PUBLISHED | APRIL 29, 2011
Richard Sanger talks beef exports
When you buy a McDonald’s hamburger in Japan, the United States, Korea or China, you’re biting down on Australian beef. McDonald’s is now the world’s biggest customer for Australian meat. Sanger sold the first imported beef ever used in a McDonald’s burger in the United States. Sanger also exported the first foreign meat ever sold in Korea in the early 1970s. Today, Korea is Australia’s third largest meat export market.
The man responsible for that is Richard Rains, chief executive officer of Sanger Australia. Sanger is a stalwart of the Australian meat industry, marketing Australian meat all over the world since 1973. "It’s a very exciting industry to be a part of," Rains says.
Through seasonal changes, volatile currencies, market growth and market decline, people still eat protein. And as the world’s second largest exporter of beef, Australia is well placed to supply a world hungry for red meat. Sanger is a trader and marketer, representing abattoirs based in regional and rural Australia from its busy Sydney office.
Where many competitors have folded, and foreign entities have come and gone, Sanger has stood the test of time. Rains puts that down to some natural advantages in the Australian agricultural industry and a willingness to bend over backwards to satisfy customers. "We play the game with a very straight bat and we’re very well supported by our supply base, which we work very closely with. We’re well banked, maintaining strong relationships with HSBC and Westpac. That has stood us in good stead, enabling us to take advantage of whatever opportunities have arisen around the world."
Supplying the world
Sanger has used strategic partnerships to access markets where Australian meat previously has been unable to achieve significant share. McDonald’s has been an extremely valuable customer. "McDonald’s are the most discerning customer that we supply. Their standards and requirements are extraordinarily high. It’s an enormous machine, but as long as you can dance to their tune it can be very rewarding," Rains says.
Sanger’s partnership with McDonald’s helped the company access the notoriously protectionist American meat market. Australian lean beef is in demand in the USA to value-add their domestic production, Rains explains. Most US produce is lot-fed cattle which, after processing, leaves independently worthless fatty trimmings. The trimmings can be combined with Australian lean beef to produce tender ground beef. Since over 50 percent of America’s red meat consumption is in minced meat form, the American market is very important for Australian exporters.
Rains also speculates exports to America will increase as domestic beef production declines. The US government heavily subsidises ethanol production, making farming corn more profitable than farming livestock. United States beef herds are at their lowest numbers since the 1950s.
Unlike the American market, which is driven by price, the Japanese market is very brand conscious, Rains says. As it is the largest national market for Australian meat, Sanger has been at pains to establish a strong reputation there. "We make sure we are producing absolutely to the customer’s specific requirements in terms of the meat used and type of packaging. Australia is very familiar with producing product to a buyer’s absolute specification."
Sanger took on the marketing for a Brazilian poultry processor five years ago. Rains was attracted by the scale and professionalism of the meat industry in Brazil. "I was surprised by the attitude of people in the industry. It’s forward looking and proactive, it’s an exciting place as opposed to Australia where the red meat industry has been in survival mode for a number of years." He also saw an opportunity to minimise risk against of a disease outbreak in Australia by going to a different continent and being involved with a different protein.
"Over recent years the one thing really moving protein prices around the world has been disease," Rains says. "Whether it be mad cow disease in beef, avian influenza in chickens or foot and mouth, disease seems to have a dramatic impact on protein prices all around the world."
While Sanger’s business in Brazil began as a risk strategy, it has proved a "wonderful stepping-stone" for the business. Sanger now supplies McDonald’s around the world with Brazilian chicken. The partnership has also brought in new clients who were nervous about dealing directly with a Brazilian company but trusted the Sanger name.
Sanger works closely with its suppliers to maintain quality assurance, taking customers out to visit the abattoirs and flying suppliers overseas to help them understand customer requirements. "You’re only as good as your last deal, and if these guys mess up you may well stand a chance of losing that customer. We can’t afford to lose any customer on the world stage."
In Korea having an agent on the ground has "really paid dividends", Rains says. "Having an independent person on the ground in the market ensures your product is going to a customer that has the ability to pay for the goods." Rains says anybody can sell meat but not everyone gets paid for it. "We credit insure all of our payments. Not everybody does that and it’s a very expensive process but we live in a very low margin business and we have to take every possible risk out of our business where we can."
Dealing with the dollar
As the dollar rises and Sanger’s biggest markets experience economic turmoil, it has been hard to push up the price of beef. But even in economic turmoil, Rains says the food industry is a good place to be. "Regardless of what people have got in their pocket they’ve still got to eat." In fact, during the Global Financial Crisis people were more likely to buy meat to cook at home. As five-star restaurants struggled, McDonald’s experienced "phenomenal" business. "People still consume the food but the point of where it’s been consumed has changed dramatically."
As the dollar rises, Rains says Sanger is paying less for livestock. "It’s the farmer that cops it in the neck in the end. We can only consume 30 percent of our production in Australia. Seventy percent has to be exported regardless of where the currency is. We have to accept the returns the exchange rate allows us."
Security and profits
As affluence in China grows, Rains believes there is room for dramatic growth in the Asian market. Sanger is also recording growth in Europe, where food production is in decline. "There is a wonderful opportunity for more organic and natural product to feed the world. I see that demand growing and we’d like to grow our presence in that space and grow that part of our business." Sanger already has its own organic beef processing and packaging facility selling predominately to the US and Rains hopes the company will expand into organic lamb this year.
He has a keen interest in food security and the future of agricultural production. "I think the key to feeding the growing population of the world is getting the price right. And we need financial incentive to be able to encourage producers to increase their production." He says it is ludicrous that in agriculture people get excited when prices go up. "It should be a matter of course. Farmer’s inputs go up every year and they need to be better recompensed than what they are currently. We need to be able to increase food prices. If we do that, we’ll be able to feed the world. Or be better placed to feed the world."