Personal-Finance

How urbanites can invest in virtual cattle

2015-10-18 15:50

Are you interested in owning cattle, but live in an urban area? Livestock Wealth can help you.

As of this week, the company is selling cattle to the public through its app and website, allowing urbanites to own cattle without having to own farmland or take care of the animals themselves.

It hopes to draw people’s savings back into what it calls the traditional African “asset class” (cattle).

Livestock Wealth allows one to buy a cow (for about R10 500) and pay the company R295 a month to take care of it.

Once a year, you get a “dividend” from the sale of the cow’s offspring to abattoirs. This continues indefinitely, and the cow gets replaced at the age of eight at no cost.

As long as the going price for calves trumps the fees, you have annuity income and a cow you can go and visit if you like – or observe from afar in a virtual kraal that is in the works.

Founder and CEO Ntuthuko Shezi thinks he can eventually make history by turning some of the millions of cattle kept in small inefficient herds across the continent into annuity income while simultaneously freeing up vast amounts of farmland for crops.

For now, however, the focus is on getting city dwellers into the cattle business and on breaking even on the company’s pilot farm in Vryheid, KwaZulu-Natal. That would require an initial herd of about 800, according to Shezi’s projections.

There were 40 cows on the farm at the moment and the company completed its first online cow sale on Wednesday morning, Shezi told City Press.

Enquiries had been streaming in after a launch event on Tuesday, he said. Shezi hopes to achieve scale very quickly. His target is 10 000 cattle by next year, and 100 000 after that.

“The problem is that 75% of South Africans do not understand shares, unit trusts or bonds.

“Instead, people invest in expensive funeral insurance products.”

People did, however, understand cows, he told a small audience at the launch.

The company has even trademarked the quip “shares are difficult, cows are easy”.

The company in effect draws household savings into the beef value chain. The scheme’s income is tied to the price for weaner calves – animals sold to abattoirs at the age of six to seven months.

“We exist to change the way Africa invests” is another Livestock Wealth trademark, signalling the intention to go for a much broader market.

A big part of the pitch to prospective investors is culture, tradition and the “emotional” aspect of owning cattle.

“No one emotionally connects to shares,” says Shezi. “Owning cattle conveys a sense of pride. It’s like owning a BMW, but it actually makes financial sense.”

Cows in the Livestock Wealth system are being promoted as an alternative to unit trusts, shares or bonds, and the model is geared towards long-term investing. Shezi said Livestock Wealth would deliver annual returns for investors of between 8% and 12% – “depending on the beef price”.

That’s not a minor caveat (see below) and it also depends on whether you buy the available insurance against your cows dying or getting stolen. The straight fee is R295 per month per cow, but the insurance will be another R99. At current beef prices, that makes the difference between a profit and a loss.

The model rests on three “levers”, said Shezi.

“The first is the weaner price, and there is very little we can do about that.”

The second was the average weight of the company’s weaner calves, which the company can influence by investing in good breeding stock, he said.

The current average in South Africa is about 220kg, but Livestock Wealth is aiming at 250kg.

Similarly, the “calving ratios” – how many cows get pregnant and deliver as intended – could be managed upwards to a small extent, said Shezi.

THE ECONOMICS (AND RISKS) OF ­INVESTING IN VIRTUAL CATTLE

For all the marketing emphasis on simplicity, Livestock Wealth is not quite as straightforward as having a remote kraal full of cattle.

Although the scheme involves individuals owning specific cows, the income derives from the collective sale of all the cows’ calves to abattoirs, split equally between all cow owners.

That way, the investors pool the risk, said Shezi. The assumption is that a minimum of 90% of cows will deliver saleable weaners every year – everyone shares the loss of 10% of the income.

The cattle get replaced when they are too old to breed. They get sold for meat and that money is used to buy a replacement cow, topping up any shortfall.

Everything then hinges on beef prices in relation to the fees being charged. The market price per weaner went as low as R3 540 in mid-2013, but is currently about R4 400 before VAT, according to Absa’s weekly meat market index. Minus the 10% loss everyone shares, but adding VAT, this becomes R4 514 per weaner – the income per cow per year.

That beats the R3 540 in annual fees charged by Livestock Wealth by R974 – an annual return on investment of 9.28%, for the R10 500 purchase price for a single cow.

There is the optional insurance, which costs R99 a month extra and gets you a replacement cow if yours dies or is stolen.

At today’s average prices, paying for that would mean you make a loss. In fact, to break even, if you take the insurance, you would need the average weaner price to be about R4 562.

A cattle revolution?

In the long run, Livestock Wealth has high hopes of evolving into a revolutionary force in South Africa and the continent.

There are 13 million head of cattle in South Africa, half of which are part of small herds in rural areas often belonging to people who are otherwise very poor, said Shezi.

Keeping beef cows in areas with bad grazing land and little water made no sense and impeded the development of crops like maize, he said.

The big plan, which he believes is a decade from being realised, would involve having people “trade in” their beef cows for milk cows.

Milk cows take much less room to keep and breed – and are more compatible with small-scale crop farming. The meat cows will enter the Livestock Wealth system and earn annuity income for their owners. These cattle could be “securitised”, said Shezi.

This means the income stream can be directed into things like medical insurance products.

The owners get milk cows and win back land for growing maize in the process, he said.

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December 9 2018