IF YOU own and operate a beef enterprise, then the chances are that you have thought long and hard about how to turn it into a bigger business, with increased economies of scale and long-term profitability.
So, if Australia’s most active Chinese investor asked you to build an Australian beef empire, how would you go about it?
This week, in a follow-up to last week’s report on Chinese investment, we talk to David Goodfellow about this very task, and the investment strategy he has adopted on behalf of Rifa Salutary.
Rifa Salutary is the Australian arm of Chinese company, Zhejiang RIFA Holding Group.
In December 2014, Mr Goodfellow was appointed as its new chief executive officer. As a former head of Macquarie Pastoral Fund, he had previously managed one of Australia’s largest combined portfolios of beef, sheep and grain properties worth more than $740 million. He also spent two and a half years as group general manager of Elders Rural Services until mid-2014.
It is believed Mr Goodfellow was given a $600 million budget by RIFA Holding Group chairman Jie Wu to build a global agribusiness in Australia.
To date, some of the company’s major acquisitions have included:
- 2014 – the blue ribbon, 2420ha Blackwood Station in Victoria’s Western District bought for $14.5m
- 2015 – the 22,550ha Cooplacurripa Station, between Gloucester and Nowendoc in northern NSW, with 8000 head of cattle, bought for $32m
- 2016 – the 1457ha Kerriki and Number One properties, next to Cooplacurripa, for $3.5 million
- 2016 – Highland Plain, Avondale, Stonefield and part of Durkin, together covering 4050 ha at Warialda, east of Moree, for between $12 and $14m
- 2016 – the 8000ha Middlebrook Park and Kooroon, south of Tamworth in northern NSW, bought for $55m.
Currently the company runs about 22,000 cattle plus 5000 sheep, with plans to triple the size of the operations over time.
Local management the key
An approach that was working well in foreign investment in Australian livestock assets was foreign capital using local management to build Australian businesses, Mr Goodfellow said.
What was not working so well was offshore investors using foreign management to operate local businesses.
“That’s where people have struggled. Understanding agricultural economics and Australian production systems is not easy for someone that has come out of a manufacturing or retail background overseas,” he said.
“Australian accounting standards and the way we account for livestock revenue is unique to our industry, and it’s sometimes difficult for people to get their head around that.”
He said that much of wealth creation in the livestock industry was about developing the land asset, and then purchasing more livestock to take advantage of the development that had been created.
“Typically, we run grazing businesses that don’t generate a lot of cash flow, but generate high levels of profit and sometimes people misunderstand the relationship between cash and profit. That difficulty potentially scares a few people away, or they get into their investment thinking it might operate like a normal manufacturing or retail business, only to find that it doesn’t.”
Mr Goodfellow said many potential international investors looking to start a business in Australian agriculture had gone elsewhere.
”Much of that capital is now flowing into South America and into Africa where agriculture is absolutely booming. That off-shore capital, not just from Chinese, but money from North America, including Canada, is finding its way into those economies much more so than what’s coming into Australia.”
Mr Goodfellow believes there are good opportunities remaining in the beef property market, however.
“There is no doubt land values have increased and potential investors, including Australians, are wary of that. There has been a lift in land values over the last two years, but there are opportunities to grow the business and those opportunities will always be there.”
Building a serious beef business
Mr Goodfellow said Rifa Australia’s property acquisition strategy was to keep away from the ‘headline’ assets – the big trophy operations surrounded by big marketing campaigns.
“We like to work under the radar, in a bid to acquire two or three neighbouring properties to create the scale of enterprise we are seeking,” he said.
Properties targeted were sometimes owned by generational families, where the kids had made a clear decision that they did not want to come home.
“In these circumstances we’re able to offer them a good price for their farm, if they are willing to cooperate with their neighbours at the same time, allowing us to aggregate the farms,” Mr Goodfellow said.
“It is a win-win situation. Typically we can give a vendor, a family that’s willing to sell their property, a premium over what they might get if they were selling independently. It gives them a price that makes sense to us, because we end up with a farm with the scale to create the efficiencies we need to make the enterprise more profitable,” he said.
While there was often some some ‘over the fence’ discussion, Mr Goodfellow said it is often easier to use an agent because they are expert in making deals happen.
“It’s an emotional decision to sell a property and sometimes it is helpful to have someone there to hold the hand of the family. But in many instances, we haven’t used an agent, because I have experience purchasing land – in the past for Macquarie Bank’s Paraway Pastoral and now for Rifa. The word gets out there that we can be trusted to do honourable deals in the industry.”
Mr Goodfellow said Rifa was still seeking beef properties with scale that were fully stocked.
“There is no golden rule. Sometimes we need to buy some extra livestock or replace some machinery, but walk-in, walk-out transactions are the preferred method of sale.”
He said once families had decided to retire from the industry they often did not want the rigmarole of having people trounce through their farms and consider how one offer might stack up against the next.
“The last thing they want to do is have a clearing sale and have all the neighbours turn up and crawl over their farm. It is a very emotional decision for many families. I understand the turmoil that families go through when making these decisions,” he said.
Chinese investor interest for the remainder of 2017
Mr Goodfellow doesn’t believe there will be a frenzy of buying activity in Australia from Chinese investors this year.
“There still is access to capital from China, but businesses finding it easier to get money out of China, under the new regime, typically ticked three boxes,” he said. These were:
- They have an existing business in Australia
- They have a business in mining or agriculture
- They are sending ore, wheat, milk powder, milk or meat back to China.
Mr Goodfellow said Rifa was in the ‘sweet spot’ of all of that.
“We have existing businesses in agriculture and we are starting to move some of our product back into the Chinese market (not a lot, but enough to be recognised) and as a result we have access to money in China.”
Rifa Australia has just purchased a block next to Middlebrook and Kooroon, the two northern New South Wales properties it took hold of in September last year.
Mr Goodfellow said this latest transaction fitted into what the company is currently doing – pursuing expansion.