Dr. Flippie Cloete

Flippie Cloete is a senior lecturer in the Department of Agricultural Economics at the University of the Free State. He obtained his PhD in Agricultural Economics at the University of the Free State in 2010. Dr. Cloete’s research focuses on agricultural development and wildlife economics. He has worked on numerous research projects for both national and international stakeholders in the agricultural sector. Dr Cloete sits on a number of steering committees and is a member of several professional organisations. He also sits on the editorial board of two international journals, and is frequently asked to speak and share his expertise at national and international forums.

083 272 0871                                 CloetePC@ufs.ac.za                            www.ufs.ac.za

 


It is well known that for the past decade most of the growth and development of the wildlife industry was primarily driven by the breeding and live trade segment. Although the industry experienced a growth rate that was second to none, it is not entirely different to what was witnessed in the past.

During the ’90s the industry exploded on the back of the economic and ecological benefits that were realised through the consumptive and non-consumptive utilization of plains game species. To a degree, the same happened in terms of the latest growth spur instigated by the breeding and live trade of specifically higher value and colour and/or morphological variants. The extent to which the market responded and the subsequent prices paved the way for what is referred to by many as an economic bubble.

The question that comes to mind is whether history isn’t just repeating itself. Looking back at the first few years of the twenty-first century, a definite investment cooldown period in terms of consumptive based wildlife endeavors was visible. The outcome hereof was stagnation and in some instances a decline in the prices of plains game species. Did it mean the hunting or rather the plains game bubble had burst during this period? Supposedly the answer will depend on each and everyone’s own definition of an economic bubble.

Looking at it from a theoretical perspective, and without going into any great detail, an economic bubble refers to a situation where asset prices rapidly increase only to be followed by a slowdown. The breed and live trade bubble has arguably burst and most probably not for the first time. Although not nearly to the same extent, an almost similar situation was visible in terms of plains game species at the beginning of the century.

It is doubtful whether the burst or recent decline in price created any irrecoverable damage. It surely did result in significant financial losses for many. In the aftermath many will continue to feel the financial strains as a result of the lower prices. The extraordinary prices are probably something of the past, and it is highly unlikely that prices will recover or even get close to the price levels that were witnessed in 2013 and the beginning of 2014.

The focus has clearly shifted towards quality with exceptional animals still fetching exceptional prices. It is likely, though, that even these animals will follow a similar price trend over time with a negative relationship that exist between quantity and price.

The developments of the past 18 plus months are a clear reflection of an industry that’s riding the wave of sound economic principles of supply and demand. The latter was and will continue to be influenced by an array of factors, both internal and external. Amongst these factors are the political, economic and climatic conditions.

Although climatic conditions improved remarkably over the past few months, the prospect of a positive turnaround in terms of the political and economic climate remains bleak. The geopolitical situation in South Africa has just been ranked as one of the top global risks for 20171 – something that does not boast well for investor confidence, economic growth and/or regional stability.

Even with a positive turnaround in the political and economic climate, prices are unlikely to recover to similar – or even close to – the levels of the past. One of the main reasons is that the supply base is continuously expanding as more and more animals are being bred. This is clearly and indication that business as usual will not suffice. The industry in its totality is probably on the verge of a new era – a time for new innovative ideas and developments that will drive the industry to new heights and, by doing so, ensure that what has been created in the past remains a financially viable alternative for established ranchers and new entrants alike in future.

In the mist of it all, it should be acknowledge that the majority of the higher value and even colour and/or morphological variants are still fetching reasonable to remarkable prices. The latter still makes it a noteworthy investment opportunity that has the ability to yield financial returns that are superior to most if not all other agricultural related investment opportunities. Interest in terms of the breeding of these animals will most certainly remain. Many farmers and investors are in the process of either expanding and/or improving the quality of their herds. The demand from new entrants is subdued, and understandably so, given the recent decline in prices. There is clearly uncertainty, especially among those individuals/entities that are not familiar with the breeding and live trade segment of the industry.

Expectations are that much of the focus of the industry will be redirected towards the consumptive pillars in an attempt to ensure the sustainability of the industry in its entirety. The success to which role players will be able to re-establish South Africa as one of the main and foremost hunting destinations coupled with the development of alternative consumptive markets, lies at the heart of the future – not only in terms of live breeding and trade, but for all the different segments of the industry.

Investor confidence that was lost over the past season or two can be recovered. Price stabilisation, among other, will contribute towards renewed investor confidence in the years to come. Game animals have the ability to reproduce and are therefore one of only a few ‘assets’ which can yield a positive return notwithstanding a decline in price.

None of these different segments function in isolation. Live breeding and trade are integral to the success of other segments, and vice versa. Development and growth in other segments will continue to stimulate the demand for live game animals. Although it is unlikely to yield a similar reaction and subsequent prices to what we saw in the past, it will go a long way in terms of offsetting the impact of an increase in supply, and by doing so contribute towards much needed price stabilisation.

Sources

1Eurasia Group (2017). Top risk 2017; The Geopolitical Recession. Available from www.eurasiagroup.net.

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