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Hancock reaches agreement over China livex deal; defends live export model over local processing

by Jon Condon, 09 June 2017
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GINA Rinehart’s Hancock Prospecting has reached agreement with a Chinese partner to establish a live export beef supply chain that will consign up to 300,000 cattle each year at the end of its second stage.

In a statement issued last night, Hancock announced the signing of a strategic cooperation agreement with Zhejiang Aozhou Cattle Co, an entity jointly formed by Sino‐Australia Modern Industry Park, New Hope Group, Zhejiang Seaport Group and Harvest Fund.

Gina Rinehart

The Aozhou joint venture will develop and operate a cattle receiving, quarantine, lotfeeding and processing facility on Jintang Island in southern China, and will sell and distribute the beef products to consumers in the Yangtze Delta region.

Hancock and Aozhou will establish a joint venture in Australia for the purpose of purchasing, feeding and live exporting suitable cattle to those Chinese facilities.

Beef Central first reported on the project in this article published on May 5.

Jintang Island is located off the coast of Ningbo, in China’s warmer south and greater Shanghai area, and has a population of more than 200 million people within a 200km radius of the island. The facility will have a capacity of 150,000 head per annum, with the potential to expand that capacity to up to 300,000 head per annum in the future as growth allows.

The new facility was visited last month by a NAB Agribusiness producer study tour, as reported in this earlier item on Beef Central.

Hancock intends to redirect the sale of suitable cattle from its northern cattle stations from other live export channels into the new Australian joint venture company, with shortfalls to be purchased from other northern cattle producers.

All Australian and Chinese operations will be conducted to the highest animal welfare standards, Hancock’s statement said, including stringent compliance with the Exporter Supply Chain Assurance System (ESCAS).

The deal will involve two investments:  The first is by Hancock into the Aozhou cattle receiving, lotfeeding and processing facility on the Jintang Island in southern China; and the second is an investment from Aozhou into an Australian joint venture company which will purchase cattle (including from Hancock’s northern stations), lotfeed them and then export them to China.

Foreign Investment Review Board approval will also be sought in relation to Aozhou’s planned investment into the Australian joint venture.

It is intended that Hancock will control a majority 66.7pc share of the Australian JV, with Aozhou owning the remaining 33.3pc.  Conversely, Hancock has an option to take a minority share in Aozhou. The size of that stake has not yet been finalised.

Where Hancock is unable to supply enough export‐suitable cattle from its own herds for the program, then the joint venture company will look to buy additional cattle from other producers.

The company plans to use the northern ports of Broome, Derby and Darwin for export. Others might be used, depending on the location of cattle prior to transportation. Hancock already owns a number of live export holding and depot facilities in northern Australia, and will utilise those facilities as part of the new project.

Bluetongue ‘gorilla in the room’

The huge ‘gorilla in the room’, which is mentioned nowhere in today’s Hancock statement or supporting documents about the new project, is bluetongue status, which currently excludes cattle from across northern Australia from live export to China.

Beef Central understands that a significant development might be about to occur, with a protocol ‘special dispensation’ for northern cattle specifically going to the Jintang Island facility. That’s because, as an island, it provides a greater level of biosecurity than for any northern Australian cattle landing in mainland ports.

If this development in fact occurs, it represents a considerable breakthrough in market access for northern Australian live exports. We’ll keep readers posted as we learn more.

Increased market exposure

In today’s statement, Hancock chair Gina Rinehart welcomed the trade opportunity for an “increased exposure to end‐user markets.”

“Australia needs to export currently two thirds of its production as beef or live cattle, so overseas markets must continue to be developed if we are to grow our cattle industry,” she said.

“Growing our cattle industry helps the many related industries, not just the stations themselves, but also the trough and tank suppliers, the hydraulic crush manufacturers, the contractors and truckers, accountants and other consultants, and more.”

New Hope Group chairman Yonghao Liu, said demand for premium protein had been increasing in China.

“Under the China/Australia Free Trade Agreement and the approval of live cattle exports to China, relying on the geographical, industrial and market advantage of the Sino Australia modern industrial park (Zhoushan), agricultural enterprises from the two countries are forming a strategic cooperation initiative,” he said, in last night’s statement.

“This will not only promote the development of the industry, but also provide a larger quantity of premium protein products, while at the same time benefiting the long‐term prosperity of all the businesses along the supply chain.”

The Australian herd and beef industry could not be expanded significantly without being cost-competitive and without access to additional markets, the statement said.

Hancock executive director, Tad Watroba said ‘win-win’ agreements such as this, where both the exporter and the importer can work together to increase the efficiency and profitability of the supply chain, were exactly what was envisaged by Chafta.

“This agreement will help to grow trade, with recurring benefits for both countries. Our cattle industry has the opportunity to cooperate and develop sustainable long‐term growth opportunities into export markets to achieve a better future for our beef and related industries, and contribute more significantly to Australian jobs and Australians living standards,” he said.

The statement said Hancock and its partners were committed to growing more integrated and efficient supply chains and continuing to supply into multiple distribution channels.

Live export versus domestic processing

Last night’s Hancock statement also provided defence against recent criticisms of the Hancock live export deal, which drew comparisons with fellow WA billionaire, Twiggy Forrest’s own beef supply chain model, which is heavily-oriented towards domestic slaughter through the company’s Harvey Beef processing facility and export of boxed beef into Asia. Critics said the Forrest model is geared towards value-adding and preserving jobs in Australian meat processing – the single largest employer of staff in regional areas of Australia – instead of simply ‘offshoring’ the processing phase into low-cost countries elsewhere.

“Australian cattle producers are supplying varied domestic and overseas markets and not all beef types and qualities are suited or competitive in the same markets,” Hancock’s statement said.

“Attempts to limit access to, or growth in, any particular market would not improve the international cost competiveness of the local processing industry, but would instead likely result in the substitution of more competitive produce from alternative suppliers, eroding Australia’s market share and income,” Hancock argued.

“Unnecessarily limiting the growth potential of the overall industry would also limit the growth of the many related industries that rely on the pastoral industry to supply a wide range of goods and services such as fencing, feed, vaccines, transport, technology and equipment.”

The statement said Hancock was entering into the agreement because once completed, it would enable the company to participate in all aspects of the supply chain through to the end customer and so capture a greater share of the total value of Australian-grown products.

“A new market for Australian cattle will also serve to increase competition and should lead to improved prices for our pastoral industry, thereby encouraging further investment,” it said.

The statement said Hancock remained committed to growing all aspects of its beef business and continuing to supply into multiple distribution channels.

“While our premium 2GR Wagyu and southern Kidman cattle will continue to be locally-processed, our northern cattle are generally better situated and suited to live exports.

“Under this proposal, the down‐stream investment would increase our share of the income from those exports, which will help underpin ongoing investments into our local assets for years to come.”

“The China agreement does not consider the Kidman cattle. Hancock intends that its share of those southern cattle from Kidman’s channel country properties will continue to be sold and processed in Australia.”

The taxation treatment of income derived from any investment which Hancock made in Aozhou would be subject to the Australia/China Double Taxation Agreement, Hancock said.

“Hancock believes that continuing to have multiple available markets is beneficial in terms of providing the best possible return for different product specifications and qualities.  For this reason, Hancock currently supports a range of supply channels, including live sales into local markets and processing, as is typical for the cattle out of Kidman’s southern stations; retaining direct ownership of animals through processing and then directly marketing the resulting product as boxed beef, as occurs for Hancock’s Premium 2GR Wagyu program and is planned for Kidman branded beef; and selling into live export markets, as typically happens for northern cattle.

Hancock’s statement said it was actively investing in all of its stations, in order to grow the sustainable carrying capacity of each.  The company was also focused on growing each of the markets for the produce from those stations.

“There is no reason that access to, or growth in any one of those markets should be limited or constrained, as such constraints would not improve the international cost competiveness of Australian produce in those other markets, but would instead likely result in the substitution of more competitive produce from alternative suppliers eroding Australia’s market share and income,” it said.

Cattle from northern Australia are typically better situated and suited for live export markets and are therefore typically already live‐exported.  Under this proposal, rather than sell its cattle to exporters which currently undertake such exports and on‐sell to importers, Hancock is proposing to retain a direct ownership interest in those cattle all of the way through to the end‐customer.

“This retention will increase the Australian share of income derived from Australian grown cattle,” the company said.

ALEC response

The Australian Live Exporters Council this morning issued a short response to the Hancock announcement.

“ALEC welcomes the significant progress being made in the development of Hancock’s live cattle supply chains and its export partnerships,” it said.

“News of this agreement is another vote of confidence in Australia’s livestock export industry. Australian producers and exporters who can respond to China’s demand for live cattle by delivering high-quality, healthy animals through reliable supply channels and with the world’s best animal welfare practices look set to reap significant rewards for their efforts.”

“The strengthening of commercial partnerships, such as those being forged between Chinese interests and Hancock, certainly add momentum to the ongoing work by industry and government to iron-out the export protocol and allow a greater flow of feeder and slaughter Australian cattle to China, including from northern ports.

 

 

Includes content supplied by Hancock Prospecting, ALEC



Reader's Comments


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  • Henry Burke June 14, 2017

    Good work Hancock Prospecting , great vision to draw up such a partnership and agreement.

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