Whether it was by good management or good luck – and the real answer is likely to be some of both – it is hard to fault the timing of Indonesian cattle company Santori’s purchase of blue-ribbon Northern Territory cattle stations Riveren and Inverway six months ago.

It was dry when Santori took delivery of Riveren and Inverway along with its 46,000 head of Brahman cattle in October last year, and the new owner’s first decision was to shift 1800 cattle off the 5500sq km aggregation and into its feedlots in Indonesia.

The purchase of Riveren and Inverway complements Santori’s vertically integrated lot feeding, processing and marketing operations in Indonesia in two key ways – it provides a small amount of additional supply security for its Indonesian operations, and it also provides the attraction for the cattle enterprise of ensuring there is always somewhere to shift cattle to when times turn dry.

However, within a few months of Santori’s purchase of Riveren and Inverway last October, the season did indeed break, and the aggregation has now received more rain in the first three months of 2014 than it received in all of 2013.

From a market perspective the timing of the company’s purchase has also proven to be astute.

It was always likely during the second half of last year that the Indonesian Government would have to increase its imports of Australian cattle at some point, largely because of the pressure it was facing to alleviate a beef shortage caused by its ongoing import permit cutbacks that had pushed beef prices beyond the reach of most Indonesian consumers.

The big question was when import volumes would increase, and for Santori the timing was fortuitous, coming just one month after it made its first major purchase of northern Australian cattle property.

Customer-focused production

Another key way Santori plans to use its purchase of Riveren and Inverway is to test if some of the changing consumer preferences it is seeing in Indonesia can be accommodated at production level in northern Australia.

If the ‘customer is always right’, then the way Santori runs Riveren and Inverway should provide some interesting pointers for other northern producers as to the type of cattle their customers in Indonesia are expressing a desire for.

Santori is the single largest buyer of Australian cattle in Indonesia, and supplies the full spectrum of customers from wet market butchers to high-end supermarkets and restaurants.

In short, it knows what Indonesian cattle and beef customers want, and, increasingly, it says, that means crossbred cattle, and entire males for feeder cattle orders.

The Indonesian butchers who crowd abattoirs near wet markets in the early hours of each morning to buy Australian cattle fed in Santori’s feedlots know they will get more meat from crossbred cattle and entire males, and always select them first, Santori’s Australian director Bruce Warren explains.

Santori has attempted to entice more northern graziers to introduce cross breeding programs in recent times by paying premiums of 5-10c per kilogram back to producers who have supplied higher-yielding crossbreds.

However, those market signals have not yet been adequate to convince many northern producers to take on the additional demands, costs and genetic risks that can come with cross breeding.

While there is already small percentage of Charbray cattle in the existing Riveren/Inverway herd, Santori will introduce Charolais and Charbray bulls on a much larger scale this year to put cross breeding to the practical test.

“The Charbrays are well accepted in Indonesia,” Mr Warren said. “We have had some very good results, and even to have a Charbray cross through the abattoirs we see the difference in yield in saleable meat.”

Perhaps the biggest change that will take place on Riveren and Inverway this year under Santori’s ownership surrounds the management of male cattle.

To satisfy the demand the company sees for entire male cattle in Indonesia, no male calves will be castrated on Riveren and Inverway this year when the first round musters commence next month.

Mr Warren acknowledges that young bull-rearing operations would not be appropriate in all northern operations, particularly where surface water is spread out and clean musters are difficult to achieve, but Santori is confident the program can work on Riveren and Inverway.

Riveren/Inverway has well-developed water and fencing infrastructure developed by previous owners the Underwood family, which traditionally enabled them to achieve mustering percentages in the high 90pc range.

Additionally Santori’s vertical integration means it can shift all young male cattle into its Indonesian feedlots as required before they reach sexual maturity and begin to pose a threat to breeding and management programs.

Mr Warren stressed that rearing young bull provided a number of management advantages.

“You save in manual labour in physically castrating, you save the weight loss that comes with castrating, and you also have the advantage of the natural hormone and faster weight gain.

“So basically there are three wins, and four because we know we can sell them more easily and get more money for them in Indonesia.”

Young bulls will be shipped to Indonesia at an average weight of 320-330kg, and then fed through to 450-480kg.

He said Santori has had significant experience with feeding locally-bred bulls of all ages in its Indonesian feedlots.

Mr Warren said the company’s plans could not succeed without a progressive and forward thinking manager to oversee them and it was grateful to Michael Underwood, who has stayed on to manage the aggregation for Santory following its purchase from his family, for his willingness to work with the company to put its plans into practice.

‘Like AA Co in reverse’

In many ways, Mr Warren says, what Santori is trying to achieve with Riveren and Inverway is not unlike what AA Co is trying to achieve by building an abattoir in Darwin, except in reverse.

AA Co has the land and the cattle, and through it is abattoir project is trying to find more secure markets. In Santori’s case it already the market and the abattoirs, and through the purchase of breeding properties it is looking to secure supply.

“It is the reverse of what AA Co is doing,” Mr Warren explained. “We’re coming back this way for supply and to help us to integrate the type of cattle we want, and that suit our market.”

All turnoff from Riveren and Inverway, apart from older cows and cattle not suitable for shipping, will be absorbed into Santori’s Indonesian operations. While the properties will only account for about 7pc of Santori’s current annual cattle requirements, that percentage still represents a handy and secure source of supply in a year where finding suitable volumes of cattle will be one of the biggest challenges for importers.

The purchase of an Australian cattle breeding operation by an overseas buyer is far from being a rare or unique concept. Foreign ownership has played an integral role in the development of Australia’s northern cattle industry for more than 150 years, bringing in capital, building infrastructure and contributing to the local economy.

What is perhaps most different about Santori’s purchase of Riveren and Inverway though is the level of vertical integration it involves across both countries. The obvious challenge the company now faces is to work out how it can best integrate its Australian cattle production with its Indonesian operations to achieve the maximum synergistic benefits possible from the arrangement.

Beef Central understands Santori representatives have also inspected other properties for sale in Northern Australia in recent weeks, but when asked if the company was considering further property purchases, Mr Warren said he could not comment on whether the company was considering further Australian property acquisitions.
 

• Beef Central's James Nason is in Darwin for the NTCA conference, and will file reports in coming days. Click here to access all Beef Central's reports relating to the NTCA conference and associated events, as they unfold this week.