As global demand for protein continues to increase, the beef and dairy industries present immense potential for expansion and investment, according to a panel of investment veterans who presented at the 2016 Global AgInvesting event in New York in April.
Emerging Asia is proving itself as the shining beacon that will revitalize and provide a stable market for beef and dairy exports. Income growth coincides with population growth in this region and by 2030, Asia’s middle class will see a six fold increase. These trends, along with its position as an “aspirational food,” will drive strong demand for beef in these areas, says Troy Setter of Consolidated Pastoral Company. Developing countries overall will see an 18% increase in beef consumption by 2024, and we can expect a huge disruption in the way that beef travels around the world. Dairy also holds tremendous opportunity and by 2025, India is expected to need to import three times as much dairy as China currently does, lending to huge demand in Asia. For a largely vegetarian country, dairy provides a viable animal protein for a growing population.
However, this expected demand increase for beef and dairy is juxtaposed with decade low beef herd sizes in mature markets, and a years long cycle of suppressed dairy prices following Russia’s exit from the industry and China’s slowing demand. Herd wastage and long life cycles of cattle make growing herds difficult and lack of new, dedicated talent stifle operational management. Taking into account market factors, managers of dairy and livestock operations have stressed that opportunities lie in these industries, particularly the strategic positioning of Australia and New Zealand.
Within the dairy value chain, opportunities for investments lie on either end. Value-add investments with more focus on later processing, distribution, and consumer-facing branding can provide huge opportunity in markets where transportation and supply chains is insufficient or consumers are open to new branded products. Jeremy Bayard of ACE Farming Company posits that Sri Lanka and some African nations like Uganda, the Congos (Kinshasa and Brazzaville), and Nigeria are potential investment locations for this. Countries with aging populations, as well, can benefit from fortified dairy products that align with a return to natural food and proteins, says Prem Maan of Southern Pastures.
At the beginning of the value chain, investment opportunities appear in mature, established markets. Land-rich and livestock-rich investments can be found in Australia and New Zealand and the United States, respectively, based on their different production methods of pasture-based versus larger scale operations. Maan noted that Australia and New Zealand’s pasture-based system allows them to produce dairy at a cost-effective price and remove some of the shock of commodity price fluctuations. Building off the success of the Australian dairy industry, Martin Newnham of AgCAP commented that there are “opportunities for beef to sustainably intensify its operations by incorporating a number of long-proven practices of the dairy industry.” This includes structural practices such as shared farming where farmers operate on but do not own the land and operational techniques like rotational grazing. Adding to Australia’s competitive advantage, its Free Trade Agreements with countries in East Asia and strategic location to emerging Asian markets position the country to cost-effectively supply large, growing markets.
Although Australia exports almost half of its dairy product, only 8% of dairy globally is traded. Most is locally produced and consumed. This presents great opportunity for vertical operations in what Bayard characterized as “ground zero” markets including Sri Lanka, Philippines, Jamaica, Uganda, Nigeria, and the Congos. Although they come at a higher risk profile, they have the potential for an enormous premium and enormous growth. In order to supply fresh milk to countries, investors should consider investing in domestic production while powdered products or extended shelf life products are better suited for import.
Despite strong prospects, hesitation often surrounds the inclusion of protein into an investment strategy. Bayard noted that the consistent returns of dairy and constant cash flow of the system are what set it apart as an attractive investment strategy. He similarly stated that with a strong operational team, one can mitigate risk and produce similar returns to a cropping strategy. With demand for protein growing as populations and incomes grow, animal agriculture has the potential to be a lucrative asset in investment portfolios.
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Tiffany Agard