The trophy breeding of scarce game, with its scarily high prices, has come in for criticism amid predictions that the bubble will soon burst. Whether this will indeed happen is uncertain. However, there are danger signals that prospective investors in game or any other type of project should heed. These are usually present whenever any enterprise seems too good to be true.
However, there are danger signals that prospective investors in game or any other type of project should heed. These are usually present whenever any enterprise seems too good to be true.
Signal 1: Over-optimistic estimates of returns in trophy breeding
One game sales catalogue claims it is possible to get a 40% return by investing in 10 black impala ewes and a ram at R2,5 million. With a 100% lambing percentage and 0% mortality, it states, 10 lambs can be sold at R100 000 each, a ‘return’ of R1 million.
Definitely too good to be true. Nobody I know manages to achieve a 100% lambing percentage and 0% mortality. A few calls to game farmers gave me the impression that a 50% lambing percentage and 5% or higher mortality rate is nearer to the truth.
The over-estimation of returns is often found in proposed AgriBEE projects. The infamous Vrede dairy project was based on average daily milk production per cow that was higher than the world record. Consultants frequently stroke figures until they obtain a positive bottom line.
Signal 2: Unrealistic returns
The property pyramid schemes that resulted in heavy losses for consumers all promised very high returns. Check the performance figures of the listed companies on the JSE; if the average return on investment of the property sector on the JSE is between 6% and 7%, any company that promises a 25% or higher dividend should be viewed with suspicion.
Signal 3: Altitude sickness and the ‘other fool’ theory
When prices increase sharply, you get a condition similar to the altitude sickness encountered by mountain climbers – a feeling of euphoria and the sense that nothing can go wrong. The ‘other fool’ theory also comes into play. This is based on the premise that
I can pay too much for something as I will find another fool prepared to pay still more for it in future.
All booms have this in common – think of the dot-com boom on the NYSE, the ostrich boom or the exotic game boom. The trouble is that the ‘other fool’ eventually fails to materialise. In the exotic game industry, the end of the boom period is probably not too distant. This does not mean that game farming cannot be lucrative, only that the huge profits of the past are likely to come to an end.
Signal 4: Underestimating costs
The 40% return proposed for an investment in black impalas is only true if all costs are excluded from the calculation. Similarly, farmers who add value to farm produce and sell directly to consumers frequently fall into the trap of underestimating costs. Crate losses, breakages and other costs can quickly add up.
Signal 5: fads and fashions
From time to time, new ‘wonder’ crops are discovered. These become a fad for a while, then disappear. The same is true for the more exotic animals such as Angora rabbits. Farmers soon find the market is very limited.
‘Wonder’ processes, such as improving the digestibility of roughage by treating it with caustic soda, are also frequently discovered. While many of these may work, there are good practical reasons why they are not generally applied.
The lesson, as always, is caveat emptor – let the buyer beware. It is the buyer’s responsibility, in other words, to ensure that the goods are suited to his needs. Modern legislation has changed this somewhat to protect consumers.
But the farmer buying game will have no recourse if his profits fall short of the 40% claimed in the sales catalogue. If it sounds too good to be true, it probably is.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.
This article was originally published in the 27 May 2016 issue of Farmer’s Weekly.