Responding to the market slump

As the global recession bites and consumers turn to cheaper cuts of beef, Australia’s largest cattle rancher, Australian Agricultural Company (AAco), is reorganising its operations.

On Tuesday AAco said that it was selling three cattle stations in Queensland state and buying another two in the NT in a move to lessen its dependence on grain-fed beef production.

The move comes as its major shareholder, Futuris Corp Ltd, sold a 19.9% stake in the company for $89.9 million to barrister and pastoralist Allan Myers, and said it planned to sell its remaining 23%.

AACo chief executive, Stephen Toms, said consumer sentiment meant the beef market over the short- to medium-term was moving to lower-cost products.

“Accordingly the business will adapt its flexible pathway system to be weighted toward less costly grass-fed production,” said Toms in a statement.

Meat & Livestock Australia (MLA), the organisation that oversees Australia’s beef industry, expects market growth this year to be limited by the global economic downturn.

But MLA said exports to the US, Australia’s second-biggest export market for beef after Japan, were forecast to rise 38% due to strong demand in the fast food sector and lower US beef supplies.

Australia is the world’s second-largest beef producer after Brazil.

He said AACo was also developing new markets in China, the Middle East, India and Europe while continuing to service the high-end, grain-fed sector in which it has a 30% share of the global Wagyu beef market.

Toms said the Northern Territory expansion would allow the company to boost its position in the live cattle export market.

In 2008, Australia’s live cattle exports grew 20% to 869,545 head with 75% exported to Indonesia, a market that grew 26% in volume terms last year.

AACo paid $105 million for the two neighbouring Northern Territory properties, which have a carrying capacity of over 70,000 cattle.

The company said it would use the $152 million raised from the sale of the three Queensland stations to fund the purchase.

— Reuters

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