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Financial Implications of Converting from Livestock to Game Farming in the Karoo Region, South Africa

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Financial Implications of Converting from Livestock to Game Farming in the Karoo Region, South Africa Financial implications of converting from livestock to game farming in the Karoo region, South Africa By Tafadzwa Chiyangwa Thesis presented in partial fulfilment of the requirements for the degree of Master of AgriSciences at Stellenbosch University Department of Agricultural Economics, Faculty of AgriSciences Supervisor: Dr Willem Hoffmann March 2018 Stellenbosch University https://scholar.sun.ac.za DECLARATION By submitting this thesis electronically, I declare that the entirety of the work contained therein is my own, original work, that I am the sole author thereof (save to the extent explicitly otherwise stated), that reproduction and publication thereof by Stellenbosch University will not infringe any third party rights and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Date: March 2018 Copyright © 2018 Stellenbosch University All rights reserved Stellenbosch University https://scholar.sun.ac.za ABSTRACT South Africa’s game farming industry is becoming more common and more popular in the country’s agricultural sector. It is one of the geographically growing agriculture subsectors, with an approximate growth rate of between 2 and 2.5% per year on average. Currently, game farming is widely adapted within traditionally extensive cattle and sheep producing areas, where current sheep producers are moving towards game farming practises. This type of farming, is regarded as a lifestyle investment and, because of this; it is largely investors with a large capital who can afford this. Due to the complexity of this type of farming, influenced by the huge initial capital required, interrelationships of biological, physical and economic aspects, and exposure to high risk and uncertainties, game farming is not easy to tap into without a considerable degree of capital. There is a general lack of finance, knowledge and access to markets by South African farmers, hence switching from sheep to game farming can become even more costly. To mitigate this deficiency, use of efficient and effective decision making processes is useful in order to make informed decisions. The researcher employed whole farm budget modelling as a technique, which is useful for the decision making process, by adapting the use of a multi-period budget model. The proficiency of the systems thinking approach was used in order to deal with complexity in the whole farm system where physical and financial components of the farm were incorporated together as a single item. The main aim of this study is to analyse the financial and managerial implications of converting from sheep farming to game farming in Beaufort West, a town in the Karoo in the Western Cape of South Africa, with the objective of finding out if it is financially profitable for a current sheep farmer to move to a game farming system. To achieve this, a collaborative research method is used following a review of literature and then empirical investigation is used to analyse the results. The intention is to generate comprehensive and feasible insight for farmers to tap into, thus assisting them in making informed choices with improved knowledge in their daily operations. The findings of this work reveals that current sheep farming system over a period of 20 years is profitable, but converting to game farming is more profitable. This was revealed by an IRR of 4.02% in a sheep farming system compared to IRR of 5.85% in a game farming system. The IRR was described and analysed to show how it is used to measure profitability in a whole farm system situation. It was noted that there are external factors that also influence whole farm profitability. Scenarios were simulated to analyse the impact of specified factors on whole farm profitability. The factors were high game prices, drought and decrease in carrying capacity. Stellenbosch University https://scholar.sun.ac.za The results are significant in all scenarios. The scenario with high game prices show increase in IRR from 5.85% to 7.45% and the scenario with a decrease in carrying capacity show decrease in IRR from 5.85% to 2.41%. Lastly, the scenario with drought shows decrease in IRR from 5.85% to 5.53%. This explains that the occurrence of drought and decrease in carrying capacity decreases whole farm profitability, whilst high game price increases whole farm profitability. Stellenbosch University https://scholar.sun.ac.za OPSOMMING In Suid-Afrika is wildboerdery besig om meer algemeen en populêr te word binne die landbousektor as geheel. Hierdie subsektor is geografies besig om uit te brei en groei teen ‘n gemiddelde koers van tussen twee- en 2.5% per jaar. Wildboerdery ontwikkel veral in areas wat voorheen vir ekstensiewe bees- en skaapboerdery gebruik is en waar landbouers hul fokus toenemend na die wildsektor verskuif. Hierdie tipe boerdery word egter dikwels as ‘n leefstylboerdery beskou wat beteken dat dit grotendeels beleggers van buite die landbousektor, met genoeg kapitaalbronne, is wat in die bedryf investeer. Wildboerdery is ‘n komplekse bedryf wat aanvanklik ‘n groot kapitaalbelegging verg om te implementeer. Dit, tesame met die wisselwerking tussen biologiese, fisiese en ekonomiese faktore, maak dit ‘n onsekere en hoë risiko bedryf, wat moeilik is om te betree sonder noemenswaardige kapitaalbesteding. Suid-Afrikaanse landbouers het dikwels nie genoeg kennis van die wildbedryf of toegang tot die nodige kapitaal of markte om die skuif van skape en beeste na ‘n wildboerdery suksesvol uit te voer nie. Om hierdie probleme aan te spreek is die gebruik van doeltreffende en effektiewe besluitnemingsprosesse noodsaaklik om ingeligte besluite te neem. In hierdie studie is ʼn geheel-plaas begrotingsmodel gebruik. Die bedrewenheid van hierdie werkswyse is aangewend om die kompleksiteit van die geheel-plaas begrotingsmodel aan te spreek en die fisiese- en finansiële komponente van die boerdery as ‘n enkele meetbare item te inkorporeer. Die fokus van hierdie studie is om die finansiële en bestuursimplikasies van die skuif van skaapboerdery na wildboerdery in die Beaufort-Wes area van die Karoo, Wes-Kaap, te analiseer, met die doel om vas te stel of dit finansiëel winsgewend is vir ‘n huidige skaapboer om na wildboerdery oor te skakel. Dit is gedoen deur ‘n literatuurstudie, gevolg deur deelnemende navorsing. ‘n Empiriese ondersoek is gedoen om die navorsingsresultate te genereer. Die voorneme is om omvattende en uitvoerbare insig en kennis daar te stel wat boere kan gebruik om hulle te help om ingeligte besluite binne hul daaglikse werksaamhede te neem. Die studie het bevind dat ‘n huidige skaapboerdery oor ‘n periode van 20 jaar winsgewend is, maar deur oor te skakel na ‘n wildboerdery die winsgewendheid toeneem. Dié resultate Stellenbosch University https://scholar.sun.ac.za is onthul deur ʼn interne opbrengskoers van kapitaal investering IOK van 4.02% met betrekking tot die skaapboerdery sisteem teenoor ‘n interne opbrengskoers van 5.85% vir ‘n wildboerdery sisteem. Die interne opbrengskoers word beskryf en geanaliseer om aan te toon hoe dit gebruik is om winsgewendheid binne ‘n geheel-plaassisteem te bepaal. Eksterne faktore is ook geïdentifiseer wat geheel-plaas winsgewendheid beïnvloed. Verskillende scenarios is gesimuleer en ontleed om die impak van spesifieke faktore op geheel-plaas winsgewendheid te bepaal. Hierdie faktore sluit hoër wildspryse, droogtes en ‘n afname in drakapasiteit van die plaas in. Noemenswaardige resultate is vir al die scenarios verkry. Hoër wildspryse het ‘n toename in die interne opbrengskoers van 5.85% tot 7.45% tot gevolg gehad. ‘n Afname in drakapasiteit het die interne opbrengskoers verlaag van 5.85% tot 2.41%, terwyl ‘n droogte die interne opbrengskoers verlaag het van 5.85% na 5.53%. Stellenbosch University https://scholar.sun.ac.za DEDICATION I dedicate this thesis to my mother, Angela Chiyangwa, and my father, Clever Chiyangwa, for making me the person that I am and making me realize that nothing can stop me from achieving my goals. Stellenbosch University https://scholar.sun.ac.za BIBLIOGRAPHICAL SKETCH Tafadzwa Chiyangwa was born in Chirumhanzu district, Midlands Province, Zimbabwe on 06 November 1986. He completed his High school in Geography, Management of Business and Principles of Accounts at Holy Cross High school in Midlands Province, Zimbabwe. He pursed a Bachelor of Agricultural Economics and Management degree in 2015 from Stellenbosch University and also obtained the BAgric-Admin Hons-degree in the same year. In 2016, he completed the Honnours-degree and was accepted as a Masters student under the supervision of Dr Willem Hendrick Hoffmann in the Department of Agricultural Economics and Management, Stellenbosch University. Stellenbosch University https://scholar.sun.ac.za ACKNOWLEDGEMENTS I would like to acknowledge the support of many of those who have been so helpful in allowing this thesis to be completed. • My heartfelt thankfulness and praise go to the almighty God. Thank you Jesus my Heavenly Father for giving me the energy, wisdom, courage and the blessing of life; I could not have accomplished this without you. • Special tribute is extended to my funders Nexus Team, HCI Foundations, Beit Trust, International office and the Department of Agricultural economics for the grants that made it possible for me to be able to enrol at the University of Stellenbosch and study full time. • My Deepest gratefulness to my supervisor, Dr Willem H Hoffmann for the cooperative commentaries and fruitful criticism rendered to me during the entire thesis development and writing process. Your unlimited effort and commitment made the long hours behind the computer enjoyable. • I would also like to extent my gratefulness to Professor Nick Vink, Professor Theo Kleynhans, Dr Jan Lombard, Dr Cecilia Punt, Jan Greyling, Johan and Lulama Traub for their support and wisdom in moulding me to be a good researcher through their knowledge and expertise. • Endless thankfulness is extended to Monica Basson, Dr Natasha Brown, Robert Kotze and Arrie Hanekom for their moral and academic support. • I would also like to acknowledge the late Stuart Knott for his support.
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