June 6, 2018
“Personally, I’m thinking about number 10,000. A lot of people would say I’m dreaming. Well, they’d be right. I’ve been dreaming all my life, and I’m sure as hell not going to stop now.” – Ray Kroc
When Ray Kroc wrote the above statement in his 1977 biography, Grinding It Out, the McDonald’s Corporation was about to build its 5,000th restaurant. Today, there are almost 37,000 McDonald’s restaurants worldwide.
Developing a scalable business model is perhaps the greatest single factor in determining the growth of a company. It is also very difficult to replicate success in any business, without processes or systems.
Typically, this has been difficult to achieve in agriculture, due to the wedded nature of food production to the land, and the individualism of family owned farms.
However, in recent years, one of the common “feeding the world” clichés mentioned at almost every agricultural conference is, “we’ve got to produce as much food in the next 40 years as we have done in the past 10,000.” If this is indeed the case, scalable agricultural systems will be required.
The Importance of Systems
It is the business mentality that built McDonald’s and the Ford motor car company that is lacking in midstream agriculture.
Aside from the fortuitous timing of Henry Ford and Ray Kroc’s business ventures, both companies worked hard to develop consistent processes and systems. It was their systems approach to the production of affordable motor cars and fast food that ultimately enabled both firms to become highly successful.
SAS has taken a systems approach to dairy and beef production. The SAS System has been designed to be manageable and scalable.
Scalable, Not Large Scale
We believe the future of livestock agriculture lies in scalable farming, not large-scale farming.
As concerns over resource use, environmental impact, and animal welfare mount, it will become increasingly difficult to modify the mega-farm concept to meet these challenges.
The SAS System is a modular concept. Instead of expanding the size of an agricultural operation, SAS simply develops additional independent dairy and beef production “modules”.
Concentrated animal feeding operations (CAFOs) not only concentrate livestock, they also concentrate disease risk, resource use and manure.
In the unfortunate event of a cattle disease outbreak, the SAS System modular concept limits the disruption this would cause to the food supply chain and farm business viability.
For example, if a CAFO of 10,000 cows contracted foot-and-mouth disease (FMD), a complete herd cull may be ordered by the national animal health authority. The economic and food supply impact of this decision would be significant.
However, if 20 individual SAS Systems were in operation, and one contracted FMD, the other 19 continue to produce and generate income.
Risk mitigation is an important element of the SAS System. By operating multiple individual, high biosecurity production units, exposure to the following is greatly reduced:
- Disease outbreak
- Fire and water damage
- Regional crises (political, economic, social)
- Localised resource scarcity
- Supply chain disruption
- Total business failure
Once each new SAS System is commissioned, no other cattle will enter the unit. Operating a closed herd is a fundamental aspect of preventing disease outbreaks. The closed loop production system also guarantees traceability – cattle are born and raised on the SAS System before entering the food chain.
The modular SAS System also facilitates rapid and efficient scaling of an agri-development well into the future. An agricultural investor may choose to begin with five SAS Systems, and then develop five more several years later. This reduces start-up capital requirement, business risk, and enables the local market for fresh milk and beef to develop in line with supply.
Perishable food products, such as fresh milk, must be produced close to consumer markets.
As explained by Julian Cribb, “Cities rely entirely on a river of trucks that come in every night to restock the shops. If there is a big fuel crisis or a war, you’re going to see cities of 10 or 20 million people starving.”
The concentration of so many people in resource restricted countries requires unique food producing solutions. The SAS System can operate close to urban centres owing to its small physical footprint and benign environmental impact.
Reducing food miles, supply chain length and food waste is going to become increasingly important as the global food challenge mounts. It is estimated that approximately one third of the food produced in the world for human consumption every year gets wasted.
The SAS System is about producing the right product, the right way, in the right location. How food is produced; its nutritional value; and where it is produced, is just as, if not more important, than simply increasing global food output.
The SAS System turns the global food trade model on its head. Instead of exporting dairy and beef products to overseas markets, SAS exports the bovine production facility. We move the point of production to the point of consumption. This enables sovereign states to improve their domestic food self-sufficiency.
Many Western agricultural commentators are mindful of China’s resource scarcity. They tend to conclude that because of this, China has no option other than to import food products – especially animal protein – from agricultural exporting nations.
However, this assumption ignores two very important factors:
- China’s mercantilist policies
- Technological progress and innovation in agriculture
China’s buying of strategic agricultural assets (land, but also food companies and joint ventures) in Western countries (USA, Australia and NZ) and in less developed continents (South America and Africa) enable China to outsource its food production to Chinese owned and/or controlled overseas agricultural operations.
This should be cause for concern for any non-Chinese owned and operated agri-food companies hoping to cash in on Chinese demand for their products. Allowing imports to displace food produced domestically or from Chinese owned overseas companies negatively affects the country’s balance of trade.
China’s desire to produce her own food domestically is illustrated by the following two statements.
The Chinese Agricultural Minister Han Changfu has said, “A country with 1.4 billion people cannot afford not to have a dairy industry. We have no reason to give up this massive market and hand it over to others.”
Furthermore, in 2013 President Xi Jinping, when discussing food policy with rural officials, told them, “Our rice bowl should be mainly loaded with Chinese food.”
Clearly, the direction China wishes to head is at loggerheads with the Western agricultural exporting countries assumptions that China will buy their food products.
Many countries, not just China, wish to reduce their reliance on imported food by producing more of their own food “in-country.”
One of China’s greatest challenges is how to feed 20% of the world’s population with just 8% of the earth’s arable land and with little more than 6% of the world’s fresh water. It is for this reason that many incumbent agricultural related businesses think China will have to buy their food products. Indeed, for many high value food products this is likely to be the case.
However, this seemingly insurmountable problem can be overcome with technological progress, innovation in agriculture, and strategic cross-border collaboration.
The SAS System provides a solution to the challenges facing China’s domestic dairy industry.
These key challenges are:
- Environmental pollution
- Inadequate supply of quality feed
- Mediocre farm economic returns
- Consumer food safety concerns
- Shortage of farm management expertise
- Poor soil health
- Low cow productivity
The SAS System will make bovine agriculture in resource restricted countries sustainable. Currently, the outdated 20th century American mega-farm model has been deployed in China in an attempt to meet domestic demand for milk.
However, this has led to problems with water quality, manure storage and disposal, as well as logistical challenges.
Most of China’s large-scale dairy operations are found in the more arid northern parts of the country. Two-thirds of the country’s cropland is in the north, but only 20% of the country's water can be found there. Also, less than half the population lives in Northern China. This means that milk must be transported significant distances to reach consumers in the southern coastal cities.
The SAS System will be capable of operating in Southern China. Most of the country’s water is available in the south, principally provided by the vast Yangtze River. The higher rainfall in the south also increases rainwater harvesting opportunities. The increased humidity negatively affects dairy cow performance, but the “tropical model” SAS System will utilise cooling technology to maintain a temperature-controlled environment.
Because the SAS System processes cattle effluent into clean water, separated manure solids, and concentrated liquid nutrients, there is no need to spread thousands of tonnes of raw cattle manure over vast areas of cropland. Having the ability to recycle the water contained in livestock waste reduces manure volumes by more than 80%.
The remaining manure solids are then used to produce humus compost – a product that looks and feels very similar to healthy topsoil. This fantastic soil improver can then be sold to small-scale urban and rural crop growers as a natural alternative to synthetic fertilisers.
Therefore, the only real restriction limiting the growth of turnkey SAS Systems in China and other South East Asian countries is livestock feed.
Outsourcing Feed Production
China puts a priority on reserving her finite arable land to produce human food crops. This means much of the country’s livestock feed must be imported.
Currently, Asia imports grain commodities, such as soya and corn, from South and North America. Many of the US-style industrial dairy units operating in China also import expensive high-quality alfalfa hay from America.
However, under the SAS System, the feed outsourcing model offers a lower cost and more reliable livestock feed alternative for dairy and beef production units operating in the Asia region.
Although still in its infancy, the Belt and Road Initiative (BRI) is going to be a real gamechanger for global food production.
A grain supply route connecting Russia and former Soviet bloc countries with China and South East Asia will enable China and other Asian countries to reduce their reliance on livestock feed imported from the Americas.
Russia and Ukraine are major exporters of barley grain. If BRI infrastructure developments can facilitate the transport of this grain into China and South East Asia, there really is no technical limit on the number of SAS Systems that can be developed in this region of the world.
SAS System Demand
In recent years, Australian agricultural companies have experimented with the air transport of live cattle into China. These are not breeding animals, but prime beef cattle destined for the abattoir.
Because of China’s soaring demand for fresh beef, regulations require that imported animals are slaughtered close to their point of entry. Therefore, air freighting has been trialled as a means of supplying fresh beef to China’s booming inland cities.
Other livestock exporting companies have been ordering specially designed ships (at a cost of AUD $80 million each) capable of transporting Australian livestock on voyages to China.
In addition to live cattle import, fresh milk produced on Chinese owned Tasmanian dairy farms had been planned to be air freighted to select Chinese cities. The company behind this venture planned on selling the milk for between AUD $10 – $15/litre. For comparison, fresh milk in the UK retails between £0.48 – £0.71/litre. However, this initiative is yet to materialise, almost two years after the plans were announced.
Clearly, China and other ASEAN countries need innovative dairy and beef production systems. The ability of the SAS System to work in-country (supported by BRI grain transport developments) offers a much more viable alternative to the outdated industrial mega-farms and expensive fresh food importation strategies being deployed currently.