Blog – Livestock Valuation Schemes for Dairy Farmers

A comprehensive guide for dairy farmers navigating the complex world of livestock valuation 

As part of our ongoing commitment to supporting New Zealand’s dairy industry through our Milking It Project partnership with DWN, we’re breaking down one of the most crucial yet often misunderstood aspects of dairy farming finances: livestock valuation schemes. 

Every year, dairy farmers face a critical decision that can significantly impact their tax position and long-term financial strategy. The choice between the Herd Scheme and National Standard Cost (NSC) method isn’t just an accounting technicality—it’s a strategic business decision that requires careful consideration of your operation’s current position and future goals. 

UNDERSTANDING THE STAKES

With dairy cattle values seeing significant increases across all classes in 2025, understanding these schemes has never been more important. A Mixed Age Dairy cow now has a National Average Market Value of $2,111 compared to $1,609 last year – a rise of 31.2%, while rising one and two-year heifers have increased in value by 49% and 27.4%, to $1,007 and $1,826 respectively. 

These dramatic value increases highlight why your valuation choice matters more than ever. 

THE TWO MAIN OPTIONS

1. Herd Scheme (National Average Market Value)

The Herd Scheme treats livestock as capital assets rather than trading stock. This method treats livestock more like capital assets (think long-term investments, not just inventory). Livestock are valued based on average market values set by the IRD each year. 

How It Works: 

• The Herd Scheme allows you to value both your opening and closing livestock at the same value per head. This is done by making a “tax free” adjustment (increase or decrease) to the opening livestock 

• Values are announced by IRD in May each year 

• Both opening and closing stock are valued at the same rate 

• Value fluctuations are non-taxable 

Example: Waikato Dairy Operation Let’s consider a 200-cow Waikato dairy farm that elected into the Herd Scheme in 2024: 

• 200 Mixed Age cows at 2024 value: $1,609 each = $321,800 

• 2025 closing value: $2,111 each = $422,200 

• Tax-free adjustment: $100,400 

This farmer receives a significant tax-free benefit from the value increase, with no taxable income generated from the $502 per cow value gain. 

2. National Standard Cost (NSC) Scheme

The NSC Scheme is a cost of production based system. A farmer applies national standard costs to homebred stock while all purchased stock is valued at purchase price. 

How It Works: 

• Homebred stock valued at IRD’s standard cost rates 

• Purchased stock valued at purchase price 

• Value changes are fully taxable 

• Generally produces lower book values than Herd Scheme 

Example: Same 200-Cow Operation Under NSC Using NSC valuation for the same operation: 

• Assuming average NSC value for Mixed Age cow: ~$900 

• 200 cows = $180,000 total value 

• Annual value increases are taxable income 

• When sold, the difference between sale price and NSC value creates taxable income 

If these cows sell for market value ($2,111 each), the taxable gain would be approximately $242,200—creating a substantial tax liability. 

BENEFITS & DRAWBACKS COMPARISON

Herd Scheme Benefits: 

• Tax stability: Value fluctuations don’t create taxable events 

• Simplicity: Less record-keeping required once established 

• Capital treatment: Livestock treated as long-term assets 

• Succession planning: Easier to transfer livestock values within families 

Herd Scheme Drawbacks: 

• Irrevocable election: You can’t easily change back to NSC once you elect into the Herd Scheme 

• Entry cost: Switching from NSC to Herd Scheme may create taxable income 

• Market timing risk: Entering when values are high may disadvantage you 

NSC Benefits: 

• Lower initial values: Generally produces lower book values 

• Tax deductions: Allows deductions as livestock values depreciate 

• Flexibility: Easier to change methods 

• Cash flow advantage: Lower profits in early years 

NSC Drawbacks: 

• Complex record-keeping: Requires detailed cost tracking 

• Exit tax liability: When you sell the herd, the difference between sale price and NSC value can be large which creates a significant tax liability 

• Volatile tax outcomes: Annual value changes affect taxable income

   

STRATEGIC CONSIDERATIONS FOR DAIRY FARMERS

When Herd Scheme Makes Sense: 

1. Established operations with stable livestock numbers 
2. Long-term farmers planning to stay in dairy 
   
3. Succession planning scenarios 
   
4. Risk-averse operators wanting tax certainty 
   
5. When entering during low-value periods 

When NSC Might Be Better: 

1. New entrants to dairy farming 
2. Operations planning significant herd changes 
3. Farmers considering exit strategies 
4. High-growth operations adding significant numbers annually

    

REAL-WORLD DECISION FRAMEWORK

Step 1: Assess Your Current Position 

• How long do you plan to stay in dairy? 

• Are you building, maintaining, or reducing herd size? 

• What’s your current livestock debt level? 

• Do you have succession plans? 

Step 2: Analyse the Numbers 

Consider a scenario analysis comparing both schemes over your expected time horizon. Factor in: 

• Current livestock values vs. NSC costs 

• Expected value movements 

• Your marginal tax rate 

• Timing of potential livestock sales 

Step 3: Consider Market Timing 

We are unlikely to see the same level of increase in livestock values again next year with values close to the highs seen in 2008 and 2012. This suggests caution about entering Herd Scheme at current high values. 

THE COMBINATION APPROACH

Many successful dairy farmers use both schemes strategically. You are able to use a combination of methods, so it might be that your core stock are valued on Herd Scheme and any surplus stock that you know will be bought and sold are valued using NSC. 

Example Combination Strategy: 

• Core milking herd (180 cows): Herd Scheme 

• Surplus/trading cattle (20 head): NSC 

• Replacement heifers: NSC until they join milking herd 

This approach provides stability for your core operation while maintaining flexibility for trading activities. 

CURRENT MARKET CONTEXT (2025)

The 2025 livestock values present both opportunities and challenges: 

Opportunities: 

• Strong commodity prices and the reframing or relaxation of some environmental factors have seen renewed interest in dairy conversions 

• The outlook for the farmgate milk price remains strong due to tight supply in the EU and Australia, robust demand and a weaker NZ dollar 

Challenges: 

• Values are at historically high levels 

• On farm costs remain high but falling interest rates are easing financial pressures 

• Environmental policy uncertainties continue

   

MAKING YOUR DECISION

The choice between Herd Scheme and NSC isn’t one-size-fits-all. The decision as to which valuation option to take is an important one. Livestock valuation is a complex area and it requires an individual approach – each farmer’s circumstances will be different from those of another. 

Key Questions to Ask: 

1. Where am I in the livestock value cycle? 
2. What are my long-term business plans? 
3. How important is tax certainty vs. flexibility? 
4. What’s my risk tolerance for tax volatility? 
5. Am I planning succession or exit strategies?

    

PROFESSIONAL GUIDANCE ESSENTIALS

Careful consideration needs to be given to your livestock election choices. Even though changes were made to the Herd scheme in recent years, there is still flexibility around how to value increases in numbers. 

The complexity of these schemes and their long-term implications make professional advice essential. At CMK Accountants, we work with dairy farmers to: 

• Analyse individual farm circumstances 

• Model scenarios under different schemes 

• Plan for optimal timing of elections 

• Ensure compliance with IRD requirements 

• Integrate livestock valuation with broader tax planning

   

LOOKING AHEAD

With livestock values at near-record highs and market conditions showing strength but also uncertainty, 2025 presents unique challenges for livestock valuation decisions. The key is taking a strategic, long-term view that aligns with your business goals while managing tax efficiency. 

Remember, once you elect to enter the Herd Scheme there are very limited circumstances where you can exit. This makes the initial decision even more critical. 

READY TO OPTIMISE YOUR LIVESTOCK VALUATION STRATEGY?

Contact CMK Accountants today to discuss your specific situation. Our agricultural specialists can help you navigate these complex decisions and develop a strategy that supports your long-term success in dairy farming. 

This blog post is part of our Milking It Project with DWN, aimed at providing valuable insights and practical guidance to New Zealand’s dairy farming community. 

 Disclaimer: This information is general in nature and should not be considered as specific advice for your situation. Always consult with a qualified agricultural accountant before making livestock valuation elections.