Chinese buy ups disrupting livex trade dynamics
James Nason, BEEF Central (Australia)
September 6, 2019
China’s recent rise to become the largest importer of Australian boxed beef has corresponded with the growing influence it is also now exerting over Australia’s beef cattle export trade – not as a customer as many initially expected, but as an investor in Australian live exporting companies.
Some estimate Chinese ownership could now control as much as 50 percent of Australia’s live cattle export capacity, a rapid recent development that has dramatically affected competitive dynamics in the trade, and raised concerns about longer-term impacts.
China was hyped to become a major buyer of Australian feeder and slaughter cattle when a new trade deal was struck between the two countries in 2015, prompting confident predictions at the time Australia could soon be shipping more than one million beef cattle a year to the world’s most populous nation.
However, four years later, export numbers have yet to reach a fraction of that volume, having exceeded no more than 30,000 slaughter cattle in a single year.
Working against greater trade volumes have been unviable protocol restrictions imposed by China and higher Australian cattle prices, while frosty relations between both Governments have not been conducive to a growing trade either.
But while China’s growth as a customer has fallen well short of where some thought it may be four years ago, it has still managed to exert strong influence over Australia’s livestock export sector in a different way – as an investor in Australian live export companies.
Several deals in recent years have seen Chinese-backed investment take ownership and control of an increasingly large percentage of Australia’s live export capacity.
Some examples include, all of which occurred in 2017 as hype around the future of the slaughter (and feeder) cattle trade to China was building, include ...
... Most, if not all, of the Chinese investors are also Chinese importers who have built new feedlots and abattoirs within 50km of China’s ports, as per Chinese protocol requirements, and have taken the opportunity to take greater control of the Australian export supply chain in anticipation of the expected trade growth to China.
But while their primary focus – it seems fair to assume – is on the Chinese market, and helping to achieve long-term Chinese Government policy around food security, that trade has not opened up as they undoubtedly believed it would.
As a result Chinese owned/controlled exporters have had to continue competing for South East Asian markets as they wait for China to develop as a volume market, adding to crowded competitive environment at a time when trade volumes were falling ( due to factors such as Indonesia opening its market to imports of cheap frozen Indian Buffalo Meat and buyers resisting increased Australian cattle prices,, forced up by drought and lack of supply).
Falling trade volumes might normally be expected to result in structural rationalisation as a smaller pie forces some competitors out.
However, rather than the sector finding new equilibrium in a lower-volume world, competition among exporters in Indonesia and Vietnam has only ramped up, a situation unlikely to change until China relaxes the protocol restrictions currently preventing greater volumes of slaughter cattle from Australia to flow.
There is nothing wrong or sinister with this new dynamic of course, but the altered environment is causing unforeseen disruptions and turmoil throughout the trade...