Premium AACo beef cuts pulled from Aussie market to meet US demand

AACo Wagyu beef diverted from China, Aussie markets to meet US demand

Beef
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Australia's share of Australian Agricultural Company's total beef sales across 16 countries has slipped from 14 per cent to 11pc.

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Wagyu beef giant Australian Agricultural Company has deliberately scaled back meat sales within Australia as it diverts attention to better paying supermarket and butcher shop options in the US and Canada.

Australia's share of AACo's total beef sales across 16 countries shrank from 14 per cent to 11pc since the start of the coronavirus pandemic.

AACo has also diverted high value beef cuts away from China, partly because one of the two export abattoirs it relies on to service the Chinese market, JBS' Beef City plant on the Darling Downs, has been suspended from the trade for seven months.

"The 16pc of the beef carcase which is considered the highest value is now largely being sent to North America to satisfy customer demand in their homes rather than through the food service channel," said managing director Hugh Killen.

"While the food service industry has been central to our beef brand's success, and will continue to be, it has been highly disrupted by COVID-19.

"It's likely consumer behaviour will centre around home dining in the next 18 months."

Market pivots

Pricey five star restaurants, tourist hot spots and other eating and entertainment venues worldwide now represent just 30pc of AACo's marketplace, while retail sales have grown from 40pc to 70pc in less than a year.

With most of its high end dining markets shut down and with fewer cattle available for slaughter from AACo's drought diminished 340,000-strong herd, Mr Killen said the company had made the strategic decision to scale back sales of its most expensive lion cuts in several geographies, focusing on retail options instead, particularly in the US.

North American sales now represented 20pc of AACo's global market - up from 6pc a year ago.

Aside from China, AACo's sales in Asia have also grown from 51pc to a 55pc portion of its total market.

Mr Killen said while Australia considered itself a fairly big beef eating marketplace, on a global scale it was actually a relatively small market for AACo's pure Wagyu and first cross beef - and currently quite crowded.

Some rival exporters had chosen to keep more product in the domestic market because their normal export categories, including the overseas food service sector buyers, had been badly disrupted.

"We're lucky we have elsewhere to send our product."

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To make the most of AACo's upmarket branded beef image, the company was working with retail distribution partners and famous chefs to promote high quality "at home" cooking and dining experiences.

"Eating in is the new going out," he said.

Tougher outlook

However, while releasing the company's first half profit results for 2020-21, Mr Killen told shareholders meat revenue had slipped from almost $103 million a year ago to $99.7m.

He also predicted a difficult year ahead for the brand because of the "stop-start" nature of the revival in restaurant sales, particularly in the pandemic-shattered Europe and US.

The loss of a big slice of its China restaurant market had also hurt.

Chinese buyers also tended to pay higher prices for fatty trim meat products.

"China is a really valid market for us in general, and we'd certainly prefer it to be open, but in the meantime we have some other really good markets to pay attention too elsewhere," he said, referring to the numerous barriers placed in front of farm commodity exports from Australia this year.

Geopolitical uncertainty

"We would like to see it solved."

He was not willing to anticipate when the current complex China-Australia trade relationship would be resolved.

However, AACo expected the geopolitical uncertainty to have an impact on different markets during 2020-21.

Last week's half-year results saw the company's statutory losses slashed to $1.7m but operating profit under its preferred overall operational reporting measure was $23.5m.

AACo qualified for $6.7m in government JobKeeper payments to help it ride out the coronavirus pandemic.

It also cut board and senior management salaries by 20pc for three months and scaled back corporate office hours to four days a week, also making some redundancies.

AACo continued a decade-long habit of not announcing a dividend to shareholders.

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