Article – New boom for meat exporters

18 September 2014
Matthew Cranston
Queensland Country Life
TOURING an abattoir in western China last month, the managing director of cattle exporter Frontier International Agri Hamish Browning was surprised. The facility, which has the capacity to process 800 head of cattle per day, had not a beast in sight.
“I was told it hadn’t been used since 2010,” Mr Browning says, “they just haven’t been able to get cattle.”
The murmurings that China’s beef processing facilities are sitting at 30 per cent utilisation must surely give some indication of the bright future Australian beef exporters to China have.
The dollar value of Australian beef and veal exports to China has surged 3273pc in the past five years, while exports to Thailand and Vietnam and numerous Asian countries are up more than 100pc.
A big part of that surge has been Australia’s drought which has pushed a huge volume of cattle through the processors and onto boats destined for Asia.
Australia accounts for 53pc of China’s beef imports and ANZ’s director of agribusiness research Michael Whitehead has forecast that Australia’s beef exports to China could be worth $130 billion by 2030.
Australians doing business in these markets are clearly bullish and have been prepared to invest.
“You have to try to visualise the quantum and there are so many figures so what I do is start with the fundamentals,” Mr Browning says.
“China has 1.5 billion people and an income growth of 7 per cent.
“As lower income nations move in to the middle class they start to eat more protein and beef so if you have income growth of 7 per cent then you have an extremely strong case.”
Frontier International Agri, which is a partnership with listed rural services business Ruralco, has been hiring more staff whose skills specifically include the capacity to sell into China.
Talks with importers ‘bullish’
Discussions with direct Chinese importers have been “quite bullish” and there are other strong signs.
“Most importers are confident that a health protocol will be ratified soon for slaughter cattle – there have been ever increasing discussions at the commercial level,” Mr Browning says. “We are also witnessing investments being made in China including purpose built quarantine facilities and processing facilities.”
The focus on what China is doing is critical because of its influence over the region, especially in terms of pricing power. There are many different scenarios in the jigsaw of red meat exports. Thailand for example used to supply some cattle to Malaysia but is now supplying Vietnam and China. That leaves Malaysia with a shortfall and increases its demand for imports.
For JBS Swift, the answer to control over supply is simply based on price.
“Those who pay the price will get the product,” JBS Swift’s John Berry says. “Australia is in a good position because demand is now outstripping supply capacity.”
Australian Country Choice’s David Foote, who exports about $100 million in beef to countries other than China, has recently signed a memorandum of understanding with one of China’s largest food manufacturing companies Bright Foods.
“I think the traditional import countries are all feeling the pressure from the new demand coming from China,” Mr Foote says.
“They are all looking to forge new relationships with suppliers.”
While his company is not a big exporter he knows he is in a powerful position: “The future will all be about who will have the strongest economy to bid for our clean and safe meat”.
“But I don’t think you need to talk about the increased demand from China – you only have to look at the Japanese trading houses setting up there.”
While Australia might have all the attention, it will still need to maintain reputation and part of that is about security of supply.
Meat and Livestock Australia (MLA) notes that Australia’s herd reached 28.5 million in 2012 and that figure is not likely to be reached again for at least another five years.
MLA managing director Richard Norton says the Australian red meat industry needs to stop the infighting and get straight to work.
“We need to stop navel-gazing. We have to wake up to the idea that we are marketing food and its safety.”
Increased production a must
Mr Norton travelled to China with Agriculture Minister Barnaby Joyce in September to open a new office for MLA in Beijing. Both know the importance of the market and what Australia must do to hang on to its position there.
“I get shouted down by producers all the time when I say this but we are going to have to increase our productivity by up to 3 per cent per year if we are going to stay ahead of the competition,” Mr Norton says.
There are plenty of producers who agree with him. Consolidated Pastoral Company (CPC) backed by private equity group Terra Firma is one, and it has a small joint venture in China.
“We are looking at improving productivity and we are looking at more beef from the existing land,” CPC chief executive Troy Setter says.
“We are getting emails every second day from people looking to import into China. They know the cuts, the prices and the supply chain – they are people who actually know what they are doing and they have a very clear understanding.”
ANZ’s Whitehead says the Chinese beef industry provides about 81pc of domestic demand.
“Our research suggests that by 2030, China’s beef producers will only be able to account for 62 per cent of demand, meaning imports will need to rise almost 250 per cent.”

Courtesy of Queensland Country Life