NAPCO is going grass-fed, says QIC’s CEO

In the first of a two-part interview, Damien Frawley tells Agri Investor about opportunities for growth in Australia's high-priced beef market and how QIC's 220,000-head cattle business intends to benefit.

A grass-fed offering, live cattle exports and a brand designed for Asia’s online shopping platforms are among QIC’s ideas for how to expand on its 2016 investment in the North Australian Pastoral Company, according to its chief executive.

Speaking to Agri Investor in New York as he accompanied Annastacia Palaszczuk, premier of the Australian state of Queensland, which owns QIC, on her US tour, Damien Frawley outlined the rationale for the firm’s investment in NAPCO.

“We have a high level of conviction around agriculture in Australia and the role that agriculture is going to play in Asia going forward,” said Frawley, who also serves as NAPCO’s chairman. “To be honest, we’re still feeling our way with all of this, a little bit. There’s a bunch of people in Australia who have been in the business for 30 years and we’ve only just started, but it’s fascinating.”

Cattle in the crosshairs

QIC’s investment in NAPCO came after a years-long study of the beef sector, according to Frawley, who said the effort initially sprouted from the firm’s private equity business. Acknowledging that it faced wider risks than peers – especially, in Australia, weather-related risks – QIC determined that beef could produce the kind of returns it needed, provided the firm was willing to invest for the long-term.

After canvassing the market’s corporate and family-owned beef operations, Frawley said, QIC entered into a bidding process run by the Foster family in 2013. That eventually led to its purchase of an 80 percent stake in NAPCO in 2015, for A$320 million.

“The beauty of it was that it was an at-scale business,” Frawley explained. “To try to build a business like that today would take a long of time and a lot of money. Over 140 years, they built probably one of the highest-quality beef businesses in Australia.”

“To try to build a business like that today would take a long of time and a lot of money”

Noting QIC was “still digesting” its NAPCO purchase, he added that the firm’s near-term focus in agriculture would be on growing the domestic beef business. NAPCO currently runs 220,000 head of cattle on 13 million acres it owns. This supplies only two customers, retailers Woolworths and JBS.

“There are opportunities to run more cattle on that land, particularly in certain parts of the supply chain, by intensifying through increasing water capacity, and also smarter pasture utilization through fencing and the like,” said Frawley. “We still continue to believe that there’s a lot of opportunity to augment certain parts of our supply chain with additional property to increase our capacity.”

Grass-fed is greener

A likely priority for NAPCO will be to build out a grass-fed beef product that can be presented alongside its grain-fed counterpart. This would require acquiring more property in the southern region of Australia and the introduction of a different breed of cattle into the existing NAPCO supply chain, according to Frawley.

“The US, particularly, is an attractive market in the grass-fed space. We’ve got some properties in the current supply chain that would lend themselves to being the breeding properties for grass-fed cattle that would potentially go south, where it rains a bit more.”

Although NAPCO does already sell the excess crops produced in the course of feeding its cattle – which makes it the largest farmer in the Darling Downs region, where it operates – there are no plans for QIC to expand into other areas of agriculture, though it continues to study the broader sector.

“Water is an interesting asset class for us to continue to explore. Thinking of it, probably exclusive from agriculture is the way we initially starting thinking about it. Now that we actually are a player in agriculture, there’s probably a broader reason to think about water.”

Don’t miss the second part of our interview with Damien Frawley tomorrow looking at NAPCO’s expansion plans in Asia