Dick Smith’s almost tearful admission that his foray into food retailing was at an end, is a sobering reminder of the tough nature of the food business.
Curiously it came only weeks after an admission by retailer Jerry Harvey that his unsuccessful investment in Coomboona Holdings, near Undera, would cost his business about $70million as the group went into receivership in March.
Harvey Norman owns the $73.15million debt in the dairy operation after also taking on Coomboona’s debt to NAB of $36.06million in May.
Harvey Norman paid $34million for a 49.9 per cent stake in the farm in 2015.
But it won’t be much of a surprise to experienced farmers and investors in the rural sector.
Perhaps there are many people (mostly in the cities) who think that there is some easy money in agriculture. Or that the people who have been doing it for decades don’t know what they’re doing. Or that by a little tweaking, more money will fall out of the end of the production cycle.
At any given time there are companies being formed in Sydney and Melbourne office complexes after someone has a brilliant idea.
It must go something like this:
‘‘Look, all the farms are small. The dairy farms, for example, are only about 200ha in size, scattered around the country. We should buy up a couple, aggregate the land and get some economies of scale. We could save money on labour and equipment ...’’
Or: ‘‘Most farms are run by farmers who are not scientists or specialists ... let’s get some brainpower into the operation; spend some real money on high-tech equipment and top genetics. Double the production per cow, with less labour units. That’ll do it.’’
A compliant accountant and a few consultants have a look at the figures and — before you know it — you have a prospectus on shiny paper with some really excellent graphics, that is sure to impress all their financial friends.
The fact is: making money out of agriculture is hard work. Farms are run, mostly, by people who know you have to earn more than you spend, and when the pump breaks down, the cows get out or the feed prices go sky high, you work an extra couple of hours and ask the bank for a bit more leniency.
You can’t claim overtime and penalty rates. You can’t conjure up thousands of extra dollars and you certainly can’t influence the miserable price you are paid. And the only thing you can float is the pump on the recycle dam.
Dick Smith’s food businesses were an admirable attempt to preserve Australian jobs and manufacturing in the face of a highly competitive market. But food in Australia is a tough and unforgiving market (as dairy farmers can tell you), with no prisoners taken.
These interesting forays into food and agriculture remind me of the old joke: How do you make a small fortune in farming? Start with a large one.