Rabobank: Australian grain-fed beef exports could grow 65% in 10 years

Australia’s grain-fed beef sector is poised to experience significant growth in the next 10 years thanks to continuing demand from China, according to a report published this week by Rabobank.

“Continued growth of beef consumption in Asian countries – particularly China – together with a competitive supply chain and strong market access will generate the opportunity for Australian grain-fed beef exports to increase by 65 percent to over 500,000 tonnes by 2030,” Opportunities for Growth in Australian Grain-fed Beef said.

Rabobank found the sector had been growing at a compound annual growth rate of 3.4 percent for the last 10 years, with grain-fed cattle turnoff increasing from 2.13 million head in 2008 to 2.89 million head in 2018.

The growth has been driven by producers looking to improve quality or weight gain through grain feeding and those forced to finish cattle with grain due to a lack of pasture. Rabobank’s research suggests future growth will be driven by increased demand from China, where grain-fed beef could grow to as much as 20 percent of the country’s total beef imports.

Report author Angus Gidley-Baird, animal proteins senior analyst at Rabobank, told Agri Investor that Australia is well-positioned due to the make-up of its herd and the fact its beef sector is already geared up for exports, unlike North America.

“If you look at the other major suppliers into that China market, starting with South America – they have potential to grow their beef production and exports, and they’ve done that quite successfully so far into that China market, but their genetic capabilities are probably behind ours and they’d have to change large parts of their cattle herds to start producing that higher marbled quality beef,” he said.

“The US is in a fairly strong position as they have good genetics producing high-quality marbled beef and they’ve also got a [strong] feedgrain supply. The challenge they’ve got, apart from the trade war and tariffs, is that their system is highly domestically focused and doesn’t have great ability at the moment to meet some of the trade protocols like lifetime traceability. Australia can tick those boxes so has better ability to supply into these markets.”

Argentina, Brazil and Uruguay now account for more than 70 percent of China’s official beef imports, with the US and Canada currently providing less than 2 percent. The growth in China’s demand would create enough room for everyone to benefit, Gidley-Baird said.

Changing mindsets

The sector in Australia would need to undergo a change in mindset to take advantage of the opportunity, though, particularly when the dry conditions in the eastern states improve, explained Gidley-Baird.

“The Australian system is geared towards grass-fed production – that’s what we’re good at and will continue to do. When it rains, producers have grass, so their tendency is to try and hold on to cattle and grow them out as much as possible using that grass, as it’s a cheap feed source,” he said.

“The problem with that is those cattle would normally pass onto the next operator in the system, either a backgrounder or on to a feedlot, so you lose that volume through the market. The challenge will come when it rains, as we’ll see that the volumes of cattle on feed will drop, as people will hold onto them and try to finish them themselves.”

A “more focused effort to align the system” will be needed to achieve the growth potential outlined by Rabobank, he said, creating a system not dissimilar to that seen in the US.

Gidley-Baird said there was certainly potential for new investors to get involved in the space to capitalize on the opportunities. But he added that some market feedback indicated that many of the major players in the sector today were likely to benefit most quickly by getting even bigger.

Several investors have made moves into grain-feed beef in recent years, particularly Wagyu.

Sydney-based private equity firm Roc Partners owns a majority stake in Stone Axe Pastoral Company, which has been investing in developing its east coast Wagyu breeding operation and acquired a 50 percent stake in a feedlot in Queensland in April 2019. First State Super invested A$7.7 million ($5.2 million; €4.7 million) in Stone Axe in 2018.

Hancock Prospecting, which is owned and operated by mining magnate Gina Rinehart, has also been developing a significant Wagyu herd, which it sells under the 2GR Wagyu brand.