AS the consumer world segments and creates potential for higher value supply chains, will Australian beef grasp that opportunity and break through the current stalemate between producers and downstream operators that is holding it back?
That question has been posed by Jock Whittle, the man at the helm of one of the country’s most successful corporate farming ventures, Macquarie Bank’s Paraway Pastoral Company.
Paraway has just celebrated ten years in cattle production and today produces around 25 million kilograms of beef from 4.4m hectares with operating returns outperforming the average for the Australian pastoral industry.
Mr Whittle spoke at the Australian Lot Feeders Association annual conference, SmartBeef 2017, in Armidale last week about the cultural attitude change he believes is needed to take the industry forward.
The opportunity for the beef industry is to move into genuine supply chains and deliver products to the consumers with the most money in their pockets, according to Mr Whittle.
“Who do we want to sell to - the guys who buy Mercedes or the ones still on a pushbike?” he asked a sold-out audience of more than 300.
“The consumer has already left home base. Can the Australian industry transform itself faster and more efficiently than other beef exporting countries?”
It won’t be an easy transition, he said.
“For farmers, the absolute question is are you a producer or are you a supplier?” Mr Whittle said.
“It will require significant increases in capital, costs, risk and management intensity.
“This is unappetising for most farmers and as a result few will shift without a price signal.
“The downstream players clearly want more farmers to take on a supplier’s attitude but don’t always appreciate the challenges of that transition and in most cases are reluctant to reward the farmers who do make that shift.”
For those downstream, the question is what value to do you place on supply.
“Nearly every lotfeeder I speak to is concerned about the unpredictability of cattle performance,” Mr Whittle said.
“I often hear that we don’t really need to lift the average performance but rather just eliminate the cattle that don’t perform because they cost so much money.
“Every lotfeeder is trying to identify the ones that perform but this is not always reflected in the price they pay.”
Unlike most other supply chains, with a red meat the supply part of the equation is not controlled, Mr Whittle explained.
Be it plastic cups or smartphones - how much, how often and quality is under the control of the brand owner.
In beef, matching supply, quantity and quality with demand is difficult and the result is a profit margin moving horizontally along the supply chain.
“All sectors have periods where we are strongly profitable and periods where we are not,” Mr Whittle said.
“No one enjoys this business environment, except for maybe a few agents and traders who benefit from volatility - with all due respect.
“From a producer’s point of view, it’s high volatility, low trust and transparency, little collaboration and no price signals. Everyone is paid the average and the good subsidise the bad.
“In that state, the motivation to become a genuine supplier is weak.
“If anything, your profitability might fall as you add in the extra costs involved”
The answer, he argued, is in simply trying to make the red meat supply chain resemble other supply chains.
“That is, create predictable quality, performance and volumes,” he said.
“This allows for downstream operators to support their brands and focus on client service rather than worrying about where the supply will come from.
“When volatility is eliminated profit can move vertically. All members of the supply chain rise and fall together based on the strength of their offering and their customer loyalty.
“We compete as value chains.”
The reality is one animal may end up in a hundred or more different products so it’s not as simple as paper cups but it is possible, particularly with the improvements we now have in data capture and management, according to Mr Whittle.
“We are entering a digital age where it will be much easier to deliver on horizontal flow of information,” he said.
But here is the stalemate: The producers says: “The information is there and it is not being shared - we are not being rewarded.”
Those downstream say: “The producer is not accountable for what they supply and they don’t want to be. So the premium for the brand belongs to us.”
The stalemate has to be overcome, through relationships and improved commercial arrangements and a change in traditional attitudes, Mr Whittle argued.
We have established beef brands, a superb traceability system, we are a proven exporter with a great product and great story and the genetics to allow this transition to happen.
The challenge is “200 years of DNA driving the transaction culture,” he said.
It had to be a bottom up, not top down, solution with groups of people working together to overcome the stalemate, Mr Whittle said.
He acknowledged it would not be for everyone and estimated in fact 50pc of the industry would continue to do business the traditional way for few more decades yet.
“There are many producers who don’t want to play this game and that is fine, there is demand for commodity beef,” he said.
For the others, the first step is to say those downstream are not the enemy, they are the customer.
MACQUARIE Bank’s agriculture platform sits in a business known as Macquarie Infrastructure and Real Assets (MIRA), which manages assets across real estate, infrastructure, agriculture and energy.
MIRA Agriculture is one of the largest diversified primary producers in Australia, with around $1 billion in long term institutional capital invested across more than 100 transactions, equating to 33 aggregations since 2007.
It’s first move into managing farmland as an asset was when Paraway was created in 2007.
“Ten years is relatively short, with many of our contemporaries, buyers and customers multi-general businesses, some approaching 200 years,” chief executive officer of Paraway Pastoral Company Jock Whittle said.
“However, in corporate ag, there are not that many who have made it to ten years.”
Paraway has a capacity for 200,000 head of cattle and 200,000 head of sheep.
“We run Brahman and flat back cattle in northern Australia, Angus and Angus-Wagyu cross in NSW and Merino and Merino cross in southern Australia,” Mr Whittle said.
Around 140 farm employees keep things ticking over, with Paraway’s head office in Orange.
Lawson Grains is the other ag company under MIRA Agriculture, with 88,000 hectares producing around 20,000 tonnes of grain per annum.
In 2017, Paraway will turn off approximately 40,000 head of cattle into a number of markets, with roughly half going to feedlots - 9000 out of the northern business and 11000 out of the south.
That portion to feedlots was expected to grow in coming years.
Mr Whittle said Paraway’s agenda was to “continue to look for supply chain partners who can see value in the consistency and volume of our supply and are open to conversations of how it can all be put together to create more value for every participant in the chain and deliver for consumers.”
Improved farm data capture and growth in premiumisation was also a high priority, he said.