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.
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.”
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.
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.
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