When in doubt, buy a cow

Looking at the investment proposition behind crowd-farming platform Livestock Wealth.

Livestock Wealth is a crowd-farming investment platform, which allows people to own cattle without having the land, staff or the know-how to be a cattle farmer. Founder Ntuthuko Shezi says he started the company because conventional investment products, like shares and unit trusts, were too complicated and often too intimidating for the common person to understand.

“My personal frustration in trying to invest in the stock market, and choose which shares were the best, got me thinking…” says Shezi, adding that “before money was in coin and paper form, cows were the store of wealth”.

For R10 495, potential investors can buy their cows online, or through a mobile application, and Livestock Wealth manages the cattle like an investment portfolio, for a monthly service fee of R295. Once a cow gives birth, its offspring is yours and you get the proceeds when the seven-month old calf, or weaner as it is more appropriately called, is sold. That income is akin to a dividend and ranges from R4 000 to R5 000, depending on the prevailing rand per kilo price of weaners in the beef market. However, with the added R100 insurance fee, if the cow dies or is stolen, the investment is protected. Paying R394 over 12 months means you would need to sell your weaner at R4 728 just to break-even.

Says Shezi: “We know that, with insurance, there won’t be much of a return in the next couple of years. That’s because the insurers have charged us quite heavily on that front. But we do hope to get that down to about R40 or R50 once we start to have a bigger herd. We also want to bring the price of the cows and monthly fees down.”

Without insurance, he says you can earn a return of about 8% which, given the inflation outlook over the coming years, is a real return of 2-3%.

“The return on capital of beef farming in general is fairly low,” says Ernst Janovsky, senior agricultural economist at Absa Agribusiness. “I would say it’s about a 4-6% [return] in the long run.”

However, it is a nice asset class to be exposed to; it is anti-cyclical – cows are sold during downturns to bring in cash – and, as soon as prices become favourable, people avoid selling to create an artificial shortage, driving beef prices up further. Also, the drop in the value of the rand has made beef more appealing as an export.

Says Janovsky: “There has been a change in the beef industry globally whereby, even with higher production volumes –  like the current environment in which there is increased slaughtering because of the drought – you would expect prices to start coming down, but they are holding firmly. And that’s because China has gone from being a net exporter to being a net importer of beef. And that’s been growing since 2012.”

Risky business

The problem with investing in capital is that there are added risks, like drought and disease, that can wipe out your entire investment. Things can go very bad very quickly, as per this 2013 farmer’s weekly article, where investors who leased dairy cows to a farmer lost millions after their livestock simply disappeared.

“The investment opportunities within beef are growing quite nicely…but one outbreak of a disease like foot-and-mouth and you can lose all your profitability very quicky,” says Janovsky.

Shezi says their farm has not been as harshly affected as other areas in the country, saying “they picked their farm area very carefully” and had received enough rain over the last two months to ensure grazing for the coming winter.

Grand plans

Launched in October last year, the company started with 40 cows, putting the 26 that were expectant up for sale. They sold out in the first three weeks to investors both locally and abroad. The cattle are held on a farm in Vryheid, Kwazulu Natal, where Shezi leases about 680 hectares from a local farmer, who liked the concept so much that he’s now on Livestock Wealth’s board of directors. But the plan is to have 1 000 cows on about 3 000 hectares by the end of the year, Shezi says. Next week it will be purchasing 50 more cattle and the next sale is scheduled to be in the first week of March.

Says Shezi: “We only put the pregnant cows up for sale because it’s a way of guaranteeing the investors return over the next year. All but one have already given birth, and the calves are about three months old. On Saturday we will be taking a trip with 21 of our investors to go and show them their cattle for the first time.”

On how investors can be sure that their investments will yield a return every year, Shezi says it’s a matter of nutrition and expertise, which ensures a high probability of pregnancy every year.

Currently, the Livestock Wealth app allows you to buy your cow and name it. But there is no other way to keep track of its growth and well-being, other than receiving images of the cow that are sent through the app. In future, investors will be able to keep track of exactly your cow is of the farm, “much like you can keep track of your Uber,” says Shezi.

Livestock Wealth is fast-gaining momentum, with the start-up having secured R1 million from Bank of America Merrill Lynch and The Innovation Hub. And there are already ten investors who have pre-ordered their cows and paid in full. Meanwhile, 60 others have been running debit orders to purchase their cows on lay-by over periods of three, six, 12, 24 or 36 months.




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