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Abstract

Sharemilking is a widespread concept in New Zealand, similar to ‘farming to halves’ as practised since medieval times in England. Sharemilking is an entry point for new dairy producers in the New Zealand industry, and traditionally most sharemilking arrangements have been a 50/50 arrangement. These structures are relatively rigid in the share of milk income and apportionment of operating costs between the farm owner and sharemilker. Growing milk price volatility increases the business risks for sharemilkers. In a first step, we tested the hypothesis that flexible sharemilking arrangements will reduce the income variability of sharemilkers. The second step was to smooth the impact of changes in revenue shares and to reduce modality in income distributions. The results show that a flexible distribution of milk revenue reduces modality but shifts some of the revenue risk from the sharemilker to the farm owner, while still allowing both to generate a positive ROA and a positive net profit with high probability.

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