a generous leasehold contract, with a graduated equity position over a week and a half."  You know, real world stuff.
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Yeah, that's really situational. The best agreement like this are all about value and win-win. Buzz words, true, but that's because they make sense.

You want milk, that's clear. What do the farmers want that you can offer? And if they're like many farmers, they have no clue what's possible or what they want, so they can't tell you. At that point, you have to come out with the package proposition.

Meaning
- Reduce costs by making processes more efficient. You offer to make their life easier (figure out what their life is and how you can make it easier and put a dollar amount on t)
- Reduce costs by reducing inputs, price of processing outputs, and COGS. Typically, this is done through pasture management and doing small proof of concepts to improve process and management
- Increase sales volume or profitability. This is by doing product and market analysis, creating a product lineup, looking at supply chain inefficiencies, etc

or whatever other value proposition you have. If you have no takers or have nothing else to offer, then can resort to classic lease. Then, you just define the lease terms, duration, reposibilities, etc. Same as leasing any other property. That they are animals make the rights and responsibilities different, and have different risk exposure, but that's about it.

Offline ArnaudForestier

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Further, thanks, Pav.  No, I'm with you - unless things are win-win, I don't find a point. 

Quote
What do the farmers want that you can offer?

But Pav, I'm going to be the farmer.    As of May 15, 2012. A) I'm on the hunt for a situation that will allow me to get my feet wet in a smallholding arrangement, with control over the means of production, just not ownership of much, likely; cows, yes, but everything else, on the table.  Smallholding until I know what I'm doing, and can show it to a larger scope.  All, while producing cheese of the highest caliber I can accomplish.  We've talked of this, and I know it's nuts - others, I'm 50, in a week - but never really sought much, but honor, in the doing.

OK, waxing too much.  But yes, in truth, this is my hope.
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I'm going to be the farmer. 
I suppose. Only I think farming implies some ownership (to me is is a special sort of work that means connection through ownership, not a mere vocation or trade). If you're going to be a shepherd, then you can be a shepherd-for-hire and be paid in milk.

K, if you want to do the work of farming as a way to pay for your art, then that's what you're really doing. Find an arrangement where you work and are paid in milk. Or if you have sufficient capital to rent and make cheese for market, then be a cheesemaker who pays for milk by leasing animals, and doubling as also doing the work of a herdsman.

Offline ArnaudForestier

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I'm thinking of the paradigm as promulgated by Greg Judy and Allan Nation, among others; yes, I'm new to them so may sound like a proselyte; but I'm intrigued.  Just a couple snippets.  From Nation's Land, Livestock and Life:

Quote
...the purpose of farming and ranching was not to own land but to make a living from land....Custom grazing on leased land allows you to get scale quickly with no capital.  It also allows you to get paid each month for better cash flow than once-a-year payments with cattle ownership.

From Judy, No Risk Ranching:

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Leasing idle land for pasture is the best way for a grazier to build equity and produce a profit year after year....

I'm just starting on this, so yes, there is a danger of blinkered eyes going in.  Or would be, if I haven't endured the loss of my life's enterprise, once already.  From the Grazing conference I attended, to the reading and thinking I'm doing now, what keeps coming home to roost for me is how the entrepreneurial spirit - which I (and I know you, too) define as a good thing, a vital spirit of true creativity, not mindless avarice - seems almost endemic to the grazier's life, almost by necessity, it seems.  So, a million ways of doing it.

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K, if you want to do the work of farming as a way to pay for your art, then that's what you're really doing. Find an arrangement where you work and are paid in milk. Or if you have sufficient capital to rent and make cheese for market, then be a cheesemaker who pays for milk by leasing animals, and doubling as also doing the work of a herdsman.

Yep, you hit it; it's in here, this is likely what I'm trying to truly do.  (I say "likely," as so much has come to me so fast - heck, I wasn't even making cheese, before this winter - that things are still settling.  But more and more, this becomes salient).

So, a shout out to the universe (and its microcosm, here), if anyone else has done a similar thing, or knows of someone who has.
- Paul

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That's another approach, too. You have to consider the capital/reward tradeoffs. If you can own the animals and lease land and pay for it with cashflow from cheesemaking, sure. It's not some panacea, numbers have to add up and that's what you have to want to do.

I know of cheesemakers who started out with a few animals and begged, borrowed, and figured out creative ways to build up their herds, and then either leased pasture or bought it. They tend to love the animals first, cheesemaking second.

Offline ArnaudForestier

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You are very keen.

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They tend to love the animals first, cheesemaking second.

As much as I love cheesemaking, it may be that another love, for these wonderful, sentient beings, and the desire to provide what it is they give us, is coming sweeping in.  Cheese is wonderful, such a wonderful blend of art and science, and it fills me in so many ways.  But I must admit I've always had a pretty deep connection to our friends (I don't mean this to be maudlin - it's a true sentiment) - that can only be answered by tending to and partnering with them.

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I know of cheesemakers who started out with a few animals and begged, borrowed, and figured out creative ways to build up their herds, and then either leased pasture or bought it. They tend to love the animals first, cheesemaking second.

We've talked on some of this - but in case it benefits others:  One thing that I am running models and conjectural numbers on, is the provision for growth; in other words, say you anticipate X lbs yearly in cheese demand down the road, and, if you can do a decent job of nailing down a breed or your herd mix's yield, you can do a pro forma on anticipated cattle need.  They grow, but the land doesn't.  Much like putting in an underground cave, I would think one's best bet is to think on the fairly finite resources - a built cave, with empty aging rooms waiting in the wings, over adding on to or rebuilding another cave; or land itself, which is not replicable - when planning for down the road. 

In other words, say I've got 2 Normande x Ayrshires, and plan for growth to a sustainable herd of 75 head.  Say, as in the case especially when moving a land over to grazing from another use, the "lean years" between moving off of one paradigm (say, ley farming and good cash flow) to optimal grazing forage and rotating paddocks, is a long, difficult climb; I cannot think it wise to seek try to grow organically in land, as well as in herd strength. 

Long way around; can I ask, the makers you mention - with their couple of cows, how large a swath of land did they have control over?  Was it a fairly easy thing for them to increase their herd, or were they constantly shifting to new leases and new grounds, having to start over, basically, in moving their new digs to permanent pastures (if they grazed)?
« Last Edit: May 20, 2011, 12:09:06 AM by ArnaudForestier »
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Arnaud,
Do you have any region/location in mind?
Tan

Offline ArnaudForestier

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The midwest - WI and/or MN.
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Long way around; can I ask, the makers you mention - with their couple of cows, how large a swath of land did they have control over?
Most had to practice more intensive management because they had more animals than grazing would support.
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  Was it a fairly easy thing for them to increase their herd,
Yes, few years and some contacts and buying culls from dairies, and a herd will swell quickly.
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or were they constantly shifting to new leases and new grounds,
Situational. Some moved a lot and did only portable structures and movable fencing.
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having to start over, basically, in moving their new digs to permanent pastures (if they grazed)?
Those who moved planned for moving from the beginning and designed everything for portability.

Offline ArnaudForestier

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Most had to practice more intensive management because they had more animals than grazing would support.

More intensive than MIG?  Can you elaborate?

Quote
Yes, few years and some contacts and buying culls from dairies, and a herd will swell quickly.

Sorry, poor wording on my choice.  What I meant to ask, you addressed - given increasing herd size, did these people control larger swaths of pasture - e.g., a surfeit of land, perhaps partly in use for other income-producing means, but "in reserve" for the later, growing stock, or was it the case, basically, of the itinerant shepherd/cattleherder/goatherder, with his or her growing herd or flock, always seeking newer, larger grounds to control, for sustaining the growing livestock numbers.  You seemed to say, you've seen both.

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Those who moved planned for moving from the beginning and designed everything for portability.

Any examples of one who started with a small herd strength, but planned to grow, and who also planned to stay put - and so had land to expand into, however accomplished?
- Paul