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Kapoor Singh, a Haryana farmer, multiplied his investment ten times in two years when he sold his buffalo, Luxmi, to Rajiv Sarpanch, a farmer from Andhra Pradesh, for Rs 25 lakh. With this money, he can either buy more than 800 grams of gold, over 850 shares of a resurgent Infosys, a 2BHK house in Wave City, Ghaziabad, a BMW Q3S, or go on Thomas Cook’s 14-night, 15-day European Extravaganza tour with ten other friends.
That’s because Singh didn’t have investment advisors breathing down his spine – it’s his eye for bovine talent that has given him such fantastic return on investment. Instead of buying Luxmi, had Singh bought gold with his Rs 2.5 lakh, its present value would have been around Rs 3 lakh. In a fixed deposit, it would have become Rs 2.95 lakh. Had he bought Reliance Industries shares, the present value of the investment would be Rs 2.7 lakh. And if he had bought Educomp shares the money would have shrunk to Rs 22,500. The money, of course, was too small for a worthwhile real estate investment.
As an investment, a buffalo can be compared to a house or shares: there’s regular income (like rent from a house and dividend from shares) as well as capital appreciation. Luxmi is expected to calve soon and will give 30 litres of milk in a day after that. (Most high-yield buffalos and Jersey cows produce not more than 15 litres a day). Dairy farmers sell buffalo milk for Rs 30 a litre. So, that’s revenue of Rs 900 a day, Rs 27,000 a month, and Rs 3.24 lakh a year. Out of this, you need to deduct expenses on cattle feed and labour. Experts say that shouldn’t be more than 25 per cent. So that’s net income of Rs 2.43 lakh per annum. Luxmi’s valuation is over 10 times its net annual income. In other words, Sarpanch will take more than ten years to recover his investment.
The valuation is way out of industry norms. A cow is valued at Rs 3,000 for every litre of milk it produces in a day. One that produces 15 litres will fetch Rs 45,000 in the market. The value of a buffalo is higher – around Rs 4,500 per litre. That’s because it has more fat which can be used to make cream, butter and ghee . While the fat in cow’s milk is 4-4.5 per cent, it can be as high as 9 per cent in buffalo’s milk. This ought to have given a value of Rs 1.35 lakh to Luxmi – 94.6 per cent less than the Rs 25 lakh Sarpanch has paid for it and 45 per cent less than what Singh paid for it two years ago. Experts also point out that Luxmi is in the prime of her youth, and her output will only go down in the years to come.
The gap falls somewhat when one accounts for the six or seven calves she will produce in her lifetime. She is ready to calve for the third time; so there could be four more in the years to come. Luxmi is a buffalo of the Murrah breed and it is reasonable to assume that its calves will also turn out to be rich in milk. But even that doesn’t explain the gap fully. For that, you need to go to the livestock shows held in villages across the country. Luxmi is a giant killer at such contests, and has won various prizes; the maximum has been Rs 3 lakh. Here’s the catch: the Andhra Pradesh government will hold a cattle show in January 2014 in which the prize money is, hold your breath, 1 kg of gold. Its current value is Rs 31 lakh. If Luxmi wins – she is already the frontrunner – Sarpanch will have more than recovered his investment in less than six months. Bite that, Mr Investment Guru.
