March 22, 2021

Photo courtesy of Elders

By Michelle Pelletier Marshall, Global AgInvesting Media

Prefer to hear this conversation? Listen to the interview here.

Elders, a leading agribusiness throughout rural and regional Australia, has been appointed by Hancock Agriculture, the second largest beef producer in that country, to market a portfolio of seven of its Northern Australia beef production assets.

Noted as being a rare and compelling opportunity to acquire a strategically constructed portfolio of assets at scale during a period of unprecedented growth in demand for Australian protein, this project includes 4.62 million acres, 108,500 head of cattle, 7 stations and a feedlot/export depot, and the capability of turning off 45,000 head of cattle annually. The property is also fully operational and run by an experienced management team, has enjoyed extensive and high-quality capital improvements – including innovative digital technologies – and includes benefits resulting from a refinement of the breeder herd, mainly through the reduction in age profile.

And with Australia being the world’s second largest beef exporter, valued at nearly $6 billion in an ag sector there that contributes more than 3 percent to its GDP, the growth prospects are very enticing.

GAI News sat down with Mark Barber, head of agribusiness investment services for Elders, and Tom Russo, general manager for Elders, to get more information on this incomparable opportunity to acquire a going concern beef production enterprise of this scale and quality.

1). What are the prospects for the Australian beef industry?

Tom: Our beef industry is going through a golden age and we are in a nice cycle where we’re seeing record commodity prices for our beef, both domestically and in international markets. It’s being fueled by global mega trends in terms of demands, which I’ll talk a little bit more about later, but also a restocker market which is hot, where people are seeking to grow our national herd following a period of drought in some regions around Australia. This combination of higher demand in terms of restocker cattle from domestic producers, together with the ongoing growth and global demand for the product, is really creating demand like we’ve never seen before. And accordingly, prices have gone through the roof. That’s the short-term outlook for the industry.

Our industry is very much geared towards global export markets. Our herd sits at around 24 to 25 million head of cattle. Approximately 70 percent of our production is exported into over 100 countries around the world. That places Australia as the second largest beef exporter, globally. In terms of future prospects, I think that’s really an important point to note because the global mega trends that I mentioned earlier are centered around growth in populations and key export markets, together with growing wealth in those populations. So we’re seeing a boom in middle-class populations, and importantly, that’s happening in markets that are very close to Australia. They’re right on our doorstep. So Indonesia, China, Vietnam, etc., all of these ASEAN countries are going through the same exponential growth in population and wealth. When that happens, you see a lot more people with a lot more disposable income, and their diets begin to change and they move away from staples and towards high-quality proteins. So for us having these destinations on our doorstep, enjoying good trade with them and good free trade agreements that our government has established, really sets us up as a supplier of choice. Moving forward, we think that the industry is poised for exponential growth. Demand is going to be insatiable. Those investors who get in now to participate in our supply response should be well, well rewarded into the future.

2). Can you explain the difference between Australia’s Northern Beef Industry and Southern Beef enterprises? 

Mark: Yes, thanks, Michelle, that’s a good question, particularly for those who aren’t familiar with the Australian beef industry. The northern beef industry sits in a subtropical and tropical zone of Australia where it receives predominantly summer rainfall, or the wet season as it’s called. And it’s counter cyclical to southern temperate markets so it works quite well in a portfolio sense for climatic diversity and geographic diversity. But perhaps what GAI News readers would be interested in, is that the northern beef industry represents opportunities to invest at vastly more substantial scale in transactions than southern beef industries typically would be offering. The assets that we are taking to market on behalf of the Hancock and Kidman organizations are currently carrying about 108,500 head of cattle as of the end of December. That sort of transaction in southern markets is just impossible to replicate.

So we’ve got very substantial scale that allow an investment to be made with an established management team, and a sufficient size to establish an Australian management presence as well for a new entrant. The other aspect I think that’s really important to understand between the north and south is that the north is undergoing a bit of a development boom, where the combination of water availability, rainfall, and identification of suitable soils for cropping, is allowing new enterprises to be developed, such as cotton, horticulture, and fodder production. The importance of that for this transaction is that those crops provide higher protein fodder sources that allow the cattle produced on the property to be intensively fed to increase their weight and make them suitable for a wider range of markets.

The market traditionally serviced by the northern beef industry is the live export trade into Southeast Asia. However, infrastructure investments and increasing feed availability allow cattle to be transitioned through to southern more temperate type areas for domestic processing to be exported or consumed domestically, but predominantly exported, as Tom said, as high-quality finished beef product. So the northern industry offers scale in an area that’s undergoing considerable development and creating a whole range of new opportunities.

3). News was just released to confirm a November 2020 announcement that your client, Hancock Agriculture, was going to “undertake a bit of housekeeping” and divest as many as six cattle stations in the Northern Territory and Western Australia. Can you tell us more about the offering?

Tom: Sure. Just to clarify where the assets are, the portfolio consists of seven stations, and a strategic feeding, export depot and cropping enterprise located in Katherine, which is a key agri hub for Australia. The whole portfolio comprises just under 1.9 million hectares of properties across Northern Australia, and that extends from Western Kimberley, which is on the west coast of Australia, located near a key export port called Broome, right through the middle of Australia and up into central Northern Australia, in Katherine, which is located south of Darwin, which is another strategic export facility. The property is very strategically assembled with all of those properties working together, and is able to export cattle for live export facilities both in the west and the north, together with other live export facilities that are probably considered secondary, but are available.

The other really nice thing about this portfolio is that it’s able to turn off cattle into alternative markets, which gives great end customer diversification. We see cattle moving out of this portfolio into southern processing capacity, it can be moved into the eastern states in order for cattle to be finished on grass in high rainfall areas outside the wet season in the north. So there’s a lot of different avenues for the cattle to be turned off, which creates great diversification, and a lot of options for the owner. Also, it can turn off up to about 47,000 head of cattle every single year.

3a). What are the key markets currently being supplied by the portfolio?

Tom: I think Mark touched on this earlier, but the live export markets are the key markets. In Australia, that has traditionally meant Indonesia, which has very well established trade routes and accounts for just over 50 percent of our live export trade. The Australian government regulates the trade and only licensed exporters are able to participate. Typically producers like Hancock will supply their cattle through to licensed exporters, and those exporters will move the cattle into the key export markets. Vietnam has been rapidly growing and that market is maturing, and accounts for probably 20 percent of our live export trade. I think we’ll see other markets enter this space as populations grow and trade routes are established, and as we see ever-increasing demand for the product.

3b). What are the development opportunities to improve performance further?

Mark: These properties have had a considerable amount of capital invested in them under the current ownership, which has brought them up to a very significant level of productivity. There’s also been a lot of work done to improve the age herd profile of the breeder herd, making it a predominantly younger cow age profile, which is really important for fertility and early growth of the calves as they’re coming off.

There also are increased numbers of water points that were put in under the

There also are increased numbers of water points that were put in under the current ownership, which can be extended further to increase the grazing capacity of the farms. The farms have had a telecommunication system put in place that is state-of-the-art and allows much more information to be gathered at the point of processing of the animals. The use of that information to improve herd performance and get the most out of genetics is a really exciting part of what’s being offered on these properties. As Tom said, the integration of the Phoenix farm, feedlot and the development of the cropping and intensive horticulture industries in the north provide the opportunity for cattle to be taken to heavier weights and fed more intensively on the property, and for different crop types to be explored for production on Phoenix farm. The properties have also a very experienced management team in place that operates the properties to a high standard. In taking advantage of the telecommunication systems, the operations of Phoenix farm, and the development of the north, these properties could achieve even higher rates of productivity and returns than they currently are achieving at the moment.

3c). What are the ESG opportunities for the assets?

Mark: This is another area of potential for these assets, particularly around emissions reduction and carbon sequestration. The Australian beef industry is investing a lot of money in research and development to reduce emissions from livestock, and with a large scale operation such as this, even small changes to per animal emissions can be very substantial in total. With roughly 1.9 million hectares, or in your terms 4.6 million acres of land, in reasonably high rainfall areas, the opportunities to explore carbon sequestration quite high.

4). Why would this investment be attractive to international investors?

Mark: First of all, it’s at scale so there’s an opportunity to deploy a large amount of capital in one transaction, and get exposure to that protein complex that Tom was alluding to earlier. Also, it is a substantial scaled investment in a market underpinned by extremely strong fundamentals, and it’s a going concern in that it has a substantial herd and management team in place that will produce returns effectively from day one so there’s no sort of J curve in this. And there’s further opportunities to leverage off the capital that’s been deployed on these farms and the productivity improvements that have been made. I think that presents a pretty compelling case for international investors looking for opportunities in agriculture.

5). Regarding that, do you anticipate any pushback from Australia’s Foreign Investment Review Board (FIRB) if the portfolio is bought by an overseas investor?

Mark: Australia has a pretty accommodating attitude to foreign investment, and there’s a very strong recognition of the need for foreign capital to support the growth of domestic Australian agriculture. Obviously, domestic capital plays a very important part of that, but the foreign capital has always been and will continue to be an important part of the growth of Australian agriculture and agribusiness. We have a process of review of inbound capital that creates a level of comfort for the Australian community that the capital that is coming in is genuinely in the national interests. That process is well known and transparent, and it is accommodating. We are in discussions with the regulators around that and keeping them well informed of the process.

Tom: I think, Mark, the other comment to make here is in terms of features of this portfolio for the global investment market is that in terms of sovereign risk, Australia is a very attractive place to invest. Our laws around land tenure provide people with a lot of security in terms of the capital invested. And as Mark said, the foreign investment vehicle for processes is highly transparent, is efficient, and provides people certainty within a really short period of time.

6). Relative to buyers being interested in the properties and wanting to view them, how are you managing travel restrictions due to COVID-19? 

Tom: First of all, for those people who aren’t in Australia and aren’t familiar with our current quarantine system, it is difficult for foreigners to enter the country at the moment. Accordingly, we have established a process that will allow people to effectively undertake a virtual due diligence and virtual inspection of these properties. That means it’ll be data and imagery overload as people are able to visit a virtual data room to look at our very detailed information memorandum, and really start to understand and see the quality of these properties on a desktop basis. In addition, we have a network of over 400 branches throughout Australia, and have touched pretty much every part of agriculture in Australia with our broader business at Elders. We have many, many trusted advisors, both within and outside of our network, who are available to be engaged by foreign investors to allow them to conduct due diligence and take advice on these assets. We’re more than happy to make introductions to any investors who are seeking to find good quality local advisors who can assist them through the process.

7). Will bids for single parcels be considered, or just the entire portfolio?

Tom: We are going to take a very, very flexible approach to that because some investors will be looking to scale and wanting to deploy a large amount of capital, while others – probably local investors who have neighboring assets – will be particularly keen on buying single assets. Then there’ll be a whole lot of people who fall somewhere in the middle. We are taking a very flexible approach; we’re allowing people to bid on all or part of the portfolio, and that is our expectation of what will happen as well.

8). How and when will this process get underway?

Tom: We undertook a soft launch last week just to let everyone know that this project is officially coming to market. We will be conducting the expression of interest process in a two-stage manner where we’ll ask people to input these expressions via the desktop format, as I’ve just described, by the 23rd of April. Then we’ll shortlist a number of more favorable offers and parties who demonstrate an ability to transact. Shortly thereafter, we’ll provide those buyers with even more access to due diligence materials, and also an ability to visit and inspect the properties.

9). Do you have a vision or foresee who might be likely to bid on the offering?

Tom: I think there will be bidders from all walks of life. There will be a number of bidders who are existing operators in the Northern Australian cattle production industry, and there will be a mixture of corporate enterprises, large family enterprises, and high-net-worth individuals. I think we’ll also see interest, given the scale and all the features that Mark described earlier, to more passive capital that wants to have exposure to these agricultural assets, and also this burgeoning soft commodity boom and the story of Northern Australia, particularly given that we can deliver this asset with an existing highly-professional management team. Additionally, they’ll probably be those parties who are looking for vertical integration opportunities or security of supply. For example, large feedlot operators in key export markets may look to acquire downstream so that they can secure their own cattle production facilities to turn off cattle into their own supply chain. There could be meat processors, large owners of abattoirs or processing facilities, who will also be keen on securing supply.

Mark: It’s a very substantial capital deployment with an existing management team able to support a local management team that may be established to seek further opportunities in Australia as well. Just reflecting on what Tom said before, the northern industry in Australia is undergoing a substantial period of development in a very low sovereign risk jurisdiction, and those sorts of opportunities are pretty rare around the world, I think, at the moment.

10). And was there a website for those who wanted to get more information about the offering?

Tom: Yes, www.auscattleportfolio.com.au, which will tie into what I was mentioning earlier about our information-rich approach to this asset to assist people in undertaking a virtual due diligence via extensive galleries and lots of information on the site.

ABOUT MARK BARBER

Mark Barber is an agribusiness executive who has skills and experience in corporate finance, agribusiness economics and productivity, and agribusiness marketing. Barber is currently the head of Agribusiness Investment Services at Elders. He was previously the investment director of one of Australia’s largest agricultural investment funds and manager of strategy and special projects for Hassad Australia. Mark also is a non-executive director of WaterNSW, and the Agribusiness Association of Australia. He is a director of Remount, a not-for-profit organization providing horsemanship programs for returned and serving men and women suffer from stress-related disorders.

ABOUT TOM RUSSO

Tom Russo is a member of Elders’ executive committee and is currently national general manager of the real estate division. A corporate lawyer and agribusiness executive, Russo has extensive experience in executing large scale asset sales in Australian agribusiness, having successfully completed numerous transactions valued at several hundred million dollars in recent years. He is regularly engaged to market and sell some of the largest and most prestigious rural landholdings in Australia.

~ Michelle Pelletier Marshall is contributing editor and author for HighQuest Group’s GAI News and Oilseed & Grain News, and managing editor for its WIA Today blog. She can be reached at mmarshall@highquestgroup.com.