Mr Harvey, a dairy farmer himself — albeit an extremely wealthy one — said people getting into the dairy industry must understand it was highly vulnerable to swings in commodity prices and that while the current crisis was of great concern it could ultimately create a more lean and smaller sector that would benefit from an eventual upturn in farmgate milk prices.
“The thing about this is it’s a commodity and commodities go up and down in price, so you have to look at that when you are in commodities and if you are in there for a short play or a long play, you have to know that when you go into it,’’ Mr Harvey told The Australian. “You are going to have ups and downs and when it’s up everybody is happy, when it goes down generally a lot of people go out of the business, so the next time it goes up the ones that are left benefit a bit more.’’
In September, Mr Harvey’s publicly listed furniture, bedding and consumer electricals company Harvey Norman bought a 49.9 per cent stake in Goulburn Valley dairy farm Coomboona Holdings for $34 million. Coomboona Holdings is one of Australia’s largest dairy farms.
It is not unusual for Harvey Norman, a retailer, to buy stakes in unrelated businesses, and in the past it has invested in mining camps and property.
His investment in dairy was struck before the recent downturn in milk prices, after Australia’s biggest producer Murray Goulburn, and followed by New Zealand giant Fonterra, unexpectedly slashed their prices to suppliers by more than 15 per cent to levels that for many farmers is below the cost of production.
The spiralling milk price has triggered shock waves through farming ranks, with some dairy producers facing massive losses or financial ruin.
“The milk price is not as good as we hoped it would be, but the price we are getting is still OK,’’ Mr Harvey said, with Coomboona’s milk processed by Tatura.
“We are not happy with it but if I knew I was going to get the price I’m getting now going forward, for the next couple of years, I wouldn’t be happy, but we wouldn’t be devastated.’’
Some farmers and industry advocates have called for a levy on consumer sales of milk, as high as 50c a litre, with proceeds to go to help struggling dairy producers, but Mr Harvey said that would be a terrible idea. “That’s playing around with the free market, and once you start playing around with the free market you generally end up in more trouble.
“In theory it might sound nice but in practice it generally either ends up in tears, or you wish you hadn’t done, there are not many instances in the last 100 years where that sort of activity took place that has longevity or success.’’
But Mr Harvey’s investment in dairy represents less than 1 per cent of retailer Harvey Norman’s business, and so unlike farmers he hasn’t bet the farm on this play in the dairy sector. “The whole idea of that (Coomboona) dairy farm deal was to put our finger in the water, invest 1 per cent or less of what you are worth into it and then if it works, might put 2 per cent in but if it doesn’t work, well, see you later and we will do something else.’’
