APF talks mobility, weather and Indonesia

Australian Pastoral Fund has implemented a strategy that enables it to produce sustainable returns throughout the year, according to Penny Hayes, chief executive and Alan Hayes, executive chairman.

Australian Pastoral Fund has implemented an investment and management strategy that takes into account the various nuances of Australia’s climate and its agriculture industry. And this enables it to produce sustainable returns, according to Penny Hayes, chief executive and Alan Hayes, executive chairman.

What differentiates APF’s investment strategy over other livestock managers?

Our geographic spread across a variety of climatic zones in Australia is one differentiator. We also operate a ‘paddock-to-gate’ rather than a ‘paddock-to-plate’ philosophy which helps to reduce our exposure to input costs associated with feedlots and other industries further down the supply chain.

How does your fund mitigate weather risk?

The fund mitigates weather risk through the geographical and climatic spread of its properties, and the mobility of its livestock. This means we can fully capitalise on the grass resources across our portfolio.

With this geographic spread of assets we are also able to take advantage of seasonal downturns in other regions to buy, fatten and sell, (ie. trade), surplus livestock from other producers through specialised “trading” properties in its portfolio acquired primarily for this purpose. Being able to operate counter-cyclically with adequate grass and cash resources can underwrite these opportunities and can often mean the largest profits are made in the worst seasons.

The Equilibrium Capital platform is dedicated to investing in sustainable business models – how does APF satisfy this?

Sustainability is first dependent on being profitable.

Profitability is dependent on productivity, and productivity in livestock production is, in turn, ultimately dependent on reproductive performance of breeding stock, and growth rates and weight gains of stock produced for sale.

Land needs to be nurtured to grow feed resources, and the incentives to conserve and maintain the productive capacity of soils and pastures and water storages, are logical, and based on common sense.

This ‘nurturing’ can be achieved by shifting stock to other ‘owned’ properties, or selling them early to avoid either loss of weight in the animals, or the overgrazing and consequent degradation of the land.

Profitability also depends on the fertility (natural increase rates) and weight gain of the animals, and these key performance indicators are a direct measure of the welfare of the animals concerned.

The attention given to animal health and ‘happiness’ by the management and staff are direct contributors to the real concepts of animal welfare and the sustainability of productive land.

Happy cows get pregnant, and happy steers get fat!

How did the ban of live export to Indonesia impact business? What has happened since this ruling was reversed?

Although only relatively short lived, the ban on live exports to Indonesia created inestimable economic damage and hardships for both exporting live cattle producers in northern Australia, and importers, feeders, processors and distributors in Indonesia.

This was mainly due to the immediate trade disruption which meant that cattle destined for export at that time were delayed and later had put on too much weight to be exported so had to be re-routed to slaughter facilities on Australia’s east coast. This involved expensive, and long distance, transport costs.

This had a negative impact on slaughtered cattle prices across the board due to oversupply from two directions; a poor season in many regions of Australia had pushed many producers in Eastern states to off-load large numbers of excess cattle.

Fortunately there was no stock pile build up due to strong, inelastic demand for beef and other red meat proteins worldwide so Australia was able to export record volumes of lower grade manufacturing and grinding beef cuts in 2012 and 2013 and early 2014 to a meat hungry world at lower prices.

But years of sound and mutually beneficial, synergistic relationships with Indonesia were imperiled by a ban that many consider was an overreaction to an isolated incident reported in the media; Indonesia suffered serious shortages of beef and subsequent price increases for Indonesian consumers.

The ban also resulted in the creation of an element of sovereign mistrust between the Australian and Indonesian governments.

When the ban was lifted, livestock producers in Australia, feeders and processors in Indonesia, and the new Liberal Government in Australia, worked incredibly hard to re-establish the un-deniable economic synergies associated with the low -cost production of store – as yet un-fattened –cattle in the Northern Territory and the north of Western Australia and to restore the formerly comfortable inter-government relationship.

After much effort, and long negotiations, the live export cattle trade to Indonesia is again working, and live exports to other Asian countries and the Middle East are also expanding rapidly.

The excessively high cost of processing and slaughter in Australia is reinforcing the growing trend for importations of live animals for on-feeding and slaughter, into the lower processing-cost countries of destination.

With the resumption of the live cattle trade to Indonesia and also to other parts of Asia, the future for low cost cattle production in the north of Australia and the on-going live export to the growing markets of developing Asia, is once again under-pinning a long term growth trend and price benefit for low-cost Australian livestock producers, as global supply and demand for red meat protein strives towards price-determined equilibrium.