Johan Fourie's blog

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Buffalomania

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Sable

Bidders had come from far to attend what was widely speculated to be the auction of the year. The rich and famous of seventeenth-century Dutch society were present; all with the aim to acquire some of the most unique tulip bulbs on offer at exceptional prices. The auction at an orphanage in Alkmaar on 5 February 1637 was the height of tulipomania, one of the first and most spectacular financial bubbles in history.

Tulips have no intrinsic value. They are beautiful, of course, but there is no explanation for the rapidly escalating prices of tulip bulbs during the 1630s and especially during 1636 and 1637. Everyone in Holland, it seemed, were captivated by the craze; tulips were cultivated with the aim to produce distinct and unique varieties that would attract even higher prices at auctions. One of the most expensive varieties – a Viceroy – sold for two lasts of wheat, four lasts of rye, four fat oxen, eight fat swine, twelve fat sheep, two hogsheads of wine, four tuns of beer, two tons of butter, 1000 lb. of cheese, a complete bed, a suit of clothes, and a silver drinking cup. A futures market even developed, which would later help the development of Amsterdam as a financial center. The only reason for the escalating prices, it seems, was that buyers believed prices would continue to increase.

SemperAugustus

The Semper Augustus, the most expensive tulip sold during Tulipomania

And then, of course, the bubble burst. Not long after the Alkmaar auction, another auction was held in Haarlem. The auctioneer offered the first bid of Witte Croonen (White Crowns) for 1250 guilders. Silence. After an awkward moment, he put in a lower bid. More silence. And then panic. The news soon spread across Holland that tulip prices were on the decline. The fortunes that had been created over the preceding years were wiped out in an instant. Those that had gambled their life savings on tulips, were ruined.

I was reminded of these events when reading about a game auction in South Africa earlier this year. The auction on Piet du Toit‘s farm in South Africa’s North-West province saw record prices for unique variations of game: R7.5 million for one impala, R9.5 million for a gemsbok, and R13 million for one wildebeest. That is R30 million (or $2.4 million) for 3 antelope. Also sold were 25% shares in a West Zambian Sable bull (pictured) for R15.5 million each, valuing the animal at R62 million (or $5 million). Buffalo prices are similarly high: South Africa’s richest man, Johann Rupert, paid R30 million for a bull in 2013, and Cyril Ramaphosa, the country’s vice-president, paid R20 million in 2012. But it is the high prices of the antelope varieties that has drawn attention recently. As research from the Western Cape department of agriculture shows, more than half of all price records for game were set in 2014 alone.

These prices are extraordinary. There is no way buyers can recoup their investment except if prices continue to increase. Yes, foreign hunters are willing to pay excessive prices for unique varieties, but not in the order of magnitude of these numbers. (At best, a unique variation can earn maybe $50 000 in hunting income.) The only reason that prices are increasing is that buyers believe prices will continue to increase. That is the logic of bubbles: if prices go up, they will continue to go up.

Until they don’t. No one can be sure when and how this will happen. But I can imagine something along these lines: a large gathering of bidders on a farm in South Africa’s Limpopo province. Much excitement as the first bid – an impressive Zambian sable bull – is presented for R20 million starting price. Silence. A lower starting price perhaps: R10 million. More silence. The realisation, suddenly, that no one is buying; the awkward silence broken by discreet phone conversations to anxious owners: ‘The bubble, sir, has burst.’

Sources: 1) Mike Dash. 2001. Tulipomania. Broadway books. 2) Louw Pienaar, Western Cape Department of Agriculture.

An Afrikaans version of this first appeared in Rapport newspaper.

Written by Johan Fourie

March 16, 2015 at 06:30

2 Responses

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  1. Johan ,

    There is a difference that you do not take into account.
    ( perhaps a fallacy ? )

    African wildlife is increasingly threatened not only by poaching but by habitat degradation and destruction.

    How many West Zambian male sable ( a very special stud bull ) similar to the one pictured can still be found in the wild ? ( and huntable )

    One can today I guess find ( or can be cloned ) just about any variety of tulip that sold for record prices during “tulipmania” .

    The same cannot be said for many species of African game — it is currently a diminishing resource ( as a huntable species in the “wild” )

    I rather suspect ( [specific] scarcity ) supply is the driver of the demand ( and the prices commanded )

    Have you asked any of the bidders WHY they are prepared to pay these prices ?
    I rather suspect their argument will be similar to mine ?

    I also rather suspect that IF no change is made to land ownership in SA then prices will continue to escalate.

    Perhaps a more fruitful study would have been an investigation into the extent to which legislation regarding land ownership in SA is likely to affect Game Ranching and thereby the prices of their working capital ( investment ) ?

    Chris

    March 16, 2015 at 07:29

  2. Prophetic words… The economics are sound, so I guess the only remaining question is how long before the inevitable?


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