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ABARES: Growing global beef markets under greater regulation and consumer expectation

Beef Central, 03/03/2020

AUSTRALIAN Agricultural Co managing director Hugh Killen outlined the challenges he saw of growing global beef markets in an environment of more regulation and increased expectations from consumers, during the opening stages of the ABARES conference in Canberra this morning.

Mr Killen explained AA Co’s well-telegraphed strategy of moving away from commodity beef business model to becoming a premium brands business, and suggested the strategy was equally ‘relevant’ to the broader beef industry.

“Today, beef producers who differentiate and connect to customers will do well; those who connect to the right secondary producers further up the value chain, will do better; and those able to work together to shape and control their whole value chain will do best,” he told the ABARES audience.

Hugh Killen

By their nature, commodities were mutually interchangeable, he said. “It doesn’t matter where they come from or who produces them – we grade them for quality, but after that, they are anonymous.”

This had been the story of agriculture in Australia in many respects, Mr Killen said.

“We grade wool for quality – and then judge it on price and availability. We grade cereals for quality, then mix and ship them. We test milk for solids and volume, and sell it on to the processor.”

Traditionally beef had been the same – but there were trends away from this, he said.

“At the purest commodity end, hamburger meat is mixed and sold under downstream brands. But increasingly, consumers are choosing beef from different places – under loose country of origin ‘brands.’ And consumers are increasingly engaging with breed brands, like Angus and Wagyu.

“Yet despite these trends, much of the beef that you and I eat, is pretty anonymous,” Mr Killen said.

This was a real challenge for AA Co, he said, as the company evolved into the “world’s leading premium beef company.”

Eating the finest beef was a deeply personal experience.

“There is nothing like the taste of a beautiful cube roll, from an animal born at Brunette Downs in the Northern Territory, grown out at South Galway in South West Queensland, and then grainfed to perfection at Goonoo feedlot in Central Queensland. Cooking this meat is pure joy; taking a bite is a deeply personal experience; and sharing this food with friends and family, is exactly what friendship and family is all about.”

“When we make our operational plans on farm, it is always with this personal experience in mind,” Mr Killen said.

Under AA Co’s aim to grow the best beef in the world, at scale, the system only worked if you have the best customers in the world, he said.

This meant engaging with people who pay top dollar for the experience, and it means making a personal connection with them – a connection to the beef, to the brand, and to the story.

“None of these things are transferable. They can’t be anonymous, and they make us personally accountable – every time we offer an AA Co product,” he said.

This had been a big change for the company, but most recent results told the story, Mr Killen said.

The company continues to grow the value of its Wagyu sales internationally, under the Westholme and Wylarah brands. In the first half of last year AA Co launched Westholme in six new cities around the world, helping deliver growth, despite ongoing seasonal challenges, Mr Killen said.

“This is the story of AA Co today, and into the future. Our growth comes from moving away from the commodity market – and it comes from telling our story, in every piece of beef we sell,” he told ABARES delegates.

Mr Killen said AA Co’s shift away from commodity beef production was relevant to the wider beef industry.

“Since the end of the old protection system, Australia has been through waves of change. We reshaped our national sheep flock; the dairy industry is unrecognisable; grains and cereals are globally competitive; and the beef industry continues to reshape its herd, structure and operations.

“All of these changes have made us stronger, and they have forced us to take greater responsibility for the value chains connecting us to customers.

“Today, producers who differentiate and connect to customers will do well; those who connect to the right secondary producers further up the value chain, will do better; and those able to work together to shape and control their whole value chain will do best.”

In this context, increased consumer expectations were not a burden to be managed – in fact for AA Co, they had become the company’s ‘north star’, Mr Killen said.

“We know that the highest value consumers have the highest expectations. We use this to drive performance at every level. Our focus on customer experience makes us personally accountable, and growing consumer expectations align with our vision to produce the best beef in the world at-scale.”

Good regulation, bad regulation

Unfortunately, regulations and customer expectations rarely aligned, he said,

“They do when things really go wrong – because breaching basic food quality and safety regulations will always fail to meet customer expectations. But, at best, regulations reflect a lowest common denominator.”

“Our day to day focus is almost always on exceeding any regulations for safety, quality or sustainability. Sometimes regulations are used as hidden trade restrictions.

“We try to understand these barriers and manage as best we can, and we trust to government negotiations to iron these out. But they do not really inform our quality, safety or sustainability.”

“Some other regulations which apply to us, were not designed for our business. Governments continue to develop land use and related regulations, often based on a limited understanding of the diverse natural environment. And they offer little capacity for dialogue, collaboration, innovation or a shared commitment to quality,” Mr Killen said.

This type of regulation could harm the industry’s ability to operate, and harm its relationship with Government,

“And when we argue, it can harm our reputation around the world. But when governments create blanket regulations for things like land management, they can punish us for land use practices that are sustainable. For example, Queensland land clearing rules might work in some areas, but they don’t align with best practice land and water management across our stations. And if we protest, some will question our commitment to sustainability,” he said.

In contrast, good regulation had the power to make us all better.

“It can align with our vision for the highest quality beef and the highest customer expectations, and it allows for positive dialogue, collaboration, innovation and quality production.

“To achieve this, good regulation has to go beyond traditional negative incentives – which prohibit certain behaviours Where these are appropriate, they should be policed effectively, but if we want regulations that support our industry’s $100 billion output target, we need more good regulation – including positive incentives which foster innovation.”

This required regulators to share the industry’s commitment to growth and sustainability, Mr Killen said, and it required regulators who could become positive partners in growth.

“This is especially important where regulations reflect wider government policy. For example, all Australian governments are investing in their responses to climate change. Meat and Livestock Australia has supported this with a commitment for the Red Meat industry to be carbon neutral by 2030.

Aligning policy, industry and regulation

“From the perspective of a fragmented industry working alone, made up of many small operators, this target is impossible. But from the perspective of an industry working together, with real support from Government, it might just be possible.”

The only way to get close to this goal though, is by aligning policy, industry and regulation.

“This begins with moving past the culture wars, and accepting that transition must happen. We can then look at how our respective investments and capabilities can work together. Our goal must be to align overall investment, across public and private sectors, to support transition,” he said.

“We need governments of all persuasions working together to set a clear national policy framework.  We need the major parties, minor parties and independents, working through a serious debate to provide clarity, beyond the electoral cycle. And then we need state and federal governments, working together to agree a set of practical, shared, national sustainability goals and targets.

“This is essential to a national policy framework, which can allow all departments, agencies, communities and business to work together on the practical steps we need.”

“Imagine government and regulators working with industry, to direct public and private investment in energy transition – helping fund the move from grid power to solar power – or transitioning transport from diesel to gas, and ultimately hydrogen Imagine government and regulators working together to help unlock the potential of rainfall in Northern Australia.

“Imagine this asset being managed sustainably – helping increase production outside of stressed systems like the Murray Darling. And imagine if water regulations aligned with land use regulations in places like Queensland, so that government support for managing water assets wasn’t undermined by government prohibition on basic land management practices.”

None of this could happen when regulations were fragmented, and made up solely of negative incentives, Mr Killen said.

“When this is the case, most of our energy goes into getting as close as possible to the prohibition line. When this happens, you get things like the banking royal commission, and you get industries like ours becoming more fragmented, as individual operators work to avoid contact with regulators on the ground. Worst of all, a negative regulation perspective ignores the culture of innovation and change we have built in Australian agriculture, and it ignores the scale and complexity of change required to succeed in the future.”

Mr Killen said he believes another, more positive regulatory perspective was possible.

“I believe it is possible to align customer expectations, policy and regulations, and I believe that when we do, we can start working together in good faith, for common goals like sustainability.

This has not been the traditional approach, but in a sector where change is our every-day constant, and where we need to evolve to reach our $100 billion production target by 2030, I believe these relationships can evolve together too.”

 

 

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