As China’s economy slows and the days of double-digit economic growth are over, companies that have been selling minerals to the Chinese are looking for the next big thing. For many Australian miners, the answer is cattle.
China’s demand for iron ore and other rocks dug out of the ground may be fading, but the Chinese appetite for foreign-raised beef is going to keep increasing: China’s beef consumption could jump more than 70 percent by 2030 (pdf), according to a new report by ANZ Bank.
China’s industry lacks the scale to feed that kind of growth, with almost three-fourths of local supply coming from herds with fewer than 10 head of cattle. “China’s ability to meet its own beef demands will continue to be hampered by the fragmented structure of its beef industry,” Michael Whitehead, ANZ’s director of agribusiness research, said in a statement published Friday. China consumed 5.9 million tons of beef last year, of which 81 percent came from local suppliers. ANZ says that by 2030, however, the share that comes from Chinese ranches will fall to 62 percent.
You might think American ranchers would be big winners from that shortfall. After all, the U.S. is the world’s top producer of beef. But China has banned imports of American beef for more than a decade, following a 2003 outbreak of bovine spongiform encephalopathy (mad cow disease). Since Hong Kong still allows imports, however, some beef from the U.S. still makes its way into the mainland. Another mad-cow scare led the Chinese government to ban Brazilian beef in 2012, further solidifying Australia’s position as the top supplier to China.
The increasing Chinese appetite for beef is leading some Aussie companies to focus less on rocks and more on cows. For instance, Bloomberg News reported last month that Australian mining companies that had taken advantage of the China-led minerals boom are becoming ranchers now that the mining business is cooling. In the first half of 2014, at least $2.6 billion in deals involved Australian food and agricultural assets, the best six months in at least a dozen years. Rio Tinto (RIO) and Hancock Prospecting are among the Australian miners moving into the cattle industry.
For companies that have incurred big expenses transporting minerals from remote parts of the outback, raising cattle has an advantage. “The trouble with iron ore is you have to dig it out and move it by truck,” Agricultural Minister Barnaby Jocye told Bloomberg, “but the great thing about cattle is they walk there for you.”
Among Australian mining bigwigs turning to cattle is Andrew Forrest, the billionaire founder of Fortescue Metals (FMG:AU), the world’s fourth-biggest exporter of iron ore. In May, he acquired western Australia’s Harvey Beef, the state’s only licensed exporter to China. Forrest, who has a net worth of $4 billion, according to data compiled by Bloomberg, is also the founder of the Australia Sino Hundred Year Agricultural & Food Safety Partnership, a group that aims “to make Australia the most reliable and competitive food supplier to China,” according to the Forrest-backed Minderoo Foundation.