Emu Farming - Ponzi Scheme redefined - Part 1

Off late, you might have been bombarded with internet mail forwards, TV, Radio advertisements where your favourite or non-favourite actor/actress endorsing how Emu Farming has helped "millions" out of their poverty or financial goals. 

With aggressive set of suddenly cropped out franchises and attractive gifts like gold coins, I read that even many of the well educated err. well informed people are getting deceived by this ultra modern ponzi scheme. Here is how it makes into that category...

First of all, why Emu?

Emu is the second largest extant bird in the world by height, after ostrich. The Emu is common over most of mainland Australia, and is flightless and could grow more than a two full grown men's height.. well 1.5 maybe. This flightless bird said to have many more medicinal advantage including wonder drug aspirin.

Emu farming is supposed to have debuted in India in the mid-1990s after emu slaughtering was banned in its home in Australia. The farming started in order to facilitate different products from Emu to Australia and other countries. Now, those in the business say there are 3,000 farms in India, largely in Tamil Nadu, Punjab, Maharashtra, Kerala and Gujarat.

Why does this sound a scam?

In these investment schemes for emus look remarkably similar to the ponzi rackets that have operated in the past. For an initial investment of, say, Rs 2 lakh for 20 pairs of chicks, an investor is promised total income of Rs 6.5 lakh in five years-essentially a tripleyour-money scheme. All an investor is supposed to do is return the 20 pairs to the company promoting the scheme every year and take a new set.

Now, in any Business, there has to be a product. In Emu Business, Meat & Oil are the products (Eggs are only for reproduction and is not a product). These are the two main reasons for which, Emus have to be culled. Culling for reasonable economic values is the essential key to this Business. If there is no culling and no regeneration, the cycle never completes.  

The tipping point for this industry will flower once the Emu Meat is well liked by the end-users. For that to happen, Emu Meat must be freely available on the market first. Emu business will sustain and grow only when there is a usage, that means, a Market for Meat. This can be achieved only through selling its Meat for consumers and Oil for Pharmaceutical Industries. With the exposure still NOT there in Indian market, the days of break even runs far more beyond 2 years to get any returns.

Emu Slaughtering is the lifeline for Emu Farming Industry. If it is not established soon, the industry will be waning.

Original Franchise Concept of Emu goes like below: (Thanks: Emu-farmingGuide.blogspot.com)

The emu slaughtering is not so popular in retail level, because, Butchers do not know how to process this bird and also how to handle the byproducts and biological wastes originating from them. The Butchers are need to be invited to join a free program, where they will be systematically trained on the emu slaughtering in their shops. Systematically here means, teaching & training them on how to do the following: removing the skin with out knifing, removing the feathers without leaving holes in the skin, separating the fat without blood stains, and  handling the biological wastes, etc.

Butcher will pay for 3 birds average live weight cost @ 40 Kg x 275 x 3= 33,000/-. It can be arranged with a bank to grant unsecured micro lonas to the butchers. As banks provide the money to the franchiser directly, whereas the butcher owes money to bank.

The Emu birds will be given to them on a daily basis, the butcher will sell the meat and be settling the money on the same day evening and along with that, the fat, feathers, and skin also will be collected by the franchier.

A Delivery van, with cages for each bird to be built and used to deliver the birds. The birds are expected to be delivered before 6 am in the morning.

A Collection van with refrigeration facilities and a safe vault (to keep money), to be visiting each butcher around 4 pm in the evening to collect the money and FAT.

The big farmers are to be signed agreement to supply birds @ 250/kg live weight at their farm gate. 

An arrangement with Emu Fat processing units (one is already running in Pondicherry) will give you a regular market for the fat. Same applies for Skin and Feathers. There are consumers for it.

Let's look at the cost aspects:

What does Breeder get?

A Emu bird will reach 40 Kgs at 10th month by changing the feed combination. The purpose made feed combination will help the bird to store lot of fat at the age of 10th months. The selling cost at the 10th month for each bird is: Rs. 10,000. you have spend Rs.4500(feed)+Rs.2500 (chick production cost+labor), which costs you around Rs.7,000/-. You get Rs.3000/- per bird. If your farm is producing 1000 birds every year, you get 30,00,000/- as profit, whereas your sales, is Rs.1,00,00,000. It's a good 30% margin. Breeder gets his money on cash and carry basis.

What does the Franchiser get?

The Franchiser who does running the distribution network, virtually starts up with very small investment, compared to the Emu Breeder. A bunch of people, several custom-built lorries, and a systematic approach and sincerity to the business are enough to make the big success. Apart from the investment in the infrastructure, Franchiser makes Rs.2000/- per bird straightaway. If the lorry carries 60 birds at a time, it is 60,000/- per trip as total Gross Profit. The advance money is paid by the butcher, as this money is coming from Banks (Citi, HSBC, SCB, etc) as an unsecured Microfinancing Loan. Government is forcing the banks to disburse microfinancing loans as a percentage of their total capital requirement. Actually, these banks are looking for a reliable opportunity and partner to work with. The advance money is with Franchiser to pay in cash to the breeder. Breeder gets his money on cash and carry basis. The fat collected is at Rs.1000/Kg from Butcher and is sold to the Emu oil processing unit at Rs.1,200/Kg, which makes an another Rs.60,000/- per trip of 60 birds (60 birds @ 5 Kg x Rs.200 [1200-1000=200] = 60,000). Each butcher can sell atleast two birds a day (25 Kg meat for each bird) and you can easily find 30-50 butchers in a city to market your product. To increase your sales numbers, you need to advertise periodically about the health aspects of emu meat in Papers and TV. 

What does the butcher get?

Butcher initially deposits Rs.33,000/- to the franchiser for 3 emu birds at 40 Kg live weight at the rate of Rs.275/Kg, and the money is given by bank as microfinancing loan with no collateral. Butcher sells 25 Kg of meat per bird(with bones, albeit) @ Rs.300-325/Kg, sells 5 Kg of fat to the franchiser at Rs.1000/Kg, and Skin is selling at Rs.500/Skin. The total sales is Rs.13,000, against the bird cost of Rs.11,000/-. The net revenue is Rs.2,000/bird. If he sells two birds, he can make Rs.4,000/day on emu birds. Butcher is not sparing the money from his packet to pay the advance, which he can settle over a period of 3 years to the bank. And also, he is delivered with birds at his doorstep, and the fat is sold at his doorstep to the franchiser on the same day. It's no-pain business for him.

In general, Emu industry will be flourishing if this model gets implemented. 

However, here is the reality check: What is happening with these bogus ponzi companies?

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Let us see in detail tomorrow...