ECONOMIC VALUE OF WILDLIFE: captive /semi-extensive selective breeding

Biodiversity Economy Indaba 11-12 November 2013

E.J. Nel - Manager Conservation South African Hunters and Game Conservation

Association

“......I like not to stick my head out, as its like being dead, without any

commitment.........”

“.......If you really want to say something, first find good people to listen to....” (Rousseau

Nel, 2013)

Education

Rehabilitation

Threatened species /ex-situ conservation

Sanctuaries

Research

CAPTIVE BREEDING

Lizanne Nel

Lizanne Nel

Lizanne Nel

Commercial

COMMERCIAL BREEDING

……To achieve competitive success, a business must possess a competitive advantage in the

form of either lower cost or differentiated products that command premium prices….

(Porter, 1985)

Camp breeders Reduce costs

Genetic manipulation for unique colour variations Differentiated product/Reduce costs

COMMERCIAL BREEDING INTENSIVE / SEMI EXTENSIVE

Game meet Differentiated product

Lizanne Nel

Specialist Tourism Differentiated product

Lizanne Nel

High value species / Stud breeding Differentiated product/ Reduce costs

Anthony Bannister

Lizanne Nel

Variation for exhibition Differentiated product

Lizanne Nel

BIODIVERSITY ECONOMY

GREEN ECONOMY - WILDLIFE ECONOMIC COMMODITY

Government ...... biodiversity conservation and economic growth for all

Wildlife Industry ...... economic activities through sustainable use of biodiversity

POVERTY + UNEMPLOYMENT + DEVELOPMENT

ECONOMICS OF COMMERCIAL BREEDING

“Does the intensive/semi-extensive selective breeding of indigenous game contribute to the

GREEN ECONOMY?”

INTENSIVE / SEMI EXTENSIVE

No easy answer......................

“…for achievements that surpass those of ordinary men, we need

foreknowledge…” Genl Sun Tzu 512 BC

NEW PARADIGM

To become free to new solutions and opportunities, we you have to

discover the walls that imprison our thinking and brake free by changing

our paradigms.

“...and learn to speak the right language..”

Nel 2013

EQUITY = ASSETS - LIABILITIES

LANGUAGE: BIODIVERSITY ECONOMICS

GROSS PROFIT = REVENUE - COST OF GOODS

EQUITY = ASSETS - LIABILITIES

GROSS PROFIT = REVENUE - COST OF GOODS

LANGUAGE: BIODIVERSITY ECONOMICS

King III report on Corporate

Governance for South Africa, 2009.

REAL PROFITABILITY

ECONOMIC PROFITS

= SOCIAL +

ENVIRONMENTAL COSTS

-

NEMBA: STATE AS TRUSTEE must exercise continuing supervision over biodiversity with the principle purpose to promote the interests of CURRENT & FUTURE GENERATIONS rather than to redistribute public

goods from broad public uses to restricted private benefit (Blackmore, 2013).

SUSTAINABILITY

IUCN: Sustainability speaks directly to societal and financial

values in terms of the need to protect the future by providing

for the needs of the present while not compromising the

ability of future generations to meet their needs.

Triple bottom line profits

TRIPLE BOTTOM LINE PROFITS INTEGRATED REPORTING

ECONOMIC SOCIAL ENVIRONMENTAL

TURNOVER: GAME SALES SINCE 1992 (Bothma, 2009).

Middle 20th century- no financial value 1949 - SAHGCA established 1965 - 1st auction TVL 1991 - Game Theft Act

2012 GAME AUCTION TRENDS

• 18200 animals traded - R960 M generated

• Most plains game - prices declined

• Colour variants and spits = 6% of animals sold, 16% of turnover or R155 million, 5% growth rate

• RSA buffalo’s – price decreased, bulls biggest decrease (74%), average price of R173 thousand

• East African buffalo’s - tremendous increase (calves selling at R3.6 million), with one cow and calf sold for R20 million (2013 – R40 M)

• Rare species - average price increased: Sable (17% -R270 thousand), Zambian Sable (40%) and Roan (100%)

• Animals of outstanding trophy quality and colour variants - exceptionally high prices

Asset Trend Growth on investment %

White Blesbok ↑ 71

Yellow Blesbok ↑ 446

Golden Gemsbok ↑ 499

Blackback Impala ↑ 130

Black Impala ↑ 49

Black Springbok ↑ 80

Copper Springbok ↑ 48

White Springbok ↑ 19

Golden Gnu ↑ 11

White Kudu ↓ 64

Dr. M Saayman NWU – HI 2012

80% of turnover

CASE STUDY - GAME FARM - LIMPOPO EQUITY = ASSETS - LIABILITIES

GROSS PROFIT = REVENUE - COST OF GOODS

INTENSIVE 10 +

SPECIES (40HA)

EXTENSIVE (30 000

HA) OTHER

OPERATIONAL COSTS

25% 75%

ANNUAL INCOME R154 M

57% (live sales)

41% (live sales)

2% (Hunting + lusern)

COLOUR VARIANTS

1.6%

HIGH VALUE SPP E.G. ROAN & SABLE

4.1% 84% resulting from buffalo

sales

R. Els – Thaba Tholo

CASE STUDY - GAME FARM - LIMPOPO • Camps - less expensive • Smaller property sizes - lower

investment cost • Feeding for Impala R1000 - Impala sold

at R1200, Black Impala at R180 000 • Survival of CV in extensive areas low • CV - niche market • Growth on investment:

Nyala = 85 % Black Impala = 131% Golden gnu = 67 % Sable = 31 %

• Ave growth on investment farm 24y = 11.2%

R. Els – Thaba Tholo

ROI -R40M BUFFALO BULL SCENARIO 1: • The bull sires 40 offspring in two years. • In year 3, 40 sold at 350K each = R14 M (can be as high as 550 – 950K each) • In year 4 and 5 another 40 can be sold. Within 5 years, R42 M can be made. SCENARIO 2: • Buy a stud bull and place with 40 cows. • Year 2 sell 15 cows that has been with the “biggest bull in the world” at R2.5 M each = R37 M • Year 3 – 10 can achieve the same per year. SCENARIO 3: • 10% of the 600 male offspring sired by the champion bull are of trophy quality and sold at between R3 –

R10M each. (60 offspring in 2 years = 300 in 10 year, of which 50% or 150 would be male, of which an estimated 10% would be of trophy quality).

SCENARIO 4: • Year 2 sell 15 offspring at normal prices of 350 – 550K each as well as 15 “pregnant” cows form

the champion bull at R2.5m each. • Sell young male calves at a premium of between R3 – 10 M each. • Within 5 years, an income of approximately R100M can be generated.

Els (pers. com. 2013)

SUMMARY:MARKET TRENDS

SPECIES 2012 AVERAGE GAME

AUCTION PRICES

Blue Wildebeest

Blue R 3 611

Golden R 447 500

Split R 27 891

Springbuck

Normal R 1 562

Black R 4 625

White R 5 486

Copper R 9 917

Blesbok

Normal R 1 347

Yellow R 62 857

White R 2 419

Kudu

Normal R 2 644

White R 136 000

Impala

Normal R 1 167

Black R 237 348

Split R 34 069

Gemsbok

Normal R 5 696

Gold R 381 250

……Game farmers create competitive advantage in the form of either lower

cost (camps) or differentiated products

(color variations /exceptional trophies) that

command premium prices….

SUMMARY:MARKET TRENDS • Significant income potential - game sales

• Investment trust high

• Highest investment growth – unique and rare product offerings (83% ROI)

• Out compete JSE ASI and DJ (Fin Mail, 2013)

• Branding critical – SA compared to East African (Not proudly South African)

DECREASE IN DEMAND

DECREASE IN PRICE

DECREASE IN SUPPLY

• Rhino - reduction in supply lead to increased prices if consistent demand

• As a specific colour variation become more common, prices decrease Ratio White : Normal Blesbok

2003 - 2.4 : 1 2011-1.3 : 1

SUPPLIERS: GAME RANCHERS Dr. G. Dry WRSA – HI 2012

• Approximately 9600 farms

• Conservation benefits: species and habitats (3x more land than formal protected areas)

• 3 – 4 x higher reward compared to agriculture & domestic stock (R220/ha vs R80/ha for stock farming)

• 3 x more staff employed than livestock farms

• Generates foreign exchange - critical for the trade deficit

• Stimulate other industries

• Critical for hunting and eco-tourism and contribute to GREEN ECONOMY

• Adami – Chairman SA Breweries Ltd., Marketing Director : “Bubble will never burst ...always a demand

for superior genetics”

• “Growing middle class in developing markets will ensure increased demand for

wildlife experiences and exceptional specimens” (Adami, 2013)

• Potential negative impacts of intensive selective breeding: biodiversity integrity;

land use and reputation

PRICE INSTABILITY – FINANCIAL RISK

Rational investors will minimize risk by holding portfolios.

TIME

Probability distribution

Color Variants

Common species with existing consumer market

EBIT

High Risk

Low Risk

Hooggendijk, 2011

.........investment operation where past financial performance is used to justify future performance ............. new investors are

enticed by offering higher returns than other investments that are either abnormally high or unusually consistent...........the

perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme...........

CONCERNS: ECONOMIC BUBBLE

...high returns generated through sale of stud

animals to flow of new investors...... Uncertainty about the consumer market

(hunting and tourism) and hunting price of these selectively bred animals bought at

extreme prices.......

Wikkepedia

CONSUMERS • Wildlife Industry generated R7.7 billion - 2012. 70% Hunting.

R5.5B Biltong hunting. R556 M Trophy Hunting (UNW, 2012).

• Hunting experts disagree with “bubble” – depends what hunters are willing to pay (Flack, 2013).

• SAHGCA & CIC do not support hunting of colour variations and selective bred animals.

• 5% of pop worldwide do hunting, smaller % trophies.

• Reputational concerns for Hunting Industry: “put and take” and “trophy integrity”.

“Canned shooting severely damages the image of hunting. Reputation is a function of acceptance. The acceptance of hunting by society at large is of paramount importance for the future of hunting.” National Agricultural Marketing Council – 2007

• Data on real demand lacking – no studies.

• Tourism one of three economic pillars - impacts on product offering.

• WEF on competitiveness of a tourist destinations “....attributes should be unique and authentic. Artificial representation of these attributes will have an impact on the competitiveness of a tourist destination.”

Financial Mail Aug 16-21

PriceWaterHouseCoupers Sustainability Survey 2002

140 U.S. based comp $US 2.5 trillion in annual revenues including 101 Fortune 1000 comp 70% adopted sustainability practises

REPUTATIONAL RISK “Companies that fail to become sustainable — that ignore the risks associated

with ethics, governance and the “triple bottom line” of economic, environmental and social issues — are courting disaster. In today’s world of

immense and instant market reaction, an action or inaction that undermines the integrity, ethics or reputation of a company can lead to immediate and dire

financial consequences.” PWC

If selective breeding of indigenous game for hunting and eco-tourism has a

significant reputational risk, it can compromise the ability of the Industry as a

whole to contribute to the GREEN ECONOMY in the long term as it speaks directly

to societal and financial values in terms of the need to protect the future.

CONCLUSION • The face of the Wildlife Industry has changed.

• Wildlife = economic commodity and selective breeding has the potential for high returns on investment.

• Wildlife Industry did and can a major role in conservation and the GREEN ECONOMY.

• The challenge is converting the value of wildlife resources into positive land use outcomes contributing to biodiversity conservation and economic development in a socially responsible manner that will benefit current and future generations.

• Global Economy - reputation is critical - have to assess activities in terms of “triple bottom line” performance and sustainability.

Is the intensive /semi-extensive selective breeding of indigenous game a sustainable wildlife practise that can contribute to the Green Economy while benefitting current

and future generations?

HOW DOES IT PERFORM I.T.O. TRIPPLE BOTTOM LINE PROFITS? Identify impacts/incentives and develop yard sticks to measure performance.

THANK YOU