Meeting China’s demand for organic beef

Western nations may understandably pop to mind when you think ‘organic’, but they aren’t the only ones with growing ranks of foodies and regular people interested in provenance and farming methods. Chinese consumers are increasingly keen to know where their food comes from and will pay more for organic produce, according to a survey by New Zealand’s Lincoln University.

Over 40 percent of Chinese consumers said organic produce was ‘very important’ compared to just 15 percent of Brits. Traceability was also important to them as 45 percent said it was very important compared with just 20 percent of Brits. And related to both issues is food security, which unsurprisingly also ranked highly for Chinese consumers, many of whom remain wary after recent scandals over tainted milk and other food supplies in China.

Last week Rabobank issued its latest report on the strength of demand coming out of China for organic beef in particular. Similar attributes are being seen for lamb but on a lesser scale, according to a New Zealand-based manager. China would need to import 20 percent more beef to keep up with local demand because its own production of the protein is severely lacking, and will continue to be so for some years to come, Rabobank found.

Australia and New Zealand are particularly well-placed to service this demand. We’ve already seen a number of private investment firms move to capitalise on these trends, Terra Firma Capital Partners being a good example. The private equity firm made headlines back in 2009 when it purchased 17 Australian cattle ranches from billionaire James Parker; now owners of the largest privately-owned beef producer in Australia, Terra Firma’s investment strategy includes an initiative to supply premium beef to China.

The opportunity to supply that demand in an environmentally friendly – and more efficient – way is large for fund managers and investors. While investing into a developed market is likely to be more expensive, local managers say Australia and New Zealand have much room for growth and operational improvement in their agricultural industries, particularly in cattle ranching, which still largely revolves around grazing.

“The beef and sheep farming industry has not been very clever for some time,” said one New Zealand-based agri fund manager. “But there is great scope for many farms to convert to organic.”

Some of the methods – such as Serengeti farming, where a farm aims to mimic the movement of herds in the wild by moving its cattle around several different paddocks throughout the year – are also very low cost because they involve next to no inputs, such as fertiliser, seeds or even feed, once the infrastructure is in place.

Other systems promote an agro-ecological approach where grazing is rotated every month or so and other species besides grass are encouraged to grow in the fields, or beside them, to create an ecologically diverse environment that will be more resilient to climate change. It also creates superior levels of soil biology and organic matter which can store more water and carbon in the ground.

These methods are incredibly good for the environment and are sustainable for long periods of time because they are as natural as possible. The resulting product is also higher value than conventional meat because it is either certifiably organic or pasture-raised; a new standard to reflect the latter has recently been introduced in Australia and is being seen as less onerous and expensive to achieve than organic status and still gets a premium price.

In an age where the most sophisticated of institutional investors are dedicated to pursuing ESG investments, offering them a chance to take part in both the China and agricultural growth story in an environmentally, sustainable way should be appealing.