The future looks bright for those beef processors and suppliers that invest now to meet changing consumer tastes, writes Vaughan Constructions director and general manager, Andrew Noble.
Australia is one of the world’s largest producers of cattle, and the industry directly contributes approximately one per cent of Australia’s Gross Domestic Product.
The cattle industry employs approximately 173,500 Australian workers across all areas such as farm, processing and retail.
In addition to satisfying the hunger of the domestic market, Australia is the world’s largest exporter of beef. A well run industry is essential to keep Australia trading and is an important driver of economic growth.
With the complex interaction between statutory compliance and the need to reduce the cost base per kilogram, the industry has matured significantly.
Traditional labour intensive production and inefficient supply chain has swiftly become an anchor to many businesses growth prospects.
In fact, their ability to compete and maintain market share is diminishing. Australians are becoming more discerning when it comes to food quality, but they aren’t prepared to pay significant premiums on a consistent basis.
Our clients – the producers, processors and retailers, have had to make well informed and strategic capital investments to secure their viability for the long term. Reducing costs is key but it can’t be at the expense of quality, shelf life or integrity of the product.
Given the number of meat industry projects we've been involved in recently – a $15 million Ralph Meats facility in Broadmeadows, Topcut's new 6000m2 production and distribution centre in Laverton, and the recent completion of the giant 27,000m2 Woolworths Meat Co facility, also in Laverton – Vaughan Constructions has deep insight in this area.
Australians have consumed an approximate average of 33kg of beef and veal per annum for the last 15 years. Consumption is relatively stable, but the product offerings have had to remain relevant and desirable.
The trend for value-add or prepared cuts is likely to continue and follow European and North American markets.
The catalyst for changing demand and consumption patterns is a modern “time poor” society that is too busy to prepare beef products or simply doesn’t have the skill.
A comparison of the products on offer in the window of the local butcher or the supermarket fridges compared to 10 years ago demonstrates just how much Australians’ needs have changed.
The consumer will always dictate what and when they consume, what quality is acceptable and how much they’ll pay. Our clients have the difficult task of reacting to changes and predicting new trends. On the whole, I believe the industry is getting it right.
The challenges faced by the beef industry are shared by the producers of alternative sources of protein. The farmer is generally running his or her operation pretty efficiently. There’s not much room there to reduce costs further, despite continual endeavour for best practice.
The greatest opportunity is in production and supply chain past the farm gate.
The beef industry can no longer rely solely on Australia’s quality reputation to entice consumers. Measures including the Meat and Livestock Associations MSA Index and a focus on ‘point of difference’ between livestock breeds, processors and brands is engaging the consumer with the product both domestically and internationally.
Whilst some farmers – mainly breeders with self-replacing herds – are enjoying record prices, the pressure has turned sharply to finishers, processors and retailers to limit costs and inflationary movement of the retail price.
Parties investing intelligently now and looking beyond the horizon will be sharing the future spoils of an evolving industry. A wishful hope has been replaced by a firm optimism about the long term strength of beef production and consumption.
The beef industry remains relatively fragmented, particularly in the southern states, so I think we’re also likely to see further consolidation and this will benefit the property and construction industries.
Property investors are coming to terms with the specialised nature of beef (and other protein) production and distribution facilities with yields ranging from six per cent to eight per cent.
Owner occupiers have traditionally dominated this space, but yield-hungry investors are now finding security in strong performing food related industries and are happy with slight improvement in return and longer lease terms.
The ECYI (Eastern Young Cattle Indicator), which is a representative reflection of cattle market prices, broke through 500cents/kg in June this year and is headed toward 600cents/kg.
With Indonesia recently increasing its import quotas, experts are now reluctant to predict the top, as the market is in uncharted waters.
ABOUT VAUGHAN CONSTRUCTIONS
Established in 1955, Vaughan Constructions is a design and construction company specialising in industrial and commercial facilities.
The company constructs industrial, warehouses, logistics centres, bulky goods retail outlets, suburban offices, food production and cold-storage facilities.
Andrew Noble is director and general manager of Vaughan Constructions, one of Australia’s top 400 private companies with an annual turnover of over $220 million.
The company has some of Australia’s top companies as clients including Coles, Woolworths, ALDI, Coca Cola and Kraft.
