Want success on a plate? Invest in food to reap tasty profits
FROM seeds to shops and fertiliser to fast food – and futuristic alternative meat sources – there is a basket- l oad of opportunities f or investors to cash in on the food business.
The food industry is not just about what we put in our mouths – but how it gets there. It is made up of scores of sub-sectors all contributing to an industry that is worth billions of pounds.
The attraction for investors wanting a slice of the action is that it is a dependable generator of revenues for those companies involved – everyone has to eat and the world’s population is growing rapidly.
But it is also a highly competitive business so margins in certain sectors can be tight. The market is also facing new challenges including the growing demand for healthy, ethical and sustainable food as well as meeting the challenges of the online revolution. The sector’s growth can be boosted or knocked off course by other factors including geopolitics, currency fluctuations – and the weather.
Picking individual companies in the food chain is one option. But with hundreds of global stocks to choose from, it can be wiser to invest in a fund that does the choosing for you.
The main f unds t hat i nvest directly in the food sector are Allianz Global Agricultural Trends, Barings Global Agriculture, Pictet Nutrition and Sarasin Food and Agriculture Opportunities.
The £ 42 million Barings fund chooses holdings in companies with long-term growth potential within the food chain. Its biggest holdings are Tyson Foods, the world’s second l argest producer of pork, chicken and beef; and fertiliser specialist Nutrien.
Jeneiv Shah is co-manager of the £402 million Sarasin fund, which has a broad remit, picking stocks ‘from the field to the fork’. But it follows three key themes: dietary change, including a trend towards veganism; the growth in eating away from home; and the technology that makes all food areas run more efficiently.
Had you invested £1,000 in the fund five years ago you would now have £1,785 compared with £1,419 in the FTSE All-Share Index.
Shah says: ‘ We focus on the growth in the food economy. Everything from its production, adding value via processing, through to selling it in restaurants and shops – even the equipment used in commercial kitchens.
‘This is all against a backdrop of a rapidly rising population – predicted to grow from 7.5 billion today to ten billion by 2050.’ He adds: ‘It is an interesting theme to invest in, with the growth in the last 30 to 40 years in food away from home – eating on the go, to restaurants and office canteens and airports.’
The fund also holds equipment manufacturers, including Middleby and Welbilt – both American. They make the fryers and ovens used by the likes of Pret a Manger and Domino’s Pizza.
Then there are the ingredient makers. The fund holds Givaudan, a dominant player in the global food flavouring industry. The growing demand for meat substitutes is in turn a growth market for the
French company. This is because consumers expect alternative protein products to taste as good as the real thing.
The increasing urbanisation of the world with ‘ mega’ cities in China, India and South East Asia is changing diets and opening up new opportunities. Shah says: ‘Because of refrigeration these countries can now keep meat and dairy in a way they couldn’t before.’
He watches with interest other trends in diet, such as a switch to fish for health and ethical reasons. Salmon, the majority of which is farmed in Norway and Chile, is a premium product because the supply is limited. The price should remain strong because of this limited production – the fish is best farmed along coastlines that offer varying temperatures of water for the different stages of its lifecycle.
The fund’s holding in Norwegian salmon producer Mowi has proved successful with shares up more than 150 per cent since purchased five years ago.
The fund is also betting on the growing taste for dairy in China. Shah says: ‘It used to be said that Chinese people were intolerant of dairy but demand is growing with many people buying yogurt, ice cream and fresh milk. Even organic dairy is taking off.’
The share price of dairy group China Mengniu, the former statecontrolled dairy business, has doubled since the fund purchased a stake five years ago. It is now a top ten holding.
Another big position is in DSM, a Dutch company that has developed an enzyme to reduce the amount of methane that cows produce – one of the big contributors to green house gases.
John Deere, a US tractor maker, is held by both the Sarasin and Barings funds. Despite its dominant position in the tractor market, the company is prepared to diversify – recently purchasing Blue River Technology that uses artificial intelligence to identify weeds for spraying with insecticide while leaving crops intact.