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Plains game, colour variants and strange species Agricultural Outlook 2015 - FLIPPIE CLOETE (AgTag)

Black and saddleback impala

The past economic performance of the wildlife ranching sector divides the industry into different phases, the first being the 'wildlife ranching establishment phase' from 1991 to around 2000. During this phase, the industry prospered on the back of economic and ecological advantages being realised from ranching with plains wildlife on large areas. The value of plains wildlife continued to increase because of a strong demand to stock new wildlife ranches on land previously used for the often marginal production of domesticated livestock.

During this period, the surface area used for wildlife ranching increased at a mean rate of 5,6% per annum. This phase peaked around mid-2000, when new land for wildlife production became increasingly scarce. In addition, the relatively strong exchange rate, the increase in marketing costs, increased competition within South Africa and between South Africa and its neighbouring countries, the global economic slowdown and the slow recovery since, especially in developed countries, contributed towards a general decline in the demand for plains wildlife. This has caused a sideways movement of the weighted average real auction prices and consequently lower economic performance.

In retrospect, it is clear that some wildlife ranchers experienced a cost-price squeeze during the largest part of 2000. This was created by lower profitability when input inflation/prices continued to increase, while output prices or the value of most plains wildlife remained unchanged in real terms. This was especially the case where business models had been based purely on the consumptive and non-consumptive utilisation of plains wildlife.

In many cases this signalled a move towards the intensive production of rare wildlife in smaller enclosures and away from wildlife ranching, which deals with free-ranging wildlife in large spaces. In other words, several wildlife ranchers shifted their focus from ranching to farming in a quest to remain financially sustainable during the mid-90s to late 2000 The continued shift towards intensive breeding of high-value wildlife has resulted in an ever-increasing demand for these animals. This caused price increases, which significantly improved the economic benefits associated with the breeding of these animals.

The current financial returns for some wildlife are undoubtedly also coupled with other developments such as improved levels of knowledge, breeding practices, translocation techniques, capturing techniques, transportation, information flows, auction systems, and leadership, all of which contribute towards investor confidence.

This confidence ultimately reflects the resilience of markets in the live wildlife trade, breeding and trophy hunting of high-value wildlife. It is clear that the drivers in the industry have changed from economic and ecological benefits through the production of plains wildlife (1991 to mid-2000), to the current financial benefits resulting from intensive breeding of high-value wildlife.

The medium-term prospects for the breeding of high-value species remains positive. The supply of many high-value species, based on the data obtained from formal auctions, has stabilised since 2010/11. It should, however, be noted that only an estimated 10 to 20% of all live animals are traded through the formal auction system. Although this is a very small percentage, the statistics are deemed appropriate to draw meaningful conclusions in terms of price and/or market trends.

Considering the available data, it can be argued that the industry or breeders of high-value species are currently in a herd-building phase. Moreover, when one considers the 'rough estimates' in terms of the numbers of high-value species in South Africa, both owned by private ranchers and state-owned conservancies, it is unlikely that the market will be saturated from a supply-side perspective over the medium term.

The demand for these species is likely to continue to grow because of the following:

  • Improvement of the financial performance of ranching practices associated with plains game species, which enables wildlife ranchers to diversify their ranching operations to include the breeding of high-value species. This improvement could be ascribed to factors such as the weakening of the exchange rate, change in the foot-and-mouth status, which presented trading opportunities with Namibia, closing of the hunting industry in Botswana, and development and growth in terms of the breeding of colour and morphological variants. It is estimated that a mere 3 000 out of the at least 10 000 exempted game ranch owners own high-value species – which highlights the potential for expansion.
  • Initiatives such as the listing of selected high-value species on the JSE, the export of species and the reintroduction of these animals to parks in other African countries like Senegal.
  • The ever-increasing cost-price squeeze situation that traditional livestock and crop farmers find themselves in, i.e. farming requisites increase at a faster rate compared to producer prices since 2009. As a result, the debt to asset ratio for most farmers has worsened significantly since 2009. In the past, the main strategy to survive the cost-price squeeze was to become more productive by improving efficiency through the use of technology, value-adding and economies of scale. To a large extent, this implied that farming units continued and will continue to grow in scale. However, in the light of the continued cost-price squeeze situation and as a result of the weakening of farmers' debt to asset ratio (solvability), it can be argued that farmers are running out of security. This reduces their ability to continue with the strategies of the past. It is already evident that farmers, both traditional livestock and crop producers, are considering high-value wildlife in an attempt to overcome their financial challenges and thus remain viable. In other words, the strategy of many farmers is changing from "bigger is better" to "higher value per hectare". This has reached the point where certain agribusiness is promulgating the breeding of high-value wildlife as a profitable alternative or farming enterprise.
  • The prospect of continued "exceptional financial performance", which will continue to attract corporate investments from both local and international investors alike. There is currently a notable international interest in terms of investments in high-value wildlife. These include interested parties/ investors from the East, Russia, Europe, USA, UK and UAE. For example, investors from the East are in the process of buying land and converting these to wildlife operations in the Eastern Cape; a specific wildlife ranching/investment group in the Limpopo received R800 million from investors in the UAE, half of which will be invested into high-value wildlife; investors from the UK are in the process of buying R150 million worth of disease-free buffalo in the Eastern Cape, etc. In addition, the introduction of insurance was central in the development of high-value wildlife as a "corporate investment alternative". Similarly, developments in terms of DNA will reduce invest-ment uncertainty and could also have a positive impact on demand, although not to the same extent as insurance.
  • The land reform initiatives/model of Wildlife Ranching South Africa (WRSA), which presents a highly profitable option that can be pursued on small pieces of land. One of the unspoken reasons why land reform initiatives in South Africa have previously been unsuccessful, is because of the low profitability of traditional agriculture, which relates back to the cost-price squeeze situation these farmers find themselves in. The ability to breed high-value wildlife on smaller pieces of land (from a land reform perspective) is likely to have a significant impact on demand for high-value wildlife in the future.

With the above-mentioned in mind, it may be argued that the high-value wildlife market is in a middle-late bull market, when expressed in financial terms. In other words, although the price movement of most species may still be positive, it will not be as significant compared to the past five years. When considering that the market for high-value species reflected similar characteristics of a so-called early-middle bull market for almost a decade, it is impossible to predict how long it will remain in the middle-late bull market.

What is probably most important, is to realise that an investment in high-value wildlife is unique in the sense that the 'asset' has the ability to reproduce. In other words, a positive return on investment can be realised despite a decline in the value of the assets. Therefore the prospect of a possible decline in the value of certain species over time may not be as detrimental to the industry as many perceived it to be. Farmers will continue to fully or partly convert to include these animals in their production systems, as long as they make more money compared to other agricultural-related activities. Similarly, as long as high-value wildlife beats the returns of other investment opportunities, corporate investors will continue to consider wildlife.

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