The game industry is filled with breeder consortium’s, groups of breeders who band together, that collectively have greater power than any single individual member. The concept of the consortium performed crucial functions for early farmers when the market was in its infancy. As the market matured, their traditional roles have evolved. With the level of perceived power some consortiums exert on the industry, some breeders may feel as if the industry is run by cartels. We are going to investigate the true value of the role consortium’s play in the industry, to discover whether or not they can be considered cartels.
What is a Cartel?
As commonly defined a cartel is:
“an organization created from a formal agreement between a group of producers of a good or service to regulate supply in an effort to regulate or manipulate prices.”
There are essentially two crucial criteria the consortium’s need to fill in order to be classified as a ‘cartel’. That is, they need to be formed under a formal agreement. For example, OPEC is an officially registered organization that solidifies the agreement between member states to fix the supply of oil. Secondly, the goal of a cartel is to manipulate market prices to suit their financial goals.
It is clear that the consortium’s in the game industry fulfil criteria one, as they are all formal groups that often have constitutions. For those reasons, we will set aside criteria one for the bulk of this analysis and focus primarily on criteria two. Hence the main focus will be to assess whether or not consortium’s in the game industry have the capacity to manipulate prices by regulating supply.
What is a Consortium?
For those less familiar with the game industry, we’ll first explain what consortiums are and how they came to be.
Commercial game breeding only really began to develop into a dominant form of land use several decades ago. Those breeders that did so in the early days were more hobbyists that supported their game operations via other farming enterprises on their land. However, as the market began to grow, farmer’s saw their profit margins in game correspondingly increase. Yet in this early stage there were no famous bulls, no famous breeders and even less breeding data. Therefore, these breeders lacked two elements: a Brand and Animals. They didn’t have a strong brand, since the industry was so young, and they didn’t have enough animals to hold an auction by themselves. As a result, small farmers came together to pool resources, increasing their financial capacity and stock. This meant they could brand themselves under one umbrella and have enough stock to hold their own auction, something any individual member would be incapable of doing. This collective is known as a breeder group or a consortium.
Today, some consortium’s have been perceived to grow so large and powerful, that they may be accused of acting as a cartel, by holding a monopoly over top tier animals and restricting their supply to the market by carefully curating which animals are available to purchase. But what do the numbers say?
They Don’t Dominate
No single breeder consortium has enough market share to constitute any leverage over the entire market. In order to have the power to alter market prices, the ‘cartels’ need to control a significant portion of the supply. By looking at the biggest consortium’s portion of revenue at auction in 2016, it’s clear that no singular group has enough dominance to control prices. The graph below show the portion of revenues generated by the largest groups in the industry against the overall revenues from auctions in 2016.
*Market data may be incomplete but accounts for at least R1.742bn to form a significant sample size.
As we can see, the majority of these groups produce <3% of the industry’s revenues via auction. The two stand out performers are Piet du Toit and Stud Game Breeders, with SGB commonly considered to be the largest and most influential group in the industry. However, the groups’ auction in 2016 only accounted for 12.3% of the total industry revenues for 2016. If we continue the comparison with OPEC as an archetypal cartel, its member states produced 44% of the global oil production in 2016 and possess 81.5% of known crude oil reserves. Whilst we do not have strong information on the private possessions of game breeders’ in these consortium’s, it seems extremely unlikely that any single group controls over 80% of any specie, as this would mean the value of their herds would run into the tens of billions. Whilst this is not theoretically impossible, it seems highly improbable. Purely by looking at the number of hectares the farmers own, it is obvious that the carrying capacity of their farms is far lower than the astronomical amount of land needed to house such a high quantity of animals. Therefore, the lack of market dominance shown by the figures above, alongside a comparison with OPEC, indicate that breeder consortium’s do not have enough market share to perform any of the functions of a cartel.
Dominance Over Stud Breeding
The counter to the above point may be that the consortium’s do not have control over the whole industry, but instead, their dominance over supply is confined to the stud breeding realm. Members of these groups are producing stud animals that cater to the top echelons of the market, and it is perhaps here that they have a monopoly of supply and can manipulate prices. Again, it even seems here that this suggestion is fanciful. There are stud animals spread across all different breeders from all the different consortium’s. Lumarie, Thaba Tholo, Piet du Toit, Woody Cape, Buffalo Creek, 4 Dogters Boerdery and Crown Game Breeders are all part of completely separate groups, if at all, but still have access to 50”+ buffalo bulls. This illustrates that no consortium has a significant monopoly over the top end of the market, because so many breeders with so many varying interests have ownership over supply. This may at least demonstrate that the supply is fractioned amongst the different consortium’s and key players in the industry.
The only potential case in which market prices could be manipulated would be if these groups who do possess a majority of ‘stud’ animals came together to organize a strategy to restrict supply. However, such a theory comes with no evidence and therefore seems baseless and should be dismissed as merely a conspiracy. Even if this was the case, by the definition of a cartel as described above, it would break criteria one, on the basis that no formal cooperation agreement has been entered in to. Thus, the fractioned nature and widespread distribution of top tier animals in the game industry across a wide range of individuals and groups all suggest that there is no dominant group with a monopoly of any segment of the market.
Where consortium’s may be perceived to exert their influence over the market is over public opinion. Many of the most famous and well-respected breeders, like Jacques Malan and Piet Warren, generally belong to groups (though not all, like Piet du Toit). As a result, the messages they broadcast could have a disproportionate effect on market views and behaviours. This happens in the investing world, when a famous investor makes a market prediction. From their influence, all other investors follow the advice and consequently the market moves. This has been the case in several instances from the likes of investor gurus Warren Buffet and George Soros. In a comparable manner, well respected breeders can have market influence from broadcasting their views to alter the market. However, this type of price manipulation, if it can even be considered as such, is very distinct from cartel behaviour, given that it has nothing to do with control over supply. Yet it could be one of the reasons smaller breeders feel as if the larger players have a disproportionate amount of power in the industry that led to these claims in the first place.
It appears that none of the consortium’s involved in the game industry possess enough share of the supply of either the whole market, or sub-market, to leverage power over prices. There is certainly a deficiency in the body of data over the privately held animals these farmers may have, and therefore it is possible that they have 80% of the 50” + buffalo in the country. However, we see these top-level animals coming from all different breeders from across the country, and so this contentious point seems highly unlikely. Therefore, we can rule out the presence of cartel activity in the game industry. However, that does not diminish the power of these groups. Perhaps the key function they play over market movements is in the statements, predictions and advice they make that could influence the behaviour of industry shareholders that heed their advice. However, this is more about expert influence rather than cartel-like behaviour.