Reuters - Hot on the back of winning lower tariffs for beef exports from its largest buyer Japan, Australia is setting its sights on winning another major prize for its beef industry by persuading China to open its market to live cattle sales.

China's growing middle class seems to have an insatiable hunger for beef, but with limited domestic stock, beef imports are hitting record levels, jumping 40 percent in the past year.

Importing live cattle would not only be a windfall for outback ranchers, but make economic sense for China, with abattoirs there running at only 30 percent of capacity and labour costs around a fifth of wages in Australia, say beef industry firms.

Cattle baron Graeme Acton, Australia's largest rancher and already a major beef exporter to Japan, South Korea and Southeast Asia, has his sights on Asia's expanding market.

"Live cattle would be a highly lucrative market for us...I think it would complement the boxed beef market, which has grown into a massive market for us in just the last year," said Acton, who has around 4 million acres (1.62 million hectares) of grazing land in Queensland state and about 180,000 head of cattle.

China and Australia are keen to finally commence live cattle trading, having seen a 1998 deal fail because of regulatory issues, say Australian officials.

Chinese officials visited Australia in March to discuss live cattle trade issues, and with Australian Prime Minister Tony Abbott in Beijing last week for free trade deal talks, hopes of one day mustering cattle for China are rising.

Abbott secured a free trade deal with Japan last week, which included a reduction in Japanese beef tariffs.

The lucrative prospects of live cattle to China have even attracted Australian mining magnate Andrew 'Twiggy' Forrest, a major iron ore supplier to China.

Forrest, born into a family of cattle ranchers and spending his early years as a "jackaroo" or ranch hand, has partnered with pastoral firm Elders to promote the trade.

Forrest has increased his cattle properties in Western Australia, site of his iron ore mines, to more than 7,000 square km (4349.6 square miles), about a third of the size of Israel.

CATTLE TRAIL TO CHINA

Australia is the world's third-largest beef supplier, after the United States and India, and has been exporting live cattle to neighbouring Indonesia since the early 1990s.

Its drought-resistant Brahman cattle, grazing in the sparse outback in the north of Australia, is the preferred beef for Indonesia's mostly Muslim population, who slaughter cows according to Islamic practice to produce halal meat.

But the dream of cracking the Chinese live trade market has been illusive. Biosecurity concerns, raised by the Chinese delegation in March, are seen as one of the stumbling blocks.

"The Chinese technical delegation were here to discuss some of the health concerns they have...and hopefully we will be able to find a resolution where we can export cattle to China," said Alison Penfold, chief executive of the industry group, Australian Live Export Council.

A deal with China would reduce Australia's dependence on Indonesia. The trade has suffered disruptions over animal cruelty concerns and import curbs by Jakarta as its strives for self-dependency.

It would also benefit Australia's cattle ranchers in the Northern Territory and Western Australia, with the Territory capital Darwin already a live cattle export hub to Asia.

It would also allow access to underutilised feedlots and abattoirs in China, reducing costs for both ranchers, who have to transport cattle vast distances to reach abattoirs, and buyers in China.

"There is a clear benefit for the Chinese to use excess capacity. Their labour costs are still significantly lower in the processing sector than Australia," said Craig Aldous, China-based general manager at Elders Fine Foods, who estimated costs at around at one-fifth of Australian wages.

Liu Chunsheng, sales manager at Fuhua Meat, a beef processor on the outskirts of Beijing, said the firm is currently only using about 40 percent of its capacity, which is still better than most of the industry running as low 30 percent as demand outstrips stagnant domestic production.

Chinese beef imports this year could hit 550,000 tonnes, up nearly 40 percent from last year, the U.S. Department of Agriculture attache in Beijing has forecast.

The Organisation for Economic Co-operation and Development expects beef consumption to become the fastest growing for meat in China, increasing 7 percent per year over the next eight years to an annual consumption of around 850,000 tonnes.

The Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) expects live cattle exports to hit a five-year high of 600,000 head in the 2014/15 season, worth A$600 million ($565 million) to the industry.

Driven mainly by Indonesian demand, ABARES expects live cattle exports to grow steadily, peaking at 875,000 in 2018/19.

Any live cattle deal with China would shake up Australia's exports, but with Australia's largest cattle producing state Queensland in drought, and suffering record stock culls, the full implications would not be until ranchers re-stocked herds.

"Once the drought does break and supplies tighten, the export market is going to be very competitive. It will be interesting to see who is going to pay the most for Australian beef. Is China going to pay more than the U.S. or Japan?" said Matt Costello, Rabobank animal proteins analyst.