Poor profit margins in the live cattle export trade have convinced farm services business, Elders, to quit its live shipping operations.
Elders, a pioneer in the export of breeder cattle and stock for processing in Asia, has confirmed it has immediately halted its long haul live export business to China and is selling its short haul shipping operation, and its sheep and cattle air freight service.
The “managed divestment” will sell the short haul and air freight business as a going concern.
Elders managing director, Mark Allison, said a comprehensive review of the company’s live export business had decided the “poor margins and capital inefficiency in the long haul business warrants an immediate cessation of that business”.
“While we continue to support our clients who participate in the live export industry, the export, logistics and shipping of live cattle to long haul destinations is no longer central to Elders’ strategy,” he said.
Elders reported a $2.9m loss in its live export division in the first six months of 2015-16, including $3.8m lost by its long haul business.
Other key live export players include big cattle shipper Wellards, and farm services player Ruralco have both reported a dramatic drop in revenue from the trade, partly because of the soaring cost of sourcing livestock in Australia in the past year.
Most of Elders’ long haul business currently involves sea shipments of dairy and beef breeder cattle to China.
“That business is not producing a return on capital or margins at levels that meets Elders’, or its shareholders’, expectations,” Mr Allison said.
Elders’ short haul business, the North Australian Cattle Company, involves buying and sea freighting live feeder and slaughter cattle to Indonesia, Vietnam and Malaysia.
Elders’ air freight business freights live breeder sheep and slaughter cattle to China.
The exit decision will result in restructuring costs totalling around $6m, but the company expects to gain about $25m in working capital it can deploy elsewhere in the business when the process is finalised.
Elders has also tipped it will report an underlying pre-tax earnings for 2015-16 of $54-$57m after adjusting for non-recurring restructure and exit costs and accounting for current good seasonal conditions across its rural marketplace.
Mr Allison said Elders became active in developing its live export activities demand for live cattle from foreign markets provided key marketing options for the company’s producer client base.
However, with the introduction of additional specialist providers in the live export services business - many of which Elders had commercial relationships - meant the strategic rationale for the company retaining its own long haul live export business has diminished.
Mr Allison said the company believed its participation in live export no longer lay in the logistics of shipping live animals.
Elders’ strategic and operational strengths in the live export supply chain were in finding opportunities with live exporters for its producer clients and accumulation of cattle for exporters.
Elders was a pioneer in the live export of cattle from Australia to Asia.
Its live export business was established to drive demand for cattle produced by Elders’ livestock clients.
Today the live export business had matured and there were now many specialist operators offering access to Asian markets.