“For the past three years we’ve been ringing the South African alarm bells about the numbers of mares going out of production, reminding our readers that in the three or four major economic downturns we’ve known in our thirty-five years in business here, we’ve been ‘investors’ rather than ‘reducers’.”
Summerhill CEOA headline like this in this part of the world generally harks back to the Anglo-Zulu Wars; this is not about that, nor is it about the rather ignominious defeat the English cricketers succumbed to in their battle with the Netherlands in Bangladesh yesterday, though the measure of that has parallels in what happened in these parts at Isandlwana on the 22nd January, 1879. No, not at all: this is about the haemorrhage in British breeding.
The British Horse Racing Authority has just become aware of something we’ve been banging on about for years now. Their racehorse supply base is “in a critical state because of alarming reductions in the numbers of foals being produced”. The knock-on effect is the impact it will have on the United Kingdom’s racing fixtures, which in turn affects betting turnovers.
The British breeding industry is estimated to be worth £281million per annum (R5.5bilion), which contributes to the support of 86,000 jobs within in racing, most of which are located in rural communities, and is “in desperate need of fresh investment if it is to meet the needs of the existing programme,” according to a recent economic impact study conducted by PriceWaterhouseCoopers LLP.
There is nothing new in any of this for us, as followers of these columns will attest. For the past three years we’ve been ringing the South African alarm bells about the numbers of mares going out of production, reminding our readers that in the three or four major economic downturns we’ve known in our thirty-five years in business here, we’ve been “investors” rather than “reducers”. In each of these instances, we and our clients have been the substantial beneficiaries of having trading stock on hand when the cycle has turned. It’s a fact of economic life that markets tend to be undersupplied in good times, and oversupplied in tough times, more so the world of racing where a large proportion of the productive livestock (mares) are owned by “cheque-book” or “armchair” breeders who generally rely upon discretionary funds to acquire and maintain their breeding interests: when times are good, they get in, and when they’re tough, they bail. It’s little different in the stock markets, where instead of investing in down markets and either holding or selling in “bull” times, “trendy” investors follow the herds.
Breeding is a longer term investment, with relatively long leads and lags, and it invariably favours those who invest against the trend, not unlike our local farming colleagues who’ve prospered by planting soya beans when others are going wholesale into maize, for example, and have capitalized from the resulting shortages in those commodities when they materialize. There is a telescopic impact in horse breeding, because it takes years to turn around, and therefore the benefits endure for much longer.
There are more than a few similarities between ourselves and British breeding, which is becoming increasingly dependent on exports from Ireland and France to fulfil its day-to-day requirements, not that those countries haven’t also witnessed similar reductions in numbers: the whole world has. What sets horse breeding apart from most industries, and even that of conventional crop farming, is the “lead” time. There’s a space of between 36 and 48 months between its conception and a racehorse getting to the races, which means that the discovery of an over-or-under supply situation only becomes apparent to the casual bystander much later. That means that addressing either of these maladies, takes much longer, and therein resides the opportunity.
According to Prof. Martin Schulman, and the fellows from the Equine Research Centre, (responsible for the micro-chipping, identification and DNA’ing of foals) the current yearling crop numbers just over 2000. Even allowing for a few late-comers, measured against historic, foal crops of 5000-odd and more recently, of the order of 3500, South African racing faces a substantial shortfall in the numbers of animals necessary for the sustainability of viable betting fields.
As an industry, we face a massive challenge in rebuilding our inventories, as breeding stocks take years to turn around, and short of supplementing the ranks with large numbers of imports (financially unlikely given the Rands weakness), it’s a matter of finding ways of encouraging, and (possibly incentivising) breeders to considerably supplement their herds.
In all of this, we see opportunity rather than foreboding, and we’ve been encouraged by the fresh investors who’ve come forward recently and taken advantage of the soft market in broodmares. How long it will last is anybody’s guess, but we’d think the time-frame will be shorter than you’d expect. The market has been down for several years now, and as soon as we see the benefits of undersupply for producers in sharply rising prices, you can bet on it, the buyers will be back; even then, it’ll be five or six years before we even reach an equilibrium.
South Africa has its own unique problem however, and that rests in the fact that on a growing basis we’re seeing smaller breeders marginalised by the build-up in the scale and stock of establishments belonging to the mega-rich. While most of these latter farms will one day hope to make a profit, that is not necessarily the imperative. The South African breeding landscape is increasingly populated by the “who’s who” of the business world, many of whom make the Sunday Times “rich list” most years, and these farms are more in the nature of trophies than business enterprises. It was thus all the way back to the days of Sir Henry Nourse, Sir Abe Bailey, Sir Richard Southey, Sir Alfred Beit and Cecil John Rhodes who first began breeding in earnest in the Karoo in the mid 1800s, and thereafter the Oppenheimers, the Ellises, the Hurwitzes, Labistours, Tathams and Barnetts. The difference was they bred to race, not to sell, whereas every large breeder in South Africa today (with the notable exception of Sabine Plattner) produces horses for the sales ring. Wealth means that the new generation of big money breeders are able to patronise the “sexiest” and most expensive stallions, and hence they’ve taken up the commercial space traditionally occupied by “farmer” breeders, who often enough, simply can’t afford to compete.
Apart from those armchair breeders who can afford to keep their mares under the umbrellas of high profile commercial farms, and are able to dispose of their stock that way, there is scant protection for the little guys. Whichever way you look at it, the parable tells us this: if you like racehorses, get in now. Otherwise, acquire the means of making them.