China’s growing appetite for protein drives beef boom

The mining boom may be over but Australia’s beef cattle bonanza appears to be continuing ­unabated.

Almost daily, there is news of wealthy Chinese investors snapping up vast northern cattle stations for multi-million-dollar sums. The Foreign Investment Review Board is believed to have approved on Monday a newcomer’s bid to buy a $100 million cattle holding in Australia’s north.

All the economic studies show that as countries such as China become richer (there are now more than 100 million Chinese living a shiny middle-class lifestyle and their ranks are set to swell to 850 million by 2030), demand rises not just for flash cars, smart apartments and TVs but also for Western proteins such as dairy products and beef.

“Being in control of the start of the beef supply chain is a great place to be if protein is going to be increasingly in short supply,” says Whitehead.

“Investors, too, are starting to look for industries that can’t be disrupted. You can disrupt banks, hotels, media, taxis and property, but — until they perfect 3-D printed food from a Petri dish — how do you disrupt Australian beef?

Cattle prices paid to farmers remain more than double their $3 a kilogram saleyard price of just three years ago, although a little lower than last August’s record peak of $7.25/kg, according to Meat and Livestock Australia’s benchmark cattle indicator.

Australian billionaires such as iron ore queen Gina Rinehart, media magnate Kerry Stokes, retailing giant Gerry Harvey and mining magnate Andrew Forrest are expanding their beef empires and global ambitions by the month. This week Rinehart unveiled her masterplan to ship 800,000 cattle live to southern China’s Zhejiang province in partnership with China’s omnipresent $15 billion New Hope farm.

And British-born, Bahama-based billionaire currency trader and investor Joe Lewis — who also owns England’s Tottenham Hotspurs soccer club — has so tightened his grip on Australia’s biggest beef producer and seven million hectare outback landowner, the venerable Australian Agricultural Company, that his Tavistock group now owns more than 40 per cent of its shares and has shifted many of its backroom financial ­operations to London.

ANZ agribusiness futurist ­Michael Whitehead believes it is no coincidence that the smart investment money is plunging headlong into Australian agriculture, particularly its boom beef sector, which is 75 per cent export-­focused.

 

“Investors, too, are starting to look for industries that can’t be disrupted. You can disrupt banks, hotels, media, taxis and property, but — until they perfect 3-D printed food from a Petri dish — how do you disrupt Australian beef?

“So it follows that if you are a billionaire like (Singapore-based retailer) Brett Blundy or Gina Rinehart who has done well by building a business elsewhere, it is obvious that you will never lose your money by buying and investing in Australian cattle properties. It’s a great project and space to be in.”

Blundy, a farmer’s son from Victoria’s Gippsland who started the Sanity music store chain and went on to build a retailing and commercial property empire, has done just that, co-investing more than $150m in five cattle stations covering more than 2.5 million hectares of the Northern Territory’s grass-covered Barkly Tableland in the past three years.

Not only has Blundy helped local cattle families jointly buy the stations, but he has deliberately concentrated on using his investment capital to improve their productivity.

The numbers of cattle that can be carried on the famed Beetaloo Station owned by John Dunnicliff, who died last year, has tripled to nearly 100,000 head since Blundy’s impetus added $40m to pay for 600 new water tanks, 3000km of water pipes, 3000km of new fencing to create smaller pad­docks, 70 new bores and a new beef industry ­vision.

“I’d been travelling to Asia for a long while and it occurred to me that China would not be able to feed itself as their economies grow, and then I thought that beef and protein were very important,” Blundy told ABC Landline in a rare interview at the start of his pioneering Beetaloo co-investment.

“Increasing productivity is going to be essential in beef growing, (but) it needs funding to be successful.

“Ultimately, I believe what we’re doing at Beetaloo will be the way beef farming in the far north of Australia is done in the ­future — it was just too good an opportunity to miss.”

But to paint the Australian beef industry as in the hold of a boom that will never end would be wrong.

While farmers and graziers who have cattle to sell are enjoying good times and high cattle prices, in the severe three-year drought across north and western Queensland that lasted until early last year — and has not ended in some parts of the state — many bare cattle properties were destocked and record cattle numbers were slaughtered.

The national herd remains at a low 26 million head — down from 30 million cattle in 2013 — meaning fewer excess cattle are available to be sold to other farmers looking to restock their properties or to be sold to processors.

It is this shortage that has pushed Australian cattle prices so high — and beef retail values to an average $22/kg this year, unaffordable for many consumers — rather than the sudden arrival of a tsunami of Chinese middle-class demand for Australian beef.

Now that Australia is green and grassy across its top after two great wet seasons, more cattle will start to become available by the end of this year, according to Rabobank beef analyst Angus Gidley-Baird.
“It’s definitely a great time to be a producer if you have cattle; there’s outside investor interest in the industry, optimism is high, land values and cattle prices are good, and the inflow of investment from the Chinese and people like Gina Rinehart is providing capital to increase productivity,” Gidley-Baird says.

“But prices can’t stay where they are — I expect them to come back from the current $6.30/kg to below $5/kg by late next year — but we need that correction if (Australian beef) is to remain competitive in export markets like China. It is still a pretty health price for producers compared to three years ago.”

Savvy advertising mogul Harold Mitchell is another cattle industry player who senses the beef market — at least from a producer perspective — may be approaching its peak.

It’s a sign of the times that — just as Rinehart is spending more than $250m buying a 70 per cent stake in the Kidman cattle empire and turning her sights on establishing a new live cattle export trade to China with billionaire Liu Yonghao’s New Hope agribusiness group — Mitchell and his group of co-investors have again put their $80m-plus Yougawalla Station cattle empire in the East Kimberley up for sale.

“I’ve been a great supporter of the industry — I’ve loved it — and still think it has a long way to go. There will always be a shortage of protein in a growing world,” says Mitchell, who in advertising and media circles is well known for his critical sense of timing in selling up businesses at their value zenith.

“I’m really proud of what we have done. In 10 years we have invested heavily in water and fencing and expanded from 800 head of cattle to 46,000.

“I wish all the new investors (in the industry well) but it is time for me to sell up and move on.”

Investment banker and agribusiness specialist David Williams doesn’t think it is a bad thing for the industry overall if prices for cattle and retail beef start to fall.

He says that already Australian consumers are finding beef is too expensive to include in their weekly supermarket trolleys and are switching to cheaper chicken and pork, while the high price of cattle is also sending meat processors to the wall.

“There is a shortage of cattle and everyone on the processing side is going broke very quickly; there are a number of abattoirs shut or mothballed, while many processors I know who would normally kill 1000 cattle a day are down to just 300 head and are losing $300,000 a week,” Williams says.

“We’ve had so many cattle going in the live trade to China and Vietnam (800,000 head a year) … the China trade is just starting to take off and the US has had so much demand for our hamburger meat; but things are changing fast and we are right at a point where the price of stock is so high that I fear a collapse is coming.”

Williams believes the answer to a better equilibrium — and an end to the traditional and dreaded cattle industry boom and bust cycle — rests with northern development and big investment in underdeveloped cattle stations.

If cattle can be farmed more efficiently — “more protein from the same piece of land”, says Williams — the Australian cattle herd ­capacity can grow from 30 million to 40 million head.

This would ensure there are enough cattle to meet the competing demands of local consumers, export beef markets, China and the growing live export trade, without prices erupting past the point of global competitiveness with other big beef producers such as the US, Brazil and Argentina.

Whiteside also believes the key is increased productivity by cattle producers, using better genetics, improved water and pasture management and new technology, to increase the size of Australia’s cattle herd.

But he also thinks that, like the recent gas supply crisis intervention, the government has to make it clear to overseas companies and wealthy investors buying cattle stations to lock in beef supply just how much beef will be ­allowed to be exported in total from Australia.

“We don’t want to end up like the cherry industry where so many cherry farms have been sold to Chinese owners — and the Chinese like cherries — that the price has gone right up and it is pretty hard now to afford cherries in your local supermarket,” Whitehead says.

“If that ever looked like happening with beef, and I don’t think it will because we should be able to increase our production significantly, I suspect the government and industry would act, so beef remains affordable locally to those who want to eat it.”


Source: http://www.theaustralian.com.au/news/inquirer/chinas-growing-appetite-for-protein-drives-beef-boom/news-story/b2ea1065fc9504b48b80707ee7cd739d

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One Comment Add yours

  1. Lyn says:

    China’s game will be to open the market to their exports from here and from other Aussie suppliers then stop imports and force Ausdie farmers to the wall – an old trick that the naive fall for with permanent local decline – neither fair or free trade.

    Like

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