While its sights are set on Australia in the near term, the future of QIC portfolio company NAPCO is tied to growing demand for protein in Asia, according to its chief executive.
Damien Frawley told Agri Investor that QIC currently has two marketing-focused employees examining the challenges and opportunities for its beef on China’s online-shopping platforms such as JD.com, among others, which are fast becoming key retail outlets across the region.
“It was slaughtered last week in Australia, refrigerated somewhere in China, you buy it and it can be on your doorstep in a day or two’s time,” Frawley summarized. “We think that’s probably how it’s going to evolve.”
As we explored yesterday, QIC initially invested in NAPCO in 2015, snapping up an 80 percent stake for A$320 million ($251 million; €204 million). The company’s immediate priorities are focused on its domestic market, notably through the development of a grass-fed range.
“What most people don’t recognize is that many Chinese investors are passive investors who aren’t looking for control”
But NAPCO is already thinking about how to position NAPCO’s beef product in protein markets where pork dominates. Frawley, whose experience has covered functions including business development and marketing, said that the effort could include the creation of a distinct NAPCO brand of beef.
“At the moment, once it leaves the feedlot and goes through the processing part of the supply chain, it’s someone else’s brand. You wouldn’t even know that its NAPCO’s beef,” he said. “There’s potentially a great opportunity for us in Asia around the provenance of the product, where it came from and how clean it is.”
NAPCO does not currently export live cattle or own any processing assets, but Frawley acknowledged that over the long term, China’s capacity to handle such imports is likely to develop and help shape the regional beef market. Entering that market would likely require purchasing additional property in the northern region of Australia, according to Frawley, who characterized live exports as a low priority in the near term.
The fear factor
Though QIC’s appetite is, for the moment, largely limited to the cattle sector, Frawley is well aware that agriculture at large has become a favorite of global investors – an interest that has not been shared by their Australian peers.
“There is a very large focus on liquidity, in these superfunds these days down in Australia, and that’s probably one of the reasons they don’t invest in agriculture,” he said. “Sometimes, agriculture can become very illiquid very quickly.”
Recent moves to strengthen regulation of foreign investment in agriculture have largely been directed against China, according to Frawley, who added that, in his view, the fear in the market is based on a misunderstanding of the country’s strategics.
“It’s the structure you create and the structure that you introduce the capital from China into that plays a larger role”
“What most people don’t recognize is that many Chinese investors are passive investors who aren’t looking for control,” he said. “In our experience, Chinese investors aren’t seeking a high level of influence over the asset, how the thing’s run or who we hire. We work with them on deploying their capital, we maintain control and actively manage the asset.”
Frawley did not think collaborations between QIC and Chinese strategics as likely in the near term. Noting that the firm has successfully shepherded investments made with Chinese partners in other sectors through Foreign Investment Review Board processes, however, he reckoned FIRB wouldn’t be an impediment.
“From our experience, it’s the structure you create and the structure that you introduce the capital from China into that plays a larger role. Because it’s a control thing, right? It’s all about control. The Australian government doesn’t want to cede control of its agricultural assets, or any assets for that matter.”