Processing

Unravelling seven misunderstandings, myths and fallacies about AA Co’s Darwin abattoir

Jon Condon, May 13, 2015

NO MEAT processing project in Australia’s history has aroused as much media and industry curiosity, conjecture and even criticism as Australian Agricultural Co’s new $100 million Livingstone plant near Darwin.

Click on image for a larger view

Click on image for a larger view

AA Co’s publicly listed status means it has had to shoulder a considerable degree of transparency with investors and the broader industry and community about the project. A similar scheme in privately held hands would have not provided anything like the column centimetres that Livingstone has.

But perhaps inevitably, there’s also been a considerable degree of speculation, rumour and innuendo about what’s going on at the plant – perhaps more to the point, what’s not going on – since it killed its first best back in October.

Chief executive Jason Strong did provide some further detail about progress at the Livingstone site during this morning’s investor analyst briefing, which helped unravel some of those mysteries.

Beef Central has also dug around and sought some answers to others, through both direct and indirect channels.

 

Here’s a series of claims that have circulated around the industry recently about the Livingstone project, and what we understand to be the facts:

Claim 1: The Livingstone plant is yet to gain a USDA license for export. Not true. Livingstone has held a full USDA export licence since February, AusMeat records show.

Claim 2: That lack of a USDA license has forced the plant to supply domestic customers only. Not true. Frozen beef from the Livingstone plant has now entered six export markets over the past three months, exported by ship out of Darwin, via Singapore. First containers arrived in the US last week. Other markets already serviced include Hong Kong and several Asian markets. In essence, AA Co Livingstone is licensed to access the full range of Australia’s front-line export markets including Japan, Korea and the US (Country-specific inspection destinations like China, not yet included).

Certainly earlier, AA Co took the deliberate decision to sell the initial output on the domestic market. Jason Strong told this morning’s investor analysts briefing that the reason for that decision was to manage customer relationships.

“As we ramped-up, we did not have a lot of prediction around volumes. We had a couple of really good domestic customers who could be more flexible around the volumes they took, so the initial sales late last year and early this year were into the domestic market. It had nothing to do with licensing or anything else – just managing customer expectations. Once we had a more stable throughput, that’s when we started exporting.”

Claim 3: AA Co has to spend another $5 to $10 million at the site on large-volume reverse osmosis equipment to overcome water quality issues. Not true, Beef Central understands.

Claim 4: AA Co is being constrained in its Darwin processing operations by odour issues raised by the Environmental Protection Agency. While a process is ‘being worked through’ to deliver on odour and waste-water thresholds, there is no EPA prescription on operations at the plant, Beef Central understands – certainly not in daily cattle throughput. The company has put a plan forward to cover off on earlier EPA management concerns, which has been agreed to and which is now being acted on.

Claim 5: The plant is still processing only around 100 head a day. Not true. Yesterday’s kill, for example was 300 head, as it moves towards a full single-shift kill of 500 head in stage-one.

Claim 6: Cattle bought earlier or supplied by AA Co’s own properties are ‘banking up’ in nearby depots, because of the slow start to kills, and perhaps transferred to southern processors, at great cost, as an alternative. Nothing in it, Beef Central understands. While AA Co bought quite a few cattle and positioned them on company properties to ensure supply over the higher-risk months, no outside cattle were contracted for slaughter by AA Co until March.

Suggestions on ABC that there were 60,000 cattle already backed-up and turning into an animal welfare issue are rubbish. In fact AA Co is currently so conservatively stocked that it could put aside an entire year’s Livingstone kill on existing land resources, without having any impact, sources say.

Suggestions that the company was now ‘exposed’ in some way in holding numbers of slaughter cattle because it is vacating its lease of the large scale Tipperary property, just south of the plant, appear incorrect. That’s because AA Co last year shelled out $27 million on nearby Labelle Downs/Welltree, to the southwest of the Livingstone plant, to act as a large scale holding depot. Labelle is arguably a far better holding proposition than Tipperary.

The company says it has enough cattle contracted, and available from within company properties to supply the Livingstone plant for the next couple of months, and was consequently not in the market for more cattle for the time being.

Claim 7: The processing plant is in some way ‘cannibalising’ profits earned by AA Co’s pastoral (cattle) operations, in preferential pricing. Incorrect. “The whole premise of the Livingstone plant is to provide an alternate market for cattle, adding value to cattle which previously had limited market value prospects in the north. That has not changed,” Jason Strong said. “There is no sacrificial livestock pricing to prop-up the abattoir’s financial position. If it’s more financially attractive to put certain cattle on a boat, we will do so.”

 

Chief executive Jason Strong told Beef Central that AA Co was currently happy with where the numbers out of Livingstone are.

Jason Strong

Jason Strong

“Certainly, we’d like them to be higher, but while we have hit some challenges, there’s nothing that’s not resolvable,” he said.

“Has it been harder than we had anticipated to build a plant in northern Australia in the middle of the wet season? Perhaps not ‘harder’, because we had already anticipated that this would be a difficult challenge – let’s say every bit as ‘hard’,” he told a Beef 2015 audience last week.

Mr Strong said AA Co would continue to invest in the Livingstone site as necessary, to deliver the facility to a state where it can operate at its designed capacity. He suggested the company would have more to say on this in a few weeks’ time.

AA Co has publicly stated that it will run only a single shift for quite some time now, but this is for operational reasons, not environmental ones.

“We’ve in fact been doing a single shift kill for quite a while now, but the number of cattle and the manning levels are varying on the speed at which we run the chain,” he told Beef Central. “We’ll obviously speed the chain up and add staff to add throughput as we work through a range of issues with commissioning machinery and other matters.”

Mr Strong told this morning’s investor briefing that yesterday, for example, Livingstone processed 300 for the day, on a planned ‘full’ single shift capacity of 520 a day.

“We will continue incrementally increase throughput from week to week.”

“The numbers we are doing at the moment, we are doing consistently, and even though we are still doing lower than optimum numbers at this stage, the efficiencies have been ever better than we expected,” he said.

Asked what the constraint on higher kills at this stage was, he told Beef Central it was not regulatory-related, but simply working through the ‘operational issues’ with a brand new plant.

“It’s the complex balance of labour, machinery, resources, training and a whole range of other things – but nothing that we are concerned about. It’s not as if we are sitting around with a show-stopper in front of us that we can’t do anything about.”

Mr Strong told this morning’s investor briefing that plant would be ‘measured’ as a cost of conversion, effectively operating as a cost centre.

The big drivers of whether cattle were sold live or processed at Darwin would include the operating costs of the plant, the buy price of cattle coming in, and the company’s ability to capture value for the meat product. Going out.

“We definitely have significant overseas demand for supply out of Livingstone Beef,” Mr Strong said.

 

 

 

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Comments

  1. Edgar Burnett, May 25, 2015

    Well said Trish, I totally agree with you.
    One thing that Government should NOT allow at least until this unit is in top gear, is for a Multinational Processor to set up in opposition to this Works because we all know how ruthless they can be.

  2. Trish Brown, May 13, 2015

    Well done Jason and I hope that the AA.Co abattoir will go from strength to strength because your business employs Australians and this is what this country needs more of instead of sending livestock overseas for slaughter where jobs are created in those other countries.

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