Earning an income from a cow

Livestock Wealth is a ‘crowdfarming’ platform that connects investors looking to invest in cattle with farmers looking for funds to grow their farms.

Livestock WealthWith lacklustre ‒ and even negative ‒ returns from the stock market over the last three years, investors are looking for other places to invest their money. One such alternative investment is ‘crowdfarming’: rather than investing in companies, as you would on the JSE, you invest in farm produce such as cattle, blueberries, beehives and even solar panels.

Ntuthuko Shezi, founder and CEO of Livestock Wealth, pioneered the concept of crowdfarming when he launched Livestock Wealth in October 2015. The concept is that people bring their funds together to own a farm.

Listen to Maya and Mapalo Makhu discussing this and other stories on the My Money My Lifestyle podcast.

“Lots of people want to farm, but not everyone can, so we crowd around one farm,” explains Shezi about his concept of crowd cattle farming. You buy a cow which is fed and cared for on the farm, so you don’t have to actually know anything about raising a cow, but you get the upside of the beef price when the cow gives birth or is sold to the beef market.

Being first to market has the advantage of owning the space – Shezi has trademarked the concept of crowd farming – but it also has the disadvantage that it takes time for people to trust the concept.

Possibly the best thing that could have happened for Shezi was the launch of Fedgroup’s Impact Farming which allows investors to buy blueberry bushes, beehives and solar panels which are all farmed for them. With a well-known financial institution entering the space and spending money on advertising, people have become more familiar with the concept of crowdfarming.

“No-one had done this before, so credibility was our biggest competition,” says Shezi.

But investors weren’t the only people he had to convince. He also needed to get farmers on board. “We leased the farms initially and contracted in farmers, but once we had a three-year track record we were able to get farmers on board. We are working with a farmer now who raises 10 000 cows a year. They have seen that crowdfarming has staying power”.

Livestock Wealth has focused on free-range beef which is free of antibiotics and growth hormones, which makes it a perfect supplier for Woolworths. They have also partnered with MTN Connected Livestock which helps monitor the livestock providing investors with data on their specific animals.

Shezi is a big believer in the power of crowdfarming. “Government can’t give us all a farm divided into small amounts. We need to move away from the old farm model of one person owning land, having all the skills and farming their own product. With crowdfarming one entity owns the land, and the farmer who loves farming and has the skills continues to farm, and then others invest in the production. Whether it is cattle or blueberries, other people can be involved in production without getting their hands dirty”.

Shezi plans to expand the model and bring on new farming operations including timber and solar.

How to invest in a cow

Although I had heard about Livestock Wealth, it was only when personal finance blogger @your_money_blog wrote about his experience as an investor that I decided to write about it. Like many potential investors, as a credible journalist I needed to make sure this was a legit business before writing about it for readers.

Livestock Wealth has been in business or nearly four years. It has met all its obligations to its investors and by all accounts looks like it is going from strength to strength. Offering investors returns of around 13% per annum, Livestock Wealth has over 730 investors and R36 million worth of cows, and has paid out R4.2 million in dividends. They aim to have 10 000 customers by February 2020.

If you’re worried you may become attached to your cow, best opt for the pregnant cow investment rather than raising a calf for slaughter.

Originally the Livestock Wealth concept was about owning the cow for life. You bought a cow, paid for the food and vet bills and when she gave birth to a calf, you received the profits from the sale of the calf.

Shezi said this had a few challenges. Firstly, people had to pay in twice a year to cover monthly care costs, creating cashflow challenges, and secondly it was a longer-term investment. The real demand was for shorter-term investments of around six months to a year – and people didn’t want keep paying in.

Two investing options

The new model is simpler, and you can either buy a calf or a pregnant cow.

12-month option: The pregnant cow

You invest R18 730 in a three-month pregnant cow for a period of 12 months. There is no additional cost to feed or care for the cow. Once the calf is born it is raised for six months until it reaches a weight of 200kg which is the most valuable time to sell. Prices for weaned calves are published in the Farmers Weekly and you earn a portion of the profit from the sale of the calf.

The profit on the sale of the calf is then divided between the investor, farmer and Livestock Wealth. Depending on the price of calves, you can expect a return of 10%-14% per annum. In other words, if you invest R18 730 you can expect to receive between R20 603 and R21 352.

6-month option: The free-range calf

You invest R10 980 in a 12- to 18-month-old calf that is raised to produce premium free-range beef for six months. The profit on the sale of the calf  is divided between the investor, farmer and Livestock Wealth. Depending on the beef price when the calf is sold, the investor should receive a return of around 6.5% (that works out to 13% annually). So you could expect to receive around R11 693 after six months.

Compounding your cow

The returns you receive are simple returns, in other words they are not compounded. The key to growing wealth over the long term is the compounding effect of money growing on money. The key is to keep re-investing your profits. Shezi says 95% of customers use the profits to buy another cow. For example, if you had twelve cows, the profit from these cows would be enough to buy an extra calf every six months. In this way you can build up a portfolio of cattle.

Even if you are investing only for the short term, a 13% return over one year, or 6.5% in just six months, does beat the current returns offered by a bank deposit. In fact, the long-term average return of the JSE is only 11.9%.

The risk

The cows are insured, so if something happens to your cow it will be replaced. You can also keep track of your cow or calf through the MTN Connected Livestock app.

The main risk lies with the price of beef or weaned calves as this influences the price you receive. The prices of beef and weaned calves are published in Farmers Weekly so you can keep track of the prices on a weekly basis. However, unlike the price of gold, which is sentiment driven, beef has an underlying demand so while the price may fluctuate depending on demand and supply, it is not likely to drop significantly.

This article first appeared in City Press.

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