Crowd-farming: Redefining Livestock Investment

Innovative concept provides working capital to rural smallholders

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There is a traditional Xhosa proverb that states: Ubuhle bendoda ziinkomo zayo, which loosely translates to “A man is only as handsome as the size of his cattle herd.” This statement, in its sheer simplicity, conveys one of two things – that ancient Xhosa people had weird beauty standards, or the immeasurable value of cattle, and indeed livestock, in African culture.

Nowhere is the value in question more pronounced than in rural areas, where 40% of the total 13.4 million head of cattle reared in South Africa is found. Through its function as a productive asset used to produce food and non-food items, livestock farming is an integral income-diversification strategy for small-scale farmers.

Although livestock farming is a cornerstone of the rural economy, owners of livestock in these areas face various challenges that make it hard for small-scale farmers to grow and unlock the financial value of their herds.

One of the most pervasive constraints to commercial livestock farming by small-scale farmers is operating capital. Insufficient operating or farm working capital has a devastating ripple effect that deteriorates the financial outlook of small-scale farms.

However, this may soon be a thing of the past, thanks to an innovative investment concept, aptly referred to as “crowd-farming,” developed by South African agri-tech startup, Livestock Wealth.

Livestock Wealth is the brainchild of agripreneur, Ntuthuko Shezi. The company was founded in 2015 when Shezi, an electromechanical engineer by profession, identified a two-edged opportunity to provide small-scale farmers with operating capital by allowing agricultural enthusiasts in urban areas to invest in cattle held at small-scale farms. Shezi knew that a large subset of the urban population had genuine interest in agriculture, but could not participate in it due to land and time constraints.

To bridge this gap, he developed Livestock Wealth as a platform where virtually anyone can be engaged in farming without getting their hands dirty.

Livestock Wealth uses a crowdfund or “crowd-farming” model to connect investors with small-scale farms through its mobile-based app, MyFarmbook. Investors can purchase shares in a portion of a free-range cow through MyFarmbook for as little as R576,45 per share, with interest rates capped between 5% to 14% on a six and twelve month option respectively. Livestock Wealth covers all maintenance and insurance costs on behalf of investors at no additional cost. On the entry-level plan, investors can expect a return-on-investment to the tune of R605,21, subject to the cow’s average weight (per kilogram) as well as prevailing beef prices at the time of sale.

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The second plan is investing in a free-range ox at R11 529 for a return of R12 336 on a six-month period. The third, and perhaps most advanced, option, is investing in a pregnant cow at R18 730 for a return of R21 352, calculated on a 14% interest rate over twelve months. To help investors track progress of their investments on MyFarmbook, Livestock Wealth partnered with MTN and Huawei for easily accessible tailored data on each investment item.

As with any investment scheme, there are inherent risks to crowd-farming which may have unpropitious effects on investors’ returns. For example, fluctuations in the cost of inputs like feed and veterinary supplies, as well as prevailing beef prices at the time of sale, have a direct impact on the value of the dividend received. However, a reinforcing incentives for investing in cattle lies in the fact that the sector is one of the largest and most stable tiers of the agricultural industry, with an estimated value of R142 billion, according to Ag Biz.

The success of Livestock Wealth’s crowd-farming model is perhaps best viewed through great leaps the company has made over its four-year existence.

When the start-up launched in 2015, it only had 26 cows under its portfolio. Today, however, it encompasses over 2000 cows with an estimated market worth of R36 million across several small-scale farms.

Furthermore, the company boasts over 1000 domestic and international investors and — as of July 2019 — has raked in over R50 million in crowd investments, with a total dividend pay-out of R4.2 million. In addition to accruing lucrative returns for its investors, Livestock Wealth has also provided exclusive market access for small-scale farmers. Last year, the company entered into an agreement with Woolworths to supply it with free-range beef sourced from small-scale farms. Recently, in the latest in a long list of feathers in its cap, Livestock Wealth received a major financial injection from Rand Merchant Investment Holdings and, according to its CEO, this has nudged the company’s status to a R100 million venture.

Cattle have long been considered a valuable investment asset and symbol of status in African communities since time immemorial. Despite centuries of modernization, cattle have retained this function among Africans, in both urban and rural areas. For the former, technical constraints restricted fulfilment of  its cultural ties to cattle farming, while for the latter, lack of operating capital suppressed full-scale commercialization.

However, through its innovative crowd-farming concept, Livestock Wealth has linked these two groups by leveraging  their mutual interests while radically transforming agricultural capitalization, and essentially, redefining livestock investment as it were. Fin-tech innovations like this open a portal through which the future of agriculture could be observed. And if the success of Livestock Wealth is any yardstick, then the future of intensive agricultural investment clearly lies in crowd-farming.

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