Inside billionaire beef club AACo’s plan to fight inflation and maintain demand for its wagyu steaks

The boss of Australia’s biggest cattle producer has welcomed a potential thawing of relations with China and an impending FTA with the UK, saying it will help it combat inflation.

Dave Harris, chief executive of Australian Agricultural Company, has welcomed a potential thawing of Canberra’s relations with China and an impending free trade agreement with the UK, saying it will help the beef producer combat inflation.

AACo – which owns 1 per cent of Australia’s land mass and has become the world’s biggest wagyu producer – has been reaping the benefits of expanding more into branded products under its Westholme and Darling Downs labels.

It has also become a billionaires club, with Tottenham Hotspur owner Joe Lewis and mining magnate Andrew Forrest dominating its shareholder register.

But as the global economy teeters on recession, with inflation surging to its highest level in more than three decades, Mr Harris has a plan to ensure AACo’s steaks continue to be in demand.

“We’ve moved product around. There is still huge opportunity in some of the North American markets,” Mr Harris said.

“So it’s really about continually developing where we are in markets. At the end of the day, the amount of beef we produce relative to what’s consumed is small. It’s just a percentage of market share we need to create.”

The potential of China welcoming back Australian beef – with Beijing banning several producers in the past two years – could generate further flexibility for AACo. Hopes are high after Anthony Albanese held “constructive talks” with China’s Premier Xi Jinping in Bali at the G20.

A free trade deal with the UK, which Mr Albanese could legislate as early as next week, would also help bolster the company’s fortunes.

“A healthy international market is a good one and it helps us and our colleagues in commodity production in Australia more broadly, so I think it’s something we only hope for potential improvement,” Mr Harris said.

“The challenge for China is they’re still locked up with Covid, so that’s difficult. The market from a volume perspective is pretty suppressed at the moment from a demand side of things. But any market that is looking to value brands and pay better money for brands is a positive thing for AACo.

“The UK, Europe don’t have a wagyu segment of their own, so it’s a high value opportunity market.”

The potential of China welcoming back Australian beef – with Beijing banning several producers in the past two years – could generate further flexibility for AACo. Picture: Zoe Phillips

Mr Harris was speaking as AACO delivered a 28 per cent surge in operating profit to $38.3m in the six months to September 30. Its Westholme and Darling Downs branded products accounted for 88 per cent of meat sales, which surged 19 per cent to $122.3m.

But on a statutory basis, net profit sank 38 per cent to $51.6m, with Mr Harris citing a lower fair value adjustment as cattle prices in Australia normalise.

AACo has also continued its 14-year dividend drought with the company opting instead to invest in its business.

The company’s share price fell 4.7 per cent to $1.64 in afternoon trade on Thursday against a flat broader sharemarket. AACo’s share price has almost halved from its $3.24 high reached in 2008 – the last time it paid a dividend.

Mr Harris – who succeeded Hugh Killen after he left the company suddenly in June – deferred questions about when the company will reinstate its dividend to chairman Donald McGauchie. But he said the company’s investment pipeline had a few years to run.

“There’s a few prongs to that one. There’s efficiency investments that we’re trying to make to essentially lower the cost of production and improve our productivity that is super important to us in continuing to build a really resilient business to really avoid those highs and lows.

“The other part to it is the strategic investment in some of these sustainability strategies. We’ve now converted 250 bores to solar. We’ve got a few more of those to go so we’re on track to 2024.

“We’ll continue to do those things like anyone who is from the land.”

The focus on branded products fuelled a 25.9 per cent lift in average meat sales per kilogram.

“The ongoing return of food service after COVID-19 has helped these results and it is clear the strength of our brands is also a significant factor,” Mr Harris said.

“The 25.9 per cent increase in our branded meat sales price per kilo is testament to the continued growth of Westholme and Darling Downs. They now account for more than 88 per cent of branded sales.”

Westholme sales in Australia jumped 35 per cent. Mr Harris said sales were also allocated away from Asia into food service markets, “optimising global supply across the carcass, though it remains our largest volume region”.

Cattle sales firmed 2 per cent to $41.4m. Net tangible assets per share increased 3 per cent to $2.33, with net assets totalling $1.4bn.