AA Co sheds light on ‘preferred supplier’ status for Darwin plant

Jon Condon, 21/08/2014

Suggestions made at a joint select committee hearing in Darwin that the first handful of cattle may have been slaughtered on Tuesday at AA Co’s abattoir near Darwin may have been premature, but the venture remains on track for a commercial launch sometime next month, the company has confirmed.

Click on image for a larger view

Click on image for a larger view

“We haven’t officially killed anything yet,” AA Co chief executive Jason Strong told Beef Central this morning.

“We’re in advanced stages of construction and testing, and remain on track for commissioning in September.”

“The testing we have done to date – primarily sandbags on the kill rail as a proxy for an animal – suggests there are no constraints to starting a kill next month,” Mr Strong said.

The company has not yet committed to a starting date, but the process is down to details like securing AusMeat, AQIS, USDA and market access accreditations to allow slaughter for human consumption to commence.

Speaking at a joint select committee hearing on northern Australia in Darwin on Tuesday, Consolidated Pastoral Co chief executive Troy Setter used the term “preferred significant supplier” to describe his company’s emerging supply relationship with the Darwin plant.

The term immediately caused some speculation over whether there would be a ‘haves and have-nots’ situation emerging next year among the cattle producing community in northern Australia, and access to the plant.

Mr Strong said he preferred not to use the term ‘preferred supplier’, instead talking about ‘longer-term strategic relationships’ around cattle supply.

“AA Co will obviously be stockpiling quite a few cattle itself for the wet season period, but also, where possible, will build building strategic relationships with other people who can supply cattle over that critical period,” he said.

“It has nothing to do with simply choosing one potential supplier over another, which is perhaps suggested in a term like ‘preferred supplier’,” he said.

Instead, AA Co would be working with companies like Consolidated Pastoral Co, where it could work out a longer-term cattle supply strategy into the plant, covering the entire year.

“Those strategic relationships will cover both periods when they have abundant cattle available, but also those times when we need cattle. It’s about both sides making allowances around that to give us both some benefit,” Mr Strong said.

“If a company like CPC, because of the location of its properties, is able to stockpile and supply cattle over the wet season, when supply will be tight, part of the trade-off for that will be some preferential access in the dry season,” he said.

That process was likely to involve contracts that covered wet season and dry season cycles, and longer supply periods outside the ‘optimum’ for the cattle producer.

Jason Strong

Jason Strong

Asked whether there was a large number of stakeholders involved in these ‘strategic relationship’ arrangements, Mr Strong said there was not, and it was still only really being tested.

“We’ve spoken to a few people, but it’s still reasonably early times. We have all the required kill lined up for the next few months anyway, so it will not really activate until next year.”

He said commitments had already been made for ‘a chunk’ of the plant’s supply requirements for the early stages of 2015, “but we will still need to secure cattle for the first half of next year.”

“We’ll manage that process pretty carefully, and it will be a balance between AA Co’s own turnoff, and what can be sourced from others.”

“But we want to set up a system where we can work with potential suppliers over the unique supply and demand challenges in the north. That will be a trade-off between price and access. There will be some periods of the year when there are too many cattle to service two daily kills shifts of 520 head, and others when there are not enough, when we perhaps have to combine with a price motivation to supply.”

Mr Strong said AA Co was in the later stages of getting that sort of information finalised for potential cattle suppliers, and the company would outline the supply opportunities with the industry going forward.

“We’re doing that on an individual company level now, but there’s been so much criticism and negativity levelled at the project up to this point, that we have focussed mostly on getting the new business up and going, and ensuring that we have security of supply.”

“We’ll develop those supply relationships over time,” he said.

Asked by the Darwin inquiry whether access to the Darwin abattoir would be open for all producers to put cattle through the process, Northern Territory Cattlemens Association president David Warriner said, “Well, we are assuming that.”


China focus for CPC carcase beef

In other testimony delivered by CPC’s Troy Setter during Tuesday’s joint select committee hearing on northern Australia in Darwin, he said CPC had established a bone-in beef export business to China, using a service kill on the eastern seaboard.

Typically, about 15pc of Australia’s beef exports to China each month are in bone-in form.

“We send bone-in-meat to China, where it is deboned and then further value-added and sliced,” he said.

“The reason is that the labour cost in deboning Australia is substantially higher. The cost to process meat in Australia is twice that of South America, and it is substantially more than in the US – and many, many times more expensive than Asia,” he said.

This disparity made export of bone-in beef attractive, however there were challenges, he indicated.

“China has stepped in and out of chilled and frozen protocols, and there are different market appreciations for different cuts,” he said.

While CPC exported bone-in beef to China in both chilled and frozen form, there were a lot of food safety and wastage challenges with frozen beef.

“China will step in and out of frozen and chilled beef control, where they will not let us send chilled beef at times. But the market is back open again now, with limitations,” he said.


$80m impact on CPC from livex market closure

In separate discussions during the Darwin inquiry, Senator Ian MacDonald asked Mr Setter about the extent of the impact of the 2011 Indonesian live export market closure on the CPC business.

“Have you ever tried to quantify that in dollar terms?” Se MacDonald asked.

“We have,” Mr Setter replied.” It cost our company in excess of $80 million.”

“Eighty million dollars!” Se MacDonald exclaimed.

“That’s not only lost cattle sales or lower prices, but includes reduction in land values—the land values at the end of December 2010 to the land values at the end of December 2011,” Mr Setter said.





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 -