Better than a punt on the Footsie?
Ostrich farming is increasingly common in the UK, with up to 200 farms now supporting up to 500 birds each. It is a rare opportunity for the private investor to dabble in farming. Nobody, for example, preaches the virtues of the humble cow as an investment vehicle.
The Ostrich Farming Corporation advertises annual returns of anything up to 785 per cent over a 10-year period, which may tempt even the most urban of investors. However, to the wary, these promises will appear as exotic as the bird.
You can buy ostrich hens at various stages of their 25-year commercial breeding cycle. Prices range from pounds 6,000 for a two- to three-year-old hen in her first year of breeding to pounds 14,000 for an eight-year-old in her fifth year. The return on investment comes mainly from the sale of the chicks, which the OFC will buy from you once they are12 months' old. If you do invest, the OFC offers a variety of five-year deals in which it will buy a fixed number of chicks each year for a guaranteed pounds 500 each. After the five years it will still buy the chicks, but at market-determined prices.
In the case of a pounds 6,000 bird, for example, the OFC deal promises to buy five chicks in breeding years one and two, nine chicks in year three and 12 chicks in years four and five. So in year two you get pounds 2,500. You get another pounds 2,500 in year three, pounds 4,500 in year four and pounds 6,000 in year five. Total return: pounds 15,500 on a pounds 6,000 investment over five years.
The OFC will also buy the12 chicks produced in breeding year five, but not at the guaranteed price of pounds 500. Any spare chicks disappear in livery charges. A mature eight-year-old breeding hen costs pounds 14,000 and is guaranteed to produce 20 chicks in the first three years (pounds 10,000 in years two, three and four) and 24 chicks in years four and five (pounds 12,000 in year five). Total return pounds 42,500.
The Ostrich Farming Corporation makes its money on any eggs produced over and above the figures guaranteed for that age of bird. In exchange, it provides livery for free, and will immediately replace for free any hen whose performance isn't up to the mark. However, ownership of the bird rests wholly with the purchaser. The payment of excess eggs to the OFC forms part of separate livery agreement. So, there is money to be made - at the moment. However, the high profits made so far rely partly on the scarcity of the birds. With each hen producing an average of 10- 12 young females a year, the industry view is that saturation point for breeder hens is about 5 years away.
And 5 years is the length of time for which the OFC guarantees to pay pounds 500 for each 12-month- old chick. It claims that breeder hens will keep their value as they will supply a world-wide meat market. But there must be a real risk that their currently exaggerated value will slide. Indelicate as it may be, the bottom line of Ostrich farming is the value of the carcass. At present a 12-year-old is worth up to pounds 1,000. But as the market expands, this will halve.
The original ostrich farming boom of the nineteenth century relied on a high demand for ostrich feathers. However, the fashion changed, and the bottom fell out of the market. Is the current revival also riding a wave of fashion and fad? This time, ostrich hide is being turned into purses, briefcases, and even jeans. But the main market is seen as the future meat market.
Ostrich meat is a low cholesterol fat-free red meat which apparently tastes like fillet steak, but currently costs about 30 per cent more. "To supply 10 per cent of the existing beef market in the UK would require a minimum of 100,000 breeder hens," says Brian Ketchell, managing director of the Ostrich Farming Corporation. "Even a tiny percentage of the existing meat market would mean a huge market for ostrich."
Despite its popularity in countries like Australia, ostrich is rarely on the menu in Europe, and to this extent, talk of a future meat market is speculative.
Before you buy an ostrich
Owning an ostrich is not covered by the 1986 Financial Services Act because of the legal structure of the ownership and livery agreements. If the market were to collapse and the company to go into liquidation, guaranteed returns could be worthless.
Owning an ostrich as an investment is farming. Income depends on produce and the market price for it. Remember that guaranteed returns are based on the current state of what is still a developing market for both breeder hens and for meat.Reuse content