Agricultural outlook: Game

Absa Agricultural Outlook 2017 - Dr Flippie Cloete, North West University

January 2017

Following almost a decade of unprecedented growth, the live trade segment of the wildlife industry in South Africa finds itself in somewhat uncharted territory. It is clear from recent developments that the segment does not function in isolation and, like all other agricultural commodities, is affected by both internal and external factors at play. The negative price movement of the past couple of months are often laid at the door of the current unfavourable economic climate and subdued economic growth, and rightfully so. However, laying it all at the door of a struggling economy may be an oversimplification of a far more complex situation that is likely to continue to impact on game prices in the foreseeable future.

Looking back, the current market trends actually started at the beginning of 2015 with the prices of certain species doubling overnight. These prices attracted widespread interest, and many people started to question whether they could be sustained. This, coupled with the seasonal price adjustment that followed during the winter months of 2015, laid the foundation for the uncertain investment sentiment that developed. What transpired was a bidirectional relationship between uncertainties and declining prices, i.e. the emergence of an uncertain investment sentiment that led to lower demand and subsequently lower prices on the one hand, and the continued decline of prices, which fuelled uncertainty on the other.

In the same way, negative developments in the broader political, economic and legislative environment leading up to the municipal election in 2016, contributed towards lower levels of business and investor confidence. Not much has since changed, signs of a feud between the President and the Minister of Finance have reappeared; and questions remained unanswered as far as 'Guptagate' and the capture of state resources and business are concerned. Uncertainty is growing following the decision of Futuregrowth to stop any advancement of money to some of the largest state-owned companies in the midst of what appears to be a political battle for power over these companies, and uncertainty remains in terms of policy directives as far as land reform is concerned.

In addition to the uncertain market/investment sentiment in the wildlife and broader economy, the industry was also hard hit by the negative financial effects of what is described as one of the most severe droughts in centuries. However, all is not doom and gloom - the weather prospects for the coming season seem to be better. Good rains would not only contribute towards a much-needed positive sentiment in the agricultural sector, but could also be fundamental in terms of support to the general economy. The same goes for the most recent political developments, where the power in most of the major metropoles shifted away from the ruling party. Effective and efficient service delivery, coupled with the elimination of fraud and corruption, could well send out a message that could be helpful in terms of regaining some of the investment confidence lost over the past year or so.

Prices

The general decline in prices over the past year is, however, not only the result of demand being under pressure. Auction statistics clearly present a picture of increased quantities being offered for sale at formal auctions. In other words, the breeding segment of the wildlife industry is facing uncharted territory in that price pressure is being instigated from both the demand and supply side at the same time. Never in the history of this fairly young industry has a similar situation been witnessed - at least not to the same extent. This is the result of a combination of financial, economic, political and legislative factors that exerted pressure on demand, while supply at the same time started to increase.

With the above in mind, live game prices are expected to remain under pressure. Figure 1 presents a monthly forecast in terms of the numbers and prices for colour variants, specifically females or breeding herds, to be sold on auction. It should be noted that the volumes and prices, both historic and forecast, are index-based, i.e. the numbers and prices are not representative of one specific species but a group of species. The colour variant index consists of black impala and golden blue wildebeest. The lower market price and subsequent profitability, the uncertain market/investment sentiment and higher population growth rates on the back of growing breeding stocks and intensive breeding practices, are all factors which will likely contribute towards an increase in the number of animals offered to be auctioned. With supply that is expected to increase and demand that is likely to remain under pressure, prices for most colour variants are likely to continue along its weakening path (Figure 1).

A similar trend is expected in terms of higher-value species, especially female animals. Prices are likely to continue along the weakening path of the past couple of months. Again, lower profitability, larger breeding stocks and an uncertain market/investment sentiment are among the factors that will contribute towards both demand and supply pressure (Figure 2).

A slightly different trend is expected in terms of higher-value males. Animals such as sable antelope and disease-free African buffalo remain among the most sought-after trophies around the world. Besides, the recent developments in the live game trade segment have instigated renewed energy and efforts into the 'revitalisation' of the hunting industry in South Africa. The focus of the industry over the past decade was primarily on the breeding and live sales of game animals and as a result, a significant amount of South Africa's international market share (in terms of the number of overseas hunters) was lost to Namibia. However, South Africa remains one of the most sought-after hunting destinations in the world and with the renewed focus on regaining the momentum of the past, growth is imminent.

This, coupled with the expectations of a relatively weak exchange rate and improved environmental conditions could well support the demand for these animals. On the other hand, supply is expected to increase on the back of larger breeding stocks. Consequently, prices are expected to remain at or close to current levels in the coming months.

The prices of intermediate species, such as nyala, are also expected to remain under pressure (Figure 3). Again, an uncertain market/investment sentiment, increased supply and higher feed or production cost will be the main factors that will negatively impact on the price of these animals.

The effects of the drought and the softening of the colour variant market was clearly visible in the prices of most plains game species during the middle to latter parts of 2016. However, improved environmental conditions are expected for 2017 and although it will bring much needed relief, the impact is only likely to become more visible towards the latter parts of 2017. Figure 4 presents a monthly forecast in terms of the number and prices for smaller plains game species, specifically females or breeding herds. In general, supply is expected to increase with prices that are likely to stabilise at or close to current levels. A similar trend is expected in terms of the prices for larger plains game female animals when compared to those of small plains game female animals (Figure 5). Similar to smaller plains game, the drought and softening of the colour variant market were foremost among the factors that had a negative impact on the average prices of these animals in 2016. Supply is expected to continue along the positive path with prices stabilising close to or at current levels.

The prices for both smaller and larger plains game male animals are also expected to remain at or close to current levels. Although renewed efforts at revitalising the hunting industry, a weaker exchange rate and improved climatic conditions could stimulate demand for these animals, an increase in supply on the back of larger breeding stocks will most likely offset any positive price movements in the months to come.

Game meat

Other segments of the wildlife industry such as the game meat segment have received a lot of attention over the past year. Exploiting the opportunities presented by game meat is most probably the key in terms of new market development and/or expansion in the quest to ensure the continuous growth and sustainability of the game-ranching industry in South Africa.

Although a notable percentage of the red meat consumed in South Africa is game meat, the market is largely undeveloped and many consumers consume game meat unknowingly. Future growth expectations rely heavily on developments in terms of game meat. At the same time, cohesive growth and development will be central in terms of ensuring the sustainability of the industry in future. The different segments of the game-ranching industry cannot function in isolation. Unlike in the past, future success will depend on how successful the industry could grow the different segments proportionally to each other. The latter will require that future growth and development be guided by the principles of long-term sustainability and not by potential short-term gains that may be at the expense of other segments in the industry.

Game ranching in South Africa is unique, not only in terms of species diversity, but also in terms of our institutional environment, i.e. South Africa is one of only a few countries in the world where ownership of wildlife is vested in private landowners, which presents game ranchers with a comparative advantage second to none - there is no reason why game ranching cannot become or remain one of the leading agricultural land use options in years to come.

With the above in mind, the growth potential of the industry is ample; however, it will be difficult to sustain the robust growth rates of the past. The industry is likely to report a more moderate growth rate in the years to come.