Food producers: should you invest?

Font size :
Food security is going to be an enormous social and economic issue throughout the world in the decades ahead. While we grapple with the horrors of famine and scarcity, there are also enormous investment opportunities.
In eras gone by, food has been unchartered investment territory for small investors, scared off by the sheer volatility of the markets, and a general lack of access.
However, several fund managers say we’ve entered a new era, with a multitude of investment opportunities opening up for those looking to invest a little, or a lot, to gain long term returns over the next 10 to 20 years.
Industry opinions
Joanna Davison, managing director of Colonial First State Global Asset Management says investing in soft commodities such as agriculture and food could be the answer for those wanting to get into the emerging markets of India and China, without the worries that resources and industry may be overvalued.
Davison points to the rising demand for food in line with population growth as evidence of investment opportunities. With 73 million new mouths to feed every year, she says production will have to rise by more than 70% to meet demand.
Additionally, analysts say the demand in existing markets will grow, with rising standards of living in some developing countries leading to greater demand for meat. With swaths of grain needed to support the meat markets, there are indeed solid investment opportunities to be found in food producers.
How to get involved
There are difficulties gaining exposure in some emerging markets due to the extent of private ownership and cooperatives, and as such going with an agribusiness fund can give you the exposure of investing in the entire process from seed to plate. You can choose from a listed investment company (LIC), or an exchange traded fund (ETF) or exchange traded commodity (ETC). Each has its own characteristics and inherent risks that you will need to understand.
This style of investment option is not solely based on the commodity, and gives you exposure to the entire agribusiness supply chain; farm land, crops and animals, fertilisers and chemicals, seeds, water and machinery.
Jonathan Blake, manager of Baring Global Agriculture, says when looking for a fund, it’s about the “three Fs”: food, feed and fuel, and with the long term pressure on agricultural products to step up to demand, the prices are “only going one way – up.”
The nitty-gritty

There are a range of funds listed on the ASX which have opened the door for private investors to gain exposure to food production and supply. Here are some to consider:

  • Deutsche Bank’s DWS Global Equity Agribusiness Fund – invests in listed companies across the supply chain. The fund seeks to fully hedge the currency exposure back into Australian dollars.
  • Colonial First State Commodity Share Fund- invests globally in companies involved in the entire production process.
  • Merricks Capital- runs a soft commodities fund which invests in food and agricultural- related shares, futures and options.
  • Offering a wider field, Credit Suisse has its Enhanced Commodity Fund. This fund taps into agriculture whilst including exposure to precious metals, natural gas and petroleum.
A word of warning
Unlike gold and other precious materials, the spot price of agricultural products cannot be as closely monitored. As such, ETCs are usually based on commodities futures’, meaning the position closes a few months ahead of real time.
In Queensland and Victoria this year, many Australian shoppers saw empty shelves for the first time in their lives. Widespread flooding meant both severe crop damage, and lack of access from other states and overseas imports.
Remember that agricultural commodities fall into the volatile asset class, and as with any investment, the market is subject to significant falls. Experts generally recommend commodities should only make up a limited percentage of an investor’s portfolio.
The upshot?

If you’re for the case of agriculture as the next big thing in investments, (and prepared to ride the rollercoaster of potential risks) the most practical method may be to invest in an agricultural fund. Offering diversity of exposures, funds tend to have more capacity to manage the volatile nature of commodities.


Latest Articles

How market volatility affects YOU
GOAL! How to score financial success

5 ways to recession-proof your household

Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker

Mortgage News and Articles

How to tell when a housing market is cooling How to tell when a housing market is cooling

You need to check clearance rates, listings, and the price gap, among other factors Read more

Growing demand for green apartments in Sydney Growing demand for green apartments in Sydney Both owner-occupiers and investors favour eco-friendly buildings for their energy-saving features and reduced environmental footprint ... Read more

Are property investors as rich as they appear? Are property investors as rich as they appear? A multi-property portfolio doesn’t guarantee easy millions ... Read more

Be proactive about getting a better mortgage deal Be proactive about getting a better mortgage deal Apathy could be costing you a considerable amount of money over the lifespan of your loan ... Read more

More mortgage news and articles

Sponsored Links

Thursday, Sep 21, 2017
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
  • How much do you want to borrow?
  • How much deposit do you have?
  • How much is your house worth?
  • How much do you still owe on your mortgage?
  • What type of mortgage do you have?

  • How much is your new home?
  • How much do you want to borrow?
  • How soon do you want a mortgage?
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords