BEEFED UP DOWN UNDER – Protein Demand From Asia
‘Mining to dining’ is a key thematic underpinning the model portfolios. We believe that a growing
middle class, particularly in Asia, is set to put considerable pressure on global agricultural resources going forward. Australasia is set to directly benefit from this dynamic given their favourable trading
arrangements and close proximity with China and the rest of Asia. The latest data from Meat & Livestock Australia shows beef sales to China surged six-fold in three years to a record AU$917 million in 2015.
The Australian economy is undertaking a significant transformation. No longer are the
hard resources such as iron ore, copper and coal in heavy demand, but rather demand
for soft commodities (food) is on the rise. see this ‘Mining to Dining’ thematic as
a core theme that will drive the performance of both the Australian and New Zealand
economies going forward.
The latest figures from Meat & Livestock Australia show the volume of beef shipped to
China has risen more than four times over past 3 years. This has corresponded to
export prices of beef jumping over 37 percent in the past 12 months as supply struggles
to meet the growing demand for food.
The graph below illustrates the significant growth experienced over the past 10 years.
Beef sales to China surged six-fold in three years to a record AU$917 million in 2015.
Total earnings from the sale of meat neared AU$15 billion last year alone. In contrast,
Iron ore exports earned the country A$49 billion in 2015 while coal sales were A$38
billion. Although the agricultural industry has some way to go to replace that of the
mining and minerals sectors, growth and demand is surging and consequently there
are a vast array or opportunities for investors to take advantage of.
Over the past 5 years beef exports have surged over 32%. Asia has been a significant
contributor to the advance in demand, with China as an export destination growing by
over 2500%. Demand from South Korea and the US have also been picked up and
highlights the strength of Australasian produce on the global stage.
The potential for further sales is enormous. China will eat an extra 2.2 million tons of
beef a year by 2025, according to Rabobank. Some producers in Australia are even
loading cattle on Boeing Co. 747 cargo planes and flying them to China in order to meet
regulations that require imported live animals to be slaughtered close to their point of
entry.
Source: Meat & Livestock Australia
The ‘Dining Boom” thematic is set to be a multi-year investment theme as the global
economy transitions away from a manufacturing to a consumer lead
economy. Ultimately, believe the surging demand from Asia for protein rich foods
will lead to higher prices for agricultural producers and consequently greater
profitability.
Australasia as a region, has a number of factors that believe will support the
ongoing growth of agricultural exports into Asia. They include:
- Trade deals with China and Asian Countries- reductions in tariffs and
quotas will assist Australasia ability to compete with its global competitors - Clean Green image – Food and Health safety conditions in AU/NZ far
exceed those of the importuning nations. Trust is an imperative issue
when it comes to food and Australasia excels in this aspect - Quality of export – AU/NZ have the highest quality of agricultural produce
given their farming and growing techniques and arable land. - Geographical proximity to transport fresh produce
- Cultural understanding – There is a strong Asian presence in AU/NZ.
Strong ties assist with trade dealingsElders – Agribusiness Turnaround Story
Elders shares have managed to hold on to the impressive gains made last year as the company continues to make positive announcements. The company has undergone a successful business restructure and economic factors have aligned for the Australian based agricultural business. While several of the factors which drive ELD’s are inherently volatile, it is set to benefit as a key beneficiary of Australasia’s agricultural boom, as the ‘Dining Boom’ is set to be a multiyear theme which will continue to drive higher profits for agriculture related industries, in our view. Another development of note around growth prospects for the business was that the first shipment of live slaughter cattle from Australia to China under the new Free Trade Agreement was shipped in late last year. We see this as a key milestone not only for Elders, but for the industry as a whole and fits with our longer term outlook for Australian agricultural businesses’ such as ELD.