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Why does Johann Rupert invest in buffalo?

The most modest performer among rare game beats the JSE.

PRETORIA – Why do heavyweight businessmen like Cyril Ramaphosa and Johann Rupert invest in buffalo? Perhaps because they know investment in game farming can outperform that of property and the JSE All Share Index, says game farmer Johan van der Merwe.

The game industry’s annual turnover has grown from R62 million to R864 million over the last ten years, as measured by game and livestock marketer Vleissentraal’s auctions, and there’s still a lot of potential, says Van der Merwe.

Wiaan van der Linde, owner of Winterhoek, a game farm outside Kimberley and Wildlife Ranching South Africa (WRSA) director, says game farming gives a higher return per hectare than any other farming activity.

“Most people allocate 20-30% of their investment portfolios to riskier investments anyway. They can allocate it to game and expect a return of 28-42%, conservatively speaking he explains.

Higher capital investment is required at first, to buy all the rare game species, such as buffalo, rhino, black impala, sable and Livingstone eland. This creates opportunities for investors who are not farmers, people like Ramaphosa and Rupert. “The new kind of investor will also see to it that we maintain the current high levels of return,” Van der Linde says.
Return on capital

The bulk of the revenue over the last ten years was from rare species (R788 million), but Van der Merwe expects the price of kudu, for example to grow exponentially. “We used to pay R7 000 for a kudu bull, but now they fetch up to R800 000. It is all about the length of the horns.

He breeds rare game and plains game (ie giraffe, kudu, black wildebeest, nyala etc) on his farm between Hoedspruit and Gravelotte in Limpopo. He also won the WRSA biodiversity award last year.

Last year buffalo fetched the highest average price per animal of all the local rare game species at R835 763 and delivered 37% of industry turnover. The same animal would have cost on average R610 550 in 2011 and R424 050 in 2010, says Van der Merwe. The average price is however still far less than the R40 million Johann Rupert recently paid for a Cape buffalo bull.

Roan fetched R208 463 on average last year, as opposed to R116 250 the year before. See graph below.

Source: Johan Van der Merwe

A total of 9 825 plains game and 1 751 rare game were sold last year.

Taking into account the value of the offspring and production cost, Van der Merwe says the annual return on capital employed can be 84.86% per year on nyala, 130% on black impala, breeding with regular impala ewes. Sable is the most modest performer among the rare game with a 31.2% annual return on capital.

In comparison, last year the JSE All Share Index (ALSI) showed a total return with dividends reinvested of 26.68%.

Game breeding also clearly outperforms investment in property, which has a typical return of 10%.

Since 2007 it has outperformed the JSE ALSI and the Dow Jones “and if we include this year we will do even better,” insists Van der Merwe. See the graph below

Source: Johan Van der Merwe

Demand seems to be driven by trophy hunting. Restrictions on hunting in countries like Botswana, Tanzania and Zambia have benefitted the local hunting industry and the rest of Africa is perceived as dangerous. “South Africa and Namibia are the only two destinations seen by hunters to be safe to visit”, Van der Linde says. 

Hans Vermaak, president of the Professional Hunters’ Association of South Africa (Phasa) believes the professional hunting industry has huge potential to grow.

The annual income from international hunters in 2010 was estimated at R557 million. This includes the hunter’s day fees (safari, accommodation, etc), as well as the trophy fees for animals hunted. It excludes the value added by taxidermy, flights, sightseeing activities, rifle import permits etc.

He believes the official number of foreign hunters visiting South Africa is incorrectly pegged at about 5 000 per annum. Information received from exit polls at OR Tambo show that approximately 11 000 foreigners hunted in SA in 2011. Vermaak is convinced that the annual income from international hunters is also vastly understated.

North West University has done a study to quantify the whole value chain and Phasa should publish new stats within a month or two.

In 2010 the largest portion of foreign hunters came from the USA, Spain and Denmark. Source markets also include the UK, Germany, France, Norway and various other countries. The biggest aggregate income per species was for lion followed by white rhino, kudu, nyala, sable and blue wildebeest.

Vermaak emphasises that professional hunting with clients from abroad is a “high value, low impact” industry that has been sustainable since the 1960s and early 70s. Some of his American clients pay $28 000 for a group of five people coming on a ten day-safari, in daily rates only. This has added economic benefits, as many clients extend their stay to other parts of SA.

He says the biggest threat to the industry is animal rights organisations. In 1978 they succeeded in having hunting banned in Kenya and since then Kenya has lost 85% of his wildlife, says Vermaak. “Hunting places a value on wildlife and wild places thus ensuring an incentive to protect wildlife and the habitat. The private sector owns three times more land set aside for wildlife than all of South Africa’s state parks and reserves combined.

A high burden of compliance and the lack of standardised regulations over all nine provinces are challenges, but Phasa is working with government towards centralised systems.

Van der Linde believes financial institutions are missing the boat by not financing game and will wake up to the opportunity one of these days.

“I believe the risk is smaller than what people think. You have to do your homework and make sure that you do business with reliable people. There are good farmers out there and there are more good people in the industry than bad people,” he says.

Membership bodies like WRSA can be a first check point to ensure that a prospective business partner is above board and has a proper track record, says Van der Linde.
Disease and other risks can be mitigated by taking out insurance. “I insure all my animals for one year,” says Van der Merwe.

While breeding game requires capital investment in land and building a herd with critical mass, Van der Merwe says many farmers take investments from outside parties. Even those without the land, skills and knowledge can participate and follow in the footsteps of business giants like Ramaphosa and Rupert and reap handsome benefits.

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