Otjiwarongo
Crocodile
Ranch
This case was written by Daan Strauss, Coordinator, Small Enterprise Development, Institute for Management and Leadership Training (IMLT), Namibia, under the ITC/PRODEC Project for Improving International Business Training at selected African institutions. The case is intended for use in training programs and is not meant to illustrate correct or incorrect handling of business situations.
source: African Cases in International Business, International Trade Centre and PRODEC, Geneva, 1995.
In the hot and humid hatchery of his crocodile ranch in the small Namibian town of Otjiwarongo, Mr. van Dyk was worriedly stacking the plastic crates containing 1,350 newly laid crocodile eggs into the limited space. It was December 10, 1993, and he knew that he had to expand the hatching and nursing facilities of this crocodile ranch before January 1996 in order to provide the necessary space to accommodate twice the present production of eggs expected in the 1996 breeding season.
To finance this expansion, Mr. van Dyk hoped to enter a stable and regular market for his supply of crocodile skins. With his limited experience in marketing, he was not sure as to how and where to start exporting.
Mr. van Dyk was also considering the option of exporting processed crocodile skin products, like handbags, shoes, and belts. Without the resources to construct his own tannery, he would have to find processing and manufacturing facilities. There was the possibility to send the skins to South Africa for processing into finished products before exporting them. Thinking about options to finance the expansion, Mr. van Dyk also remembered the proposal for a partnership he had received from an investor in Europe who could process the skins into quality products: during a visit in September 1993, a German tourist had expressed interest in investing in Mr. van Dyk’s crocodile ranch.
Stepping out of the hatchery into the equally hot, but less humid, nursery where he raised the young crocodiles, Mr. van Dyk knew he had to take some action well before the 1996 breeding season.
Background
Mr. van Dyk started the Otjiwarongo Crocodile Ranch in 1986. Prior to this, he had his own motor service station and a bakery in Khorixas, a town in the far north of Namibia. He has also farmed with cattle and sheep, but due to droughts and a high theft rate, he abandoned his farming operations. He sold his business and made the decision to start up a crocodile ranch because he considered himself to be a farmer at heart and also because he was very interested in tourism. He visited various crocodile farms in South Africa and Botswana, where he made a thorough study of crocodile farming during 1985.
Mr. van Dyk chose Otjiwarongo as the ideal location for his business. The climate of Otjiwarongo—hot during summer months and warm in winter—was favorable for crocodile farming. It was on the main tourism route of Namibia, and he could find a regular supply of meat to feed the crocodiles as the Otjiwarongo abattoir was prepared to supply him with unborn calves.
Breeding crocodiles was a capital intensive venture. A hatchery and nursery were built next to the breeding yard to ensure that the eggs could be hatched and the crocodiles raised in ideal conditions. The buildings on Mr. van Dyk’s property were valued at N$800,000 in 1988. The planned expansion was expected to cost about N$600,000 (US$1.005N$3.60).
Mr. van Dyk had also built a curio shop which served as entrance to the ranch. In the curio shop, he kept various crocodile products like eggshells, skulls, and skeletons, along with a few crocodile skin products made from skins he had sent to South Africa to be manufactured into shoes and belts. Mr. van Dyk and his wife regretted the fact that they could not stock the shop with more products, but supplies had to be kept at a minimum due to the lack of funds.
Ever since they started the crocodile ranch, Mr. van Dyk and his wife had been inviting tourists to visit the ranch in Otjiwarongo, in the northern highlands of central Namibia. The crocodile ranch received an average of 1,000 tourists per month. The visitors’ entry fees represented a substantial means of income before exports of crocodile skins started in 1991. In 1993, tourists still contributed N$6,000 per month to Mr. van Dyk’s income, although exporting crocodile skins had become the main source of income.
Additional income for the crocodile ranch was earned by selling crocodile meat to interested restaurants in Namibian towns. During 1993, Mr. van Dyk sold 1,100 kg of crocodile meat. He planned to slaughter 600 crocodiles in 1994, which would mean that he could sell 15,000 kg of meat. There was a possibility for exporting crocodile meat to Singapore, but the dealer he spoke to in Singapore wanted at least four tons of meat at a time. This meant that Mr. van Dyk would have to slaughter at least 1,500 crocodiles at a time to be able to fill up a container for exporting purposes, which was not possible for him in 1993. He planned to start exporting meat
by 1998.
Mr. van Dyk was a member of the Transvaal Crocodile Breeders’ Association in Pretoria, South Africa. In 1991, he obtained his license to trade in endangered species from CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) in Lausanne, Switzerland, which had a membership of
112 countries worldwide. Membership in CITES was
a condition for exporting crocodile skins, as most
crocodilians were on the endangered species list of
the CITES.
According to an article published in the Industrie du cuir in Paris in February 1992, raising was considered a good method of preserving those species which had become rare while continuing trading in their skins. Two types of “farming” crocodilians had been developed:
“Ranches,” particularly in Southern Africa (notably Zimbabwe), which tended to concentrate on Nile crocodiles. Eggs were taken from the wild and the young were raised in captivity until the commercial length of 1.5 m to 2 m was attained, when they were slaughtered.
“Farms,” which, in general, handled the whole reproduction cycle. There were numerous “farms” in Thailand and the United States.
The article assumed that 80 percent of the current world supply of crocodile skins, estimated at around 400,000 per annum, were sourced from farms. Ten years earlier, before legislation on the protection of endangered species had been passed in many countries, the figure of world supply had been around 2 million skins per year.
Crocodile Breeding
Mr. van Dyk bought his original breeding stock of 49 adult Nile crocodiles from a farmer in Botswana in 1986 for N$220,000. The hatchlings from the first eggs were kept and after spending four years in the nursery, these 58 female crocodiles were housed in a second breeding yard that Mr. van Dyk had been developing since 1987. These females were expected to start producing in the 1996 breeding season.
Having adapted to their new environment, the adult crocodiles steadily increased production of eggs. Mr.
van Dyk managed to successfully hatch crocodile eggs as follows:
198658 hatchlings out of71 eggs
1987364 hatchlings out of408 eggs
1988488 hatchlings out of530 eggs
1989540 hatchlings out of630 eggs
1990630 hatchlings out of714 eggs
1991705 hatchlings out of838 eggs
1992936 hatchlings out of1,273 eggs
19931,050 hatchlings out of1,356 eggs
During the mating season, outside temperatures influenced the fertility rate of the eggs. In 1993, 12 percent of the eggs were unfertilized, while the figure for 1992 was 23 percent.
The amount of eggs laid by a female crocodile depended on her age. The younger ones laid an average 21 per breeding season and the mature ones could lay up to 75. This gave an average of 48 eggs per female. As soon as the female crocodiles laid their eggs, they were packed into crates and taken to the hatchery. To further ensure successful hatching of the eggs, they had to be stacked into the crates in exactly the same position as they had been laid.
To maximize profits, Mr. van Dyk had to ensure that he produced first-grade skins. The newly hatched crocodiles were kept in a nursery for two and a half years, at which age they were about 1.4 m long and provided skins of 35 cm wide, fetching the best price. The nursery was free of stones to avoid scratches on the crocodile’s skins. Maintenance of high humidity and ideal temperatures, a regular supply of vitamins to the young crocodiles, and clean and hygienic conditions were necessary to keep the young crocodiles healthy, which in turn meant a more favorable environment to ensure first-grade skins.
At the slaughter age of two and a half years, the crocodiles would normally start to fight among each other, resulting in skins being scratched or damaged, and thus reducing their value. This was also the age at which they became dangerous and would attack workers cleaning the nursery.
Being extremely sensitive creatures, the young crocodiles could easily be upset by loud noise, sudden movements, light, and vibrations. Because of the influence tourists had on the crocodiles, Mr. van Dyk kept only 10 percent of the young crocodiles on view for visiting purposes, and the tourists were always requested to keep their voices low and move slowly.
Costs and Revenues
Mr. van Dyk raised start-up capital for the crocodile ranch through a commercial bank and through a development corporation in Namibia. In 1993, he was still indebted to both institutions for loans taken in 1988, payable over a five- and thirteen-year period respectively.
Mr. van Dyk’s monthly expenses in the last quarter of 1993 were as follows:
Water and electricity:N$2,200
Crocodile feeding:N$4,000
Wages:N$2,000
Veterinarian costs:N$150
Administrative costs:N$100
Other (including his salary):N$5,000
Installments and interest:N$5,000
For December 1993, Mr. van Dyk expected the following revenues:
Export of 150 skins:N$30,000
Sales of meat:N$8,000
Tourists’ entry fees:N$6,000
December 1993 was, however, an exceptional month because of a planned initial export of 150 skins to Germany, an order that had not yet been confirmed. The average monthly income was N$20,000.
Marketing
The constitution of the Transvaal Crocodile Breeders’ Association stipulated that each individual breeder was responsible for the marketing of his own products. This left the responsibility for marketing and selling with Mr. van Dyk, who did not have much experience in this field.
Although the Otjiwarongo Crocodile Ranch was the only one of its kind in Namibia, it faced worldwide competition for exports of crocodile skins. Crocodilians, including caimans and gharials, alligators and crocodiles, were to be found all around the world: caimans in Central and South America, alligators in the southeast of the United States and in China. The more than 20 different species of crocodiles were scattered far more widely: north of Australia, Africa, Southeast Asia, India, Central and South America, and the West Indies. Size of the crocodilians varied with the species, from 1.5 m to 2 m in dwarf species, such as the dwarf crocodile and Schneider’s caiman, up to 5 m to 7 m for the Nile and Indopacific crocodiles. In Southern Africa alone there were 23 competitors breeding crocodiles, most of them in the province of Natal, South Africa, but also in Zimbabwe, Zambia, Botswana, Malawi, and Mozambique. Zimbabwe was the leading exporter of Nile crocodile skins in southern Africa and was the second largest producer after the United States of America.
Other exotic hides, like ostrich and buffalo skins, formed part of the competition Mr. van Dyk faced. The trade in exotic skins was subject to fashion trends. Mr. van Dyk considered this to be one reason for fluctuating prices, which ranged from US$9.00 per centimeter in 1991 to US$3.00 in 1993 for first-grade skins of 30 cm wide.
Because of his limited funds, Mr. van Dyk did not advertise. “I have to first look after my crocodiles before I can find the money to advertise,” he stated.
Mr. van Dyk had started exporting crocodile skins in December 1991. Quantities and destinations of exports were as follows:
1991163 skins to Spain(Direct transaction)
1992250 skins to Spain(Direct transaction)
1993100 skins to Singapore(Direct transaction)
1993150 skins to Singapore(Through a South African agent)
In November 1993, he managed to secure an order from a German buyer for an initial 150 skins followed by 50 skins per month through an agent in South Africa. The German buyer indicated that he would be in South Africa by the beginning of December 1993, but failed to show up. This left Mr. van Dyk quite unsure as to whether the deal would go through.
The few times that he had exported skins, he contacted embassies in Windhoek for addresses of potential buyers, or alternatively was contacted by buyers who had come to know about him.
The most recent order from Germany in November 1993 quoted the following prices per centimeter for first-grade skins:
20–24 cm:US$1.80
25–29 cm:US$2.80
30–34 cm:US$3.50
35 cm11:US$5.00
Prices for second-grade skins were 25 percent less, while third-grade skins were not accepted on the market.
For international business, Mr. van Dyk preferred to deal with German buyers. As Namibia had historical links with Germany, most of the tourists visiting the crocodile ranch were German speaking. Mr. van Dyk also communicated well in German and found direct communication with other countries difficult. If he were to enter into a partnership, he would prefer a German or Swiss partner. This preference, however, did not prevent him from selling to non-German buyers.
To do business with buyers abroad, Mr. van Dyk would deal with them either directly, through an agent, or eventually through a prospective foreign partner. However, both Mr. van Dyk and his wife were very reluctant to enter into a partnership because of a previous unpleasant incident with a partner abroad, who became disinterested when revenues were not as quickly forthcoming as he thought they would be. While still considering this as an alternative, the van Dyks were not sure whether the advantages outweighed the disadvantages. The potential German investor had indicated that he would visit them in January 1994 to take up further discussions, and Mr. and Mrs. van Dyk were thinking about the terms and conditions they should propose for an eventual partnership. Mr. van Dyk hoped to enter into an agreement where the partner would be responsible for all marketing activities, while he himself would see to the smooth running of the ranch and the visiting tourists.
Because of the pressing need for funds to finance expansion, Mr. van Dyk also thought about the possibility of exporting processed crocodile skin products. This could be done through a tannery in South Africa, but he knew that this would be expensive because of the time span between sending of the skins for processing and eventual sales of the finished products. He would have to carry the costs for the tanning and manufacturing of the products in the meantime. In 1993, the cost of tanning alone was N$2.50 per centimeter, amounting to approximately N$75.00 per skin. He also considered selling the products in his curio shop at the ranch, but these up-market products did not sell fast enough in Otjiwarongo. It was only the occasional well-off tourist that would buy some of the products, but it was a possible source of income nonetheless. The other option was to have the skins processed through the intended partner in Europe, so that the finished products would be nearer to the user.
There was another possibility—to do business with an Italian buyer who had announced his visit to the ranch for January 1994. This was not definite as yet and Mr. van Dyk was worried about dealings with buyers who did not seem to be reliable. However, he had got some information on the Italian market (see appendix) and was ready to explore any business opportunities.
In December 1993, Mr. van Dyk had 600 crocodiles ready for the market out of the 2,100 growing young crocodiles in the nursery. He forecasted a production of 2,000 hatchlings for 1994 and 3,000 hatchlings for 1995. As from 1996 he could double this production, when the females in the second breeding yard started producing. This implied that he would have to find a way to build the second hatchery and nursery before 1996. His average monthly income was only adequate to ensure the smooth running of the ranch. His forecasts for 1996 onwards promised enough income for expansion, but if the necessary facilities were not ready before 1996, he would not be in a position to cater to the increased
production.
As the only crocodile farmer in Namibia and responsible for his own marketing, Mr. van Dyk wondered what action he should take to ensure the necessary expansion of his operations before 1996.
Questions For discussion
1. What are the advantages and disadvantages of options open to Mr. van Dyk?
2. Which criteria should Mr. van Dyk use in selecting his market(s)?
3. Depending on the suggested selection criteria, what additional information would Mr. van Dyk need to formulate his marketing strategy?
4. What should be the most urgent steps in Mr. van Dyk’s export marketing action plan?
Appendix: International Trade in Nile Crocodile Skins
The Crocodile Skin Markets in Italy and France*