Strategic alliances part of AA Co’s future growth plans

Jon Condon, 16/10/2014

THE cultivation of closer and more strategic alliances with other stakeholders along the beef supply chain is an important part of the Australian Agricultural Co’s future growth plans.

Managing director Jason Strong outlined the company’s ambitions to align more closely with dedicated supply chain partners during a presentation at last weekend’s Australian Wagyu Association conference on the Gold Coast.


AA Co managing director, Jason Strong

He said the process could apply across all stages of the chain from cattle breeding to growing, backgrounding, lotfeeding and processing, for sale through the company’s rapidly expanding branded beef programs.

Using the company’s Wagyu beef supply chain as an example, Mr Strong said a five or six year business plan was required to achieve a certain outcome, in terms of increasing Wagyu production.

“If we don’t have all the Wagyu bulls we need to achieve that growth right now, we don’t see the benefit in terms of generation of beef products until 2019, given the long production cycles involved,” he said.

“So when we’re talking about making changes, investments or improvements around the way that our Wagyu program operates, we have to be sure we’re making the right decisions, based on the right information, because the investment and time that it takes to get a Wagyu supply chain established and to capture the value from them takes a very long time.”

“We need to be making assessments, for example, about the type of customers we are likely to target in 2017-18, now.”

“So when we are looking at how we want to build our supply chain and grow the business further, there has to be a long-term view taken, that appreciates what investment has to be made and the time it takes to get it done.”

Mr Strong said this part of AA Co’s business planning was not a ‘time-based’ cycle but was ‘supply- chain based.’

“There is no point in saying here is our five-year plan for Wagyu, if we don’t have the bulls available today. We’re saying, here is our plan to build and grow the business, and these are the things we need to do to achieve it. If we achieve it in six months, great, but if it takes longer, so be it.”

“Whether we do it internally, or with outside support, in order to drive supply chain development it has to be about everything from the genetics stage to the end-market.”

How AA Co puts those elements together has been a key part of its recent planning discussions.


Capturing greater value

Historically, AA Co has had a ‘reasonably closed’ business model, Mr Strong said, but it wanted to grow its business significantly.

“One of the key opportunities, we believe, is to develop strategic alliances with others. These relationships will cover a whole range of elements, not just the supply of bulls, but may involving ventures with outside lotfeeders, backgrounders, growers, breeders, or even processors,” he said.

“We want to be building alliances and relationships with stakeholders who can form part of that supply chain, who may not, or do not have the capability to do all of it themselves.”

“We think we can provide opportunity for people to capture more value from the end product by participating in a supply chain partnership model like this.”

Mr Strong also used the company’s 1824 brand grainfed supply chain to illustrate the changes the company is implementing in this area.

“When AA Co first started its 1824 program, it was a driven – perhaps forced might be a better word – supply chain. We had cattle, and they had to go into 1824. That wasn’t a particularly good plan, because then we had no control over managing costs, or making decisions based on profitability.”

“We then went to a point where we decided the main objective was just to make money out of meat, so we largely bought more cattle off somebody else. That did not necessarily work well either, because it did not always line-up along the supply chain.”

“Where it’s now ended up is in setting up a system where we want to manage as many cattle through the supply chain as we can, generating and creating as much value as possible though that supply chain. This will include our own cattle, as well as cattle bred by others, our own backgrounding programs, as well as other peoples’ backgrounding capacity, and so on.”

“We will process and capture the value for all of those cattle at the sales and marketing end.”

Just because AA Co was a very large company, the perception was that it had the capability and all the resources internally to set up and manage its own supply chain, Mr Strong said.

“In theory we do, but in attempting to do all of that ourselves, it is very hard to manage the proportions in the investment. One of the conclusions we have come to is that there is a bunch of stuff that we do ourselves, but there are a bunch of other things we can expand and do better and grow faster by working with others, for mutual benefit.”

“Some areas may require a lot of help from others, but it’s how we build those strategic alliances and relationships over time that allows us to build our supply chains much faster,” he said.

Having a fully vertically-integrated system that was supplied only internally could be ‘pretty hard to grow’, Mr Strong said.

“We’ve got to stage where we’re saying, yes, we could do all these things ourselves, forcing it to work through the system. But we could do it a lot better by working with others.”

“If we think about how we develop those supply chains and the opportunity to grow and get better aligned, we get to a position where we can all create more value. That’s a lot of the driver – wanting to secure more of that margin that we see further downstream.”

The bigger opportunity was in being able to make better decisions and manage costs, and create more value along the path.

Too often the drivers for developing supply chains had been through seeing what somebody else is doing (or the perception of what they’re getting out of it) rather than simply focussing on ways to become more efficient or productive in how to drive your own business forward.

The focus in the business was now very clearly on end-markets, growing the value of the product downstream, establishing closer relationships with end-customers, and being able to capture more margin in the process.

“The transformation of our business has happened pretty quickly in the past 12 months, but the plan is for us to be using this transformation in time to set us up, well in advance, for our two-hundredth anniversary in 2024 (ten years’ time), and quite a bit beyond that,” Mr Strong said.


Feedlot, processing space limiting factors

During questions, he admitted that feedlot space, and processing space, were the two big bottlenecks faced by AA Co in delivering on expanded brand programs.

“Yes feedlot space is a challenge, long-term, but that comes back to our strategic relationships with others.”

One of the challenges AA Co was facing about building strategic alliances was a level of scepticism: essentially, ‘You must know something we don’t know’.

“Were trying to stress to potential partners that it’s a good idea for all of us – it’s about lining up, and trying to capture more value from the chain.”

Wagyu breeder Pete Cabassi asked a question about marketplace acceptance of a supply chain approach.

“It’s a really good question. The concept of being able to purchase direct from a producer, rather than a trader or importer is very strong. There’s an insatiable desire out there to be able to purchase product where it has a story, and is traceable back to the source,” Mr Strong said.

“But you have to deliver. You can’t make that supply promise, and then fail to execute. We, as Australian beef producers, Wagyu producers, AA Co, or alliances, are only going to get one good chance at doing this, better than everybody else. And we have to deliver on it, if that’s what we’re going to sign up for.”

“That’s going to take time, commitment, and a collective view that it’s the right thing to do, and how to go about doing it. What we can’t have is individual parts of the supply chain saying I can make more value here or there.”

“It’s never been delivered before, certainly at this scale, and there’s an opportunity for brand owners to do it – but we have to be on the same bus, and having conversations about how we develop and create value through the chain,” he said.

“We don’t need many consumers in a region like Europe to get committed to what we want to produce at a higher level, to create a lot more value than we’ve ever seen, as far as high quality beef production like Wagyu is concerned. But we can’t do it unless we get lined up on a supply chain basis.”

“AA Co is well down this path, and it is something we’re very committed to. We have an opportunity through the AA Co business where we can concentrate very heavily on the sales and marketing side, but we can create more demand, and the thing we are desperate to do is build these strategic alliances to deliver it.”




Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.


Get Beef Central's news headlines emailed to you -