Deal focus: QIC plots Asia beef supply chain

Between 2003 and 2014, per capita meat consumption in China increased by 11 kilograms. Stepping up from the current annual intake of 57 kg to Taiwan's level of 74 kg will require an additional 94 million tons of corn and soybeans for feedstock and 15 million hectares of land, according to the Food and Agriculture Policy Research Institute. Needless to say, imports are likely to play an ever larger role as Beijing looks to satisfy local appetites, in quantity and quality terms.

This goes a long way to explaining the spike in beef exports from Australia to China, and by extension, QIC's decision to buy an 80% stake in cattle station operator North Australian Pastoral Company (NAP) in a deal worth around A$400 million ($295 million).

"Asia is going to account for 47% of global beef imports by 2024. The supply chains to get fresh product up into Asia haven't been built yet and that's part of the investment thesis - that we and others can help grow these supply chains so we can get fresh beef in particular to where the demand is, whether that is Japan, the US or China," says Marcus Simpson, head of global private equity at QIC.

NAP is one of Australia's largest cattle station operators with 13 stations and one feedlot set in 5.8 million hectares of land. Its 178,000 head of cattle are grass fed and grain finished for sale to Australian meat processors who distribute beef products domestically and internationally.

Some of this already finds its way to China. Beef imports from Australia reached 148,222 tons in 2015, up from just 32,906 tons in 2012, according to Meat & Livestock Australia. The country is now the fourth-largest buyer of Australian beef after the US, Japan and South Korea. Asian markets - Indonesia, Taiwan, the Philippines and Hong Kong - also occupy four of the next six places in the rankings.

The Asia protein thesis has underpinned a string of private equity investments in Australia, from wholesalers to processors to farm operators. There is also considerable strategic interest out of China in these assets, but the sensitivities tied to large-scale sales can be problematic - as recently evidenced by a Shanghai Pengxin Group-led consortium's decision to withdraw from an acquisition of S. Kidman & Co. when it became apparent that the government would not approve the deal.

Simpson argues that QIC, as a government-owned institution, is uniquely positioned to serve as a bridge in these transactions. It wants to work with foreign investors - who would participate as co-investors (it brought the UK-based Pension Protection Fund into the NAP deal) or off-take partners - and use its operational expertise to help drive value.

QIC is also willing to be patient, treating NAP as a 10-15 year investment that can deliver a 10-14% return, which means it is unsuited to the traditional private equity model. QIC's real estate and infrastructure teams, which are experienced long-term direct investors, have influenced the strategy in this respect.

"Our CIO was looking at the food theme and all he could find were sale and leaseback opportunities for agricultural land," Simpson adds. "He wanted an operational approach with a PE philosophy, so we authored the theme. We like foods that are more complicated to produce like beef, aquaculture and lamb, and which involve a longer cycle to replenish stocks."

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• Topics
• Australasia
• Buyouts
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• Agriculture
• QIC
• Australia