An investment idea with legs, but will it take off?

Nic Cicutti examines the dangerous world of ostrich farming, which can leave investors well plucked
Their meat is said to be lean and flavoursome. Sadly, ostriches have left only a sour taste for many savers who may have lost up pounds 50m in a range of schemes promising huge returns from farming these mighty African birds.

The attractions of ostrich farming were the unbeatable returns of up to 100 per cent or more offered on a flutter of up to pounds 17,700. As thousands of unhappy punters have discovered, if an offer is too good to be true, it should be left well alone.

Earlier this week, the Securities and Investments Board, the City's top financial regulator, announced that it was seeking a court order to have investors' money returned to them by World Ostrich Farms, one of the companies in this field.

The SIB argues that the activities of World Ostrich Farms involve carrying out an unauthorised investment business. This, because savers were invited to take part in a collective investment business.

The regulator's approach refers to the fact that if an ostrich is farmed alongside other birds in a field, it is no longer an individual investment but a pooled one and is therefore unauthorised.

However, even before the SIB's intervention, World Ostrich Farms was already in liquidation. The liquidator, accountant Stephen Conn, hopes to pay back investors in about three months' time at a rate of about 50p per pound invested.

At the same time, another firm, Ostrich Farming Corporation (OFC), is fighting a legal battle against the Department of Trade and Industry's attempt to dissolve it. OFC, also under investigation by the Serious Fraud Squad, has taken millions of pounds from savers by guaranteeing annual returns of more than 50 per cent.

The rapid popularity of ostrich farming investments was based on two simple premises. Firstly, that unlike many other kinds of meat, it is far healthier and tastier to eat. It is low in cholesterol and fat, high in protein. The healthy-eating proposition acquired even greater significance at a time of mounting concern over BSE-affected cattle.

The second argument is that at a time of increasing popularity of ostrich meat, those who invested in farmed animals were riding on a sure-fire winner.

If an investor bought a pair of breeding birds, priced at up to pounds 17,700 each, he or she would actually end up owning an asset capable of producing a score of chicks each year or more. Even after livery and hatching charges of pounds 250 a bird, ostriches can sell at up to pounds 500 each at slaughter, generating substantial profits for their owners.

Because of the nature of the investment, ostrich farming was in effect unregulated. Nor did the only ostrich breeding association feel it necessary until recently to consider a code of conduct for farms offering savers the chance to invest in the birds.

The problems of ostrich farming were underplayed, such as whether there is ever likely to be such a significant demand for the meat and what happens if, in the rush to meet that demand, the market for ostriches became heavily oversubscribed. There was also the question of whether the ostriches ever existed.

Although some farms offer investors the chance to own specific birds, with small microchips being implanted in order to allow the identity of ownership, other investors have discovered that their birds have been more elusive.

In the case of the OFC, the birds were said to be in Belgium. However, the DTI's investigation into the OFC has found that while birds were purchased from a reputable firm in Belgium, they were bought by two other companies, Wall Street and Wall Street Corporation, acting as middlemen.

The second company then sold the ostriches on to OFC at a substantially higher price. The DTI's inspectors claim that the purchase of these birds from the Wall Street companies delivered no apparent benefits to OFC and investors.

Despite the tribulations of the two most prominent ostrich investment companies, there are plenty of seemingly legitimate others to fill the gap. Their promises of staggering returns will have been boosted by British Airways' recent announcement that it may offer ostrich meat on some of its flights.

Despite all the promises, savers should beware. This is one investment, which like ostriches themselves, is highly unlikely to take off.

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