Healthy trade with China is important for Australian agriculture but so is diversifying from Beijing - AACo

Diverting beef once destined for China to the US and elsewhere in Asia has helped keep Australia’s biggest producer in the black.

AACo Hugh Killen says the company’s dive in to branded beef has ensured it has remained profitable. Picture: Naomi Jellicoe

The nation’s biggest beef producer, AACo, says a “healthy” trade relationship with China is “good for Australian agriculture” but equally the company has successfully diversified away from servicing Beijing in the wake of bans on Australian beef and other soft commodities.

AACo’s deepening of its branded beef strategy has buffered the company from an increasingly hostile China, reduced slaughter rates and lower meat sales and keeping it in the black.

While Beijing’s communist regime has banned beef exports from several Australian abattoirs, AACo has diverted product originally destined to China to the US — where a two pack of its Westholme-branded steaks sell for $US169 ($218) — and elsewhere across Asia.

The company is now eyeing the UK market, which along with Europe it currently supplies less than 8 per cent of its product, with London close to striking a free trade deal with Canberra.

“I think a healthy relationship with trade partners such as China is a really good one for Australian agriculture and we’d like to see it start up again,” AACo chief executive Hugh Killen said.

“We also know the Chinese market is significantly short of red meat protein at the moment as well, so there’s obviously some mechanisms going on in global trade that is for someone else to worry about.

“But part of the strength of our global distributor relationships is we are able to actually redirect product to other markets.”

AACo operating profit jumped 61 per cent to $24.4m in the 12 months to March 31. While $6.7m of that figure was thanks to the Morrison government’s JobKeeper wage subsidy, it continued to grow its profit.

Excluding government support, AACo posted an operating profit of $17.7m, versus $15.2m the previous year. The result was despite meat sales dipping 13 per cent to $200m, while cattle sales dropped 37 per cent to $65.5m.

Mr Killen said JobKeeper had achieved what it was designed to do and, despite the company accessing the support, it still had to “take pay cuts” and make some staff redundant.

“There wasn’t a restaurant open. That was my business in market,” he said. “We actually didn’t know what the impact of COVID-19 would be on human beings, let alone our supply chains and we were trying to move cattle from Queensland to the Northern Territory. My business was coming to a halt.

“The fact that government ­assistance was made available protected jobs. We still had to let people go, we still had to take pay cuts. But we would have had to make very different decisions if that support wasn’t available.”

Mr Killen said while “progress made” in AACo’s branded beef strategy had led to an 8 per cent improvement in average meat sales price per kilogram, he called for people to vaccinate themselves against COVID-19 to ensure the hospitality and tourism sectors opened up fully.

“As soon as I was eligible for the vaccine I went and got it,” he said. “The more people can get vaccinated, the more we can get back to life, to travel, the more we can go to restaurants, the healthier the community will be and ultimately more businesses will be in a better place.”

AACo’s Westholme and Darling Downs brands now represented 74 per cent of its branded meat sales. Mr Killen said a looming free trade deal between the UK and Australia would propel the company’s branded beef strategy even further.

“Tariff-free trading to a really high-quality market such as the UK is a really good thing for a company such as AACo,” he said. “The reason being it is a relatively small export market but the consumers are after high quality, particularly in their food sector.

“Our branded business is up 17 per cent, and when you look at that in a year which has been so challenging in terms of almost four months of a complete shutdown in food service, that trade is really important to us, and I believe there is potential to drive that higher.”

But Mr Killen said reduced meat sales were expected to continue into next year, with the company experiencing lower calving in 2018-2020 from “prolonged drought” and flooding at several Gulf of Carpentaria stations in 2019. He said several AACo properties were seeing below-average rainfall and the Gulf properties were still recovering from the flood.

“These headwinds have started to impact our meat production in the 2021 financial year due to our average F1 Wagyu lifecycle length of 3.5 years from conception through to backgrounding, feedlots and processing,” he said.

“This has translated into 19 per cent lower meat volumes in FY21 versus the previous corresponding period, with lower sales volume likely to continue into FY22. Importantly though, our herd rebuild has commenced, with a 47 per cent increase in calves in FY21 compared to FY20.”

The lower slaughter rates are in line with the broader cattle industry.

“Meat and Livestock Australia has revised down cattle slaughter forecasts to their lowest level in 36 years and a fall of 11 per cent on 2020 levels. The national cattle herd is also coming off its lowest level in 25 years, in 2020,” Mr Killen said.

“Being able to make progress in a year that was so heavily affected by outside factors shows that it’s the right approach and should remain central to our activities.”

AACo will not pay a dividend.

Its shares closed down 0.8 per cent on Thursday, at $1.21.