SA’s wildlife industry: the bubble that burst

The spectacular growth and subsequent drop in game prices demonstrate all the properties of an economic ‘bubble’.

Global farming - Dr Koos Coetzee

One of the best-known examples of a bubble occurred in the Netherlands in the early 1600s.

A Dutch botanist brought a number of tulip bulbs from Constantinople and planted these in his garden. Struck by how beautiful the flowers were, neighbours stole and sold some of the tulip bulbs.

The tulip trade grew rapidly and soon a futures exchange was established. The price of tulips rose to dizzy heights.

The bubble finally burst when a seller arranged a big purchase with a buyer, who then failed to show up. Prices dropped suddenly, with dire consequences for the traders.

In the late 1990s, Internet and technology-based companies suddenly became the flavour of the month. If a company had a website that ended in ‘dotcom’, shares in that company traded at increasing prices.

Soon, share prices reached a level at which investors began to worry whether it was possible for prices to increase further. Panic set in, the easy capital disappeared, and by the end of 2001, a large number of the dotcom companies had folded.

How a bubble develops
According to economist Hyman Minsky, there are five stages in the development of a bubble:

  • Displacement. This is when investors take notice of a new product, technology or financial property that provides huge returns and displaces other investments.
  • Boom. A stampede to get in on the investment results in very rapid price increases
  • Euphoria. Everybody thinks that prices will continue increasing. The ‘Greater Fool’ theory kicks in: investors realise they are paying too much for assets, but are confident they’ll find a greater fool than themselves who will buy the assets from them at higher prices.
  • Profit-taking. Realistic analysts realise that prices have peaked, and sell their assets before the bubble bursts.
  • Panic. Prices drop as quickly as they increased. Investors start selling at whatever prices they can get.

Collapse in SA wildlife prices
A look at the prices of colour-variant and trophy game prices clearly shows how this bubble developed and how it burst in the South African wildlife sector.

In 2013, golden wildebeest were selling at R571 000/head. Prices increased to more than R1 million in 2015, and then dropped to R10 000 in 2018.

The same happened with trophy game such as kudu. When prices dropped from 2015 to 2016, game farmers and game auctioneers were quick to explain that the decrease was only temporary. As prices decreased further during 2017 and 2018, the fact that it was a bubble finally hit home amongst everyone involved.

A recent Sunday newspaper article explained that there was hope for the game industry. However, the unlucky farmers who paid over a million rand for a colour variant animal will still suffer a great loss when that animal is sold for only R17 000. In many cases, farmers, and especially those who climbed on the colour wagon too late, will never recover.

Identifying a bubble before it’s too late
There are a couple of warning signs that indicate the possibility of a bubble forming. Firstly, if prices increase to levels that seem unrealistic, they probably are unrealistic.

Secondly, if everyone is talking about how fast prices are increasing and how high they are, it shows that people are growing uncomfortable with the current level of prices.

The high prices paid in a bubble are largely the result of high demand chasing a weak supply.

As soon as supply increases and demand stabilises, prices return to levels more closely aligned with the real value of the product.