28 Bradman Tues 1600 1730 JASON STRONG
The most important message, I think, to get out of what I'm about to say in the next 10 or 15
minutes is that we're not going to be able to maximise margins, or produce what a consumer
wants, or take advantage of this massive growth that we're seen in export markets, or the
opportunity in growing middle classes around the world, and all of those sort of things, if we
don't make change.
And if we're going to stay the same as what we have done, in our case, for 191 years, then we're
going to keep getting the same result, which is concern about lowering farm [INAUDIBLE]
returns, lower profitability, continued fragmentation, and the largest sector of the industry
relying on non beef production revenue in order to be making a living.
So we're in a reasonably unique position where we actually have some critical mass even though
the company is very small in the whole scheme of things. I'm going to talk about that a bit more
a little bit later on.
But you know, we've got 191 years of history. And while that's a fantastic thing from a branding
point of view, it's also one of our biggest challenges as well. Because we've got to-- making
change is the difficult part for our industry because we have so much history and we've done
things a certain way for so long. And it's difficult to break out of that mould. So we suffer from
that as much as anybody else does.
The thing is that being the biggest, having the most cattle, being the oldest, all the other things
that you can use as pub bragging rights, none of those actually have any financial value.
And if we're going to look at how do we actually make margin, how do we produce what a
consumer wants, then we've got to get past those things as a driver of our business and we've got
to start looking at the things which will actually drive change across our company.
Trish actually talked about the growth in export markets. And one of the things I want to make
sure I cover, and I'll sort of say it upfront in case I miss it through the presentation, is that we talk
a lot about our export volumes in tonnages but we don't talk as much about our export volumes
in value.
And tonnes represent production whereas value represent margin and our response to consumers.
And one of the challenges for a company like ours is how do we actually grow our margin and
grow our revenue?
And just changing the way that we turn off and the way that we actually target our cattle to
market can significantly increase the revenue for our company with the same number of cattle.
So producing more market destined kilos where we can capture more value for those. So I think
that's an important part of what we've got to look at.
So what we are is a company now that's changed from being just a pastoral company historically
to being a beef company. And adding more value to the cattle that we have and making better
marketing decisions and better market destination decisions for those cattle much earlier in their
lives.
And if you think about it simplistically, when you buy a bull you've made a market decision.
And for us, that's very much the case when we've got about seven different supply chains that we
actually use to produce market-destined cattle.
And we've actually made a branding decision. We've made a fundamental decision about the
market destination for that animal. The problem is, if you don't have a way to link that decision
to the value that comes from a consumer then you're at the mercy of other people's decision
making as far as your margin is concerned.
So we've made a strategic decision a couple of years ago, that rather than actually being someone
who produces cattle and then finds a market for them, and largely, you know, we've been selling
beef for 12 years now. But effectively we were a cattle company that has sold some meet.
And a couple of years ago, we made a strategic decision that we're actually going to be a beef
company. So our decision making process as far as market destinations are concerned actually
starts at genetics.
We have seven supply chains. We have calves allocated at those supply chains. We can make a
breeding decision on those calves, we've actually made a market decision as well. Once you've
made a market decision, the decisions you then make about what to do with that animal are
driven by very different things.
And it's not about do I have grass or not have grass, because you're already planning to have
grass because you know that that animal is destined for market and you know that it's got a
certain value to it.
So changing that fundamental thinking by allocating a cattle to a market has certainly had a big
impact on the way we're driving our business. And this is one of the key parts to it is getting
more of our cattle further down the supply chain and closer to the consumer.
So changing the way that we actually market and sell our cattle. And what this graph represents
is the first quarter of this year where we're talking about the change in the percentage of cattle
that go through our branded beef programme as opposed to the percentage of cattle that actually
are sold to external third parties.
So retaining ownership of those cattle for a longer period of time and capturing more of the
supply chain margin. So this isn't about wanting to be a processor. It's not about wanting to be a
bigger feed lot or being some other part of the supply chain.
It's about how do we capture more of the supply chain margin. And regardless of where that
margin then shifts up and down the supply chain, we have the ability to actually capture that
margin.
So changing the way that we actually market our cattle and the market destinations is having a
big impact on the way we draw their business. And we talk about consumers and most of our
customers are not necessarily consumers.
So most of our customers are high-end importer distributors. And there's a lot of discussion
about how exports and sales around countries or around markets. And the post code, or the
market, is just an interesting piece of information.
There's any number of countries that can consume everything that Australia producers, let alone
everything that we can produce. So for us, the customer is actually a lot more important than the
country.
So Korea is our number one market but it's only because our number one customer is there. The
US is our number two market, but it's only because our number two customer is there. And
number two customer in the US is actually very, very similar to our number one customer in
Korea. Behind the importers, distributors, they buy the same brands, they buy the same
specification of product. And their customers are largely the same sorts of people.
And from an Australia marketing margin point of view, we can sell volume, no problem at all.
So the global demand for meat is going through the roof. It's going to outstrip supply between
now and 2050. All of those macro drivers are very exciting for the beef industry.
But if we don't make a decision to try and capture value and increase the amount of value that we
can get for our product, then we become a commodity supplier and we'll miss a significant
opportunity.
And as a company we see that even though we've got a larger volume than other producers, we
see the opportunity to be a high-end producer and supplier and target customers who are going to
be able to capture more margin for us.
And this is the demonstration of where we see it. So we're the largest cattle company in the
world, which is all very impressive. But when you put it in the whole scheme of things of beef
production, we produce 100,000 metric tonnes of live weight a year, so that sounds like a lot.
Australia producers 4.4 million metric tonnes. So in the whole scheme of things in Australia,
we're very small. And as Trish had up there before, you know, our category of producers is 2%
of the production. So we're part of that chunk. So we're not all of it.
But globally, there's 132 million tonnes, metric tonnes, of live weight produced. So when you
look at AAK in global beef producing stats, we get lost in rounding. So when we actually step
out of the we're the largest cattle company, we have the most cattle, we are the oldest, into the
people who actually buy meat traffic, we actually don't exist.
So if we think that those things have value to us, we're going to be very disappointed when we
get out in the market. So the decision that we've made as a company is that if this is all we have,
then let's make sure we maximise the value for it, regardless of the category.
And this can be applied more broadly to the Australian production as well. So when you look at
the Australian production, even if we produce or export 1.2 million tonnes, a market that we're
banned from at the moment in Russia imports a million tonnes.
So there's multiple million-ton markets around the world. So 1.2 million tonnes sounds like a lot
but there's any number of people who can consume that. So the European importing demand is
around four or 500,000 tonnes but they consume 8 and 1/2 million.
So in the whole scheme of things, we don't actually produce a lot of meat. So the opportunity for
us is to find the customers that appreciate the quality of product we've got, appreciate the value
from a brand Australia and are prepared to actually pay for the quality and the type of product
that we produce.
So our target is identifying those high-end markets regardless of the market category and make
sure we can actually maximise the value. So we've got examples of how we can do this with
high-end [INAUDIBLE].
And that's one that's an easy example. You can show you produce a higher-quality product than
they can get in volume from anywhere else in the world. And that's a very marketable product.
But you can also do it with manufacturing [INAUDIBLE].
So there's great demand in the QSR, so quick service restaurants around the world, to get a
dedicated supply of product which can come from a single source of origin, whether that be
country or individual producer, and actually has traceability and the ability to provide some be a
product guarantee and source verification behind it.
There's a premium for that type of product available in the global meat markets. And that's
something which is available to Australia and it's not available to many other countries. So
there's an opportunity for us in all market categories to position ourselves at the top end of the
supply chain.
So I guess what we're doing as a company is trying to set ourselves up to be focused on
producing beef. We're driving our business on the back of six goals. So one of them is around
developing a brand, around making sure we've got a source of supply for cattle, around
guaranteeing processing capacity, around increasing our productivity and our current production.
Focus around innovation and technology. And Trish mentioned about the rate of change and
adoption of technology and that is something as a company which we've made a significant
investment in ourselves and we've actually established a separate innovation and technology
division to allow us to make faster gains as far as our livestock production improvements
concerned and capture more value for our product for our consumers.
And focusing on things like producing a higher-quality carcass in a shorter amount of days
which increases our production efficiency while producing a higher-quality carcass for our
consumers.
So I guess in finishing, the challenge I think we have around margins and consumers is that
historically, the two things have been dynamically opposed. That we've had challenge-making
margins and because we've had challenge-making margins, we've actually had difficulty in
focusing on what are consumers want.
And I guess as a company, what we're trying to do is get a focus on our end market, so shift our
focus from being pastoral and historically based, and shift our focus to be how do we actually
produce a higher quality product for our consumers.
And then making decisions along the supply chain which allow us to more consistently deliver
that product for those consumers.