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AACo has applied for permission to export meat to China
Big drop in production costs pushes AACo profit up despite revenue being down
Australian Agricultural Company has again reported an increase in net profit, up almost $4 million to $71.59 million.
That is despite Australia's largest cattle company selling less meat to March 31.
Beef sales were down 2 per cent of total sales — or 5.7 million kilograms — on the previous year.
AACo managing director Jason Strong said that was because the company had reduced its reliance on external shortfed supply.
That is, it had bought fewer less-profitable cattle that would have otherwise "flowed through the system and been part of our revenue this year".
"They are the major contributor to the reduction in revenue," Mr Strong said.
But despite revenue being down, AACo's margins improved from 3 per cent in 2016 to 10 per cent in 2017.
Mr Strong said that was due to a focus on higher value business.
"Last year, we demonstrated that we can produce a lot more revenue off a much smaller cattle herd," he said.
"This year we've shown that we can produce three times the margin, three times the earnings, off a smaller revenue."
Margins were driven by a 27 per cent reduction in production costs per kilogram, and a 12 per cent increase in the wagyu and shortfed average selling price.
"The way we manage our supply chains is one of the key things that help us drive and manage the cost-base of the business," Mr Strong said.
"It's our investment in branding and marketing and the relationships that we build with our customers that's going to be the big driver going forward for a continual increase in price."
Expanding the market
The company continues to move away from its traditional production-based system and towards a vertically integrated luxury branded beef business.
AACo supplies 27 markets including the USA, Australia, South Korea and Japan.
After launching two of its luxury beef brands in Singapore in October, AACo will enter the market in Taiwan next month.
Mr Strong said the lessons learned from trading in Singapore would "drive and underpin the rollout of our branding strategy across the globe to all of our makers eventually".
In the months since the Singaporean product launch, sales of the high-end Westholme and Wylarah brands have increased by 11 per cent, and the overall average sale price has increased 28 per cent.
Wagyu increases
AACo's cattle herd has seen a 4 per cent increase in the 2017 financial year, with a primary focus on building the supply of wagyu cattle.
Wagyu now accounts for 18.5 per cent of AACo's cattle inventory, up from 15.6 per cent last financial year.
"We're getting reasonably close to a sustainable replacement herd, and that's something we'll evaluate over the next year or two, making sure we can manage and sustain that ourselves in full control," Mr Strong said.
Waiting for China
AACo has applied for permission to export meat to China, which would provide another market option for beef from the company's Northern Territory Livingstone Beef abattoir.
Mr Strong said he was still awaiting a decision.
"Our largest market out of Livingstone is still the United States," he said.
"We're always interested in access to new markets, and China is very interesting for us for the type of product coming out of Livingstone.
"It's not a current constraint on our business, but we're certainly excited by the opportunity, and if we can progress down that path we will."
AACo has applied for permission to export meat to China
Top End abattoir applies to access Chinese beef market, with Europe an option for buffalo meat
The owner of the Northern Territory's Livingstone Beef abattoir says it hopes to soon sell meat to China, capitalising on increased market access.
It comes as the Federal Government announced an expansion in the number of
meat processors allowed to export chilled beef to China would increase significantly, with other pending approvals fast-tracked.
While Australian Agricultural Company's (AACo) abattoir near Darwin currently has access to 27 customers, it has applied for permission to export meat to China, which would provide another option for off-loading product.
Managing director Jason Strong said the industry had been focused on China for some years, with the free trade agreement paving the way.
"Any increase in market access for beef is a great opportunity for the industry, and China has been a fantastic market for us over the last few years," he said.
"This is actually about individual processing plants and facilities having access to the market, increasing the capacity of us to then supply to the market, which is positive.
"From an industry point of view, the bigger issue for us at the minute is not having enough product to send to all markets."
The United States is currently the company's largest customer for processed beef, with high-quality beef cuts mostly sent into Asia.
Mr Strong said the company had no specific product from Livingstone in mind for China at this stage.
"We send to multiple markets out of Livingstone now, so one of the advantages of having multiple markets that the Australian product goes to is being able to split the carcass up and find the most beneficial market for the individual parts," he said.
"Having access to somewhere like China would certainly strengthen that opportunity."
Europe an option for abattoir's buffalo meat
Meanwhile AACo's abattoir could look to take advantage of an unutilised quota for 2,250 tonnes of frozen buffalo meat that Australia has with the European Union (EU).
The company began
processing trials of the animals last year and is now hoping to secure a more reliable supply of stock.
In 2016, Australia sent 26 tonnes of buffalo meat to the United States, with 20 tonnes exported to Singapore in 2015.
Although ABC Rural understands the EU quota has not been accessed since 2003, a spokesperson for the Department of Agriculture said Australian businesses were able to apply for a permit to use it.
Mr Strong said with several markets available, the company would persist with buffalo, particularly as it supported the local Top End industry.
"It's one of those challenging things about global access," he said.
"As a [cattle] industry, we're trying to get access to a market like Europe, and we've got a 2,250 tonne quota that sits there that we can't utilise because it's a species-specific one.
"So there's at least one little nuance about global trade that we have to work our way around."
The Livingstone plant is back to full production after it
closed for a week earlier this year due to a lack of cattle in the wet season.
(20min delay)
