By Michael Eustace
The Chinese have always wanted rhino horn. SA can satisfy that demand without killing rhino. But the Convention on International Trade in Endangered Species banned trade in rhino horn in 1977.
Last year, 1,004 rhino were reportedly poached in SA.
Examination of the census numbers in the Kruger National Park, relative to the reported numbers of poached animals, suggests that the numbers poached were higher than the carcasses found.
A total of 1,300 rhino poached in SA seems a more likely figure. Add to that number the rhino poached in the rest of Africa, horns stolen from official stocks and those sold illegally from private stocks, and the total supply figure is about 1,500 sets.
Supply and demand are equal, brought into balance by price. The price is thought to be $60,000/kg at the retail level and $30,000 at the wholesale level. There are many different markets and prices. The demand in the past has been mostly from China for traditional Chinese medicine. Recently, Vietnam has been promoted as a major source of new demand but most of the internal trade there is in fake horn. Historically, Vietnam has been a conduit for horn into China.
Prices of rhino horn have risen steeply in recent years, which must have attracted a significant speculative component within overall demand. Assuming speculative demand last year was 400 horn sets, then the balance of 1,100 horn sets was sold to consumers. About 80% of the Chinese, or
1-billion people, are said to use traditional medicine. The underlying demand for rhino horn is often referred to as "insatiable" by the donor agents. But the high price limits the actual demand to a few people.
If a course of treatment needs 5g of horn, then only 880,000 people use the entire 1,100 horns supplied to consumers, excluding speculators. That represents less than 0.1% of the Chinese population who have an interest in traditional medicine.
Any "demand reduction" strategy needs to persuade more than 99.9% of the traditional Chinese medicine-consuming population, or it will not be effective.
The trade ban is not working and has never worked. It has favoured criminals exclusively and has been at huge cost to the rhino and rhino owners.
A monopoly of supply, from a single government broker, selling to a cartel of government-owned traditional Chinese medicine hospitals, may be the best strategy to reduce poaching.
About 2%, or 400, of SA’s rhino population of 20,000 die every year from natural causes. With prices of $120,000 for a horn set and a legal trade, there is likely to be great effort applied to collecting those horns.
Stocks of 4,000 horn sets in SA can provide 400 horn sets a year for 10 years.
With the decline in poaching to, say, 200 rhino a year, the population should increase at a net 6%, or double in 12 years.
Natural deaths from double the population and increased ranching of rhino will be more than able to substitute for the depletion of stocks after the 10th year.
Private owners have 5,000 rhino and if they were to crop 2,000 of those, they could provide the equivalent of 500 horn sets a year. (Horn can be cropped from rhino without any harm to the animal and the horn regrows at the rate of 1kg a year.)
Thus, a monopoly of supply can source 1,300 horn sets a year from SA alone without the need to kill one rhino.
In the absence of speculators, that should be more than enough to satisfy the market.
Speculators are likely to cease buying horn when they realise that a legal trade will provide a large and consistent supply of horn that will satisfy annual demand and that there will be little scope for price appreciation.
In addition, and of more concern to the speculators, will be the fact that illegal goods in a market dominated by legal goods typically trade at a 30% discount. If there is the risk to the buyer of fake horn and poisoned horn, the discount will widen to, say, 40%.
Speculators will turn sellers and fill the illegal market with horn. That will have the effect of reducing the demand for new supplies of poached horn because there will not be the market for it.
The Chinese government, via its traditional medicine hospitals, will be invested in the legal trade and making about $30,000 profit per kilogram on 1,100 horn sets weighing 4kg each, which amounts to $132m a year. That should encourage it to close down the illegal trade.
Poaching is unlikely to cease but a decrease in the number of rhino killed from 1,300 a year to, say, 200 animals a year, would be a major achievement.
The African population of rhino of 25,000 is capable of growing by 1,750 animals a year, so 200 is manageable. The total value of the present illegal trade is about $360m a year.
The costs at each stage of the pipeline are minimal, so the profits are extraordinary.
Without a legal trade, the criminals are not going to withdraw — the profits are too attractive and the risks are low.
Most commentators do not consider anything beyond standard trade models, but there are much smarter ways of establishing a legal trade.
The structure suggested is based on the old De Beers diamond trading model that operated successfully for over 50 years.
It is a tried and tested model and has many advantages over free trade.
A monopoly selling legal horn to a cartel would satisfy market demand, at the present high prices. There would be no need for poaching. There would be a clear legal channel. The Chinese government being invested in the legal trade would have an incentive to close down the criminal trade.
The suggested model would increase the risks to the criminals, reduce their profit and greatly reduce the size of their market.
It would remove the important speculative element from demand.
A monopoly would be able to control prices in order to make the volume of trade sustainable. It would reduce poaching substantially and generate income for parks and private owners in Africa of about $132m a year, if 1,100 horns were sold at the wholesale price of $30,000/kg.
That income should allow for financially strong parks and greatly improved conservation and tourism prospects.
With little poaching, SA will have surplus rhino and may wish to sell, lend or give rhino to other parks in Africa in order to improve their tourism prospects. In addition, that would allow the parks to establish a source of income from horn sales.
A smart trade is probably the solution to rhino poaching.
SA owns 70% of the world’s rhino and needs to take the lead in developing and promoting a more intelligent plan for the rhino. No-one else is going to do it and the present situation is absurd.