Better diets a feast for investors
Multinationals count on calories
INVESTMENT strategies for emerging markets may soon be less about city skylines and more about waistlines.
Investment research company Morningstar this week issued a report called Basic Materials Observer on the remaining pockets of potential in emerging markets in the event of China’s infrastructure and real-estate boom showing signs of slowing.
The report, subtitled “Rising Incomes, Changing Tastes: How Africa, India and China will Reshape the Global Food and Agriculture Landscape”, contains 98 pages of in-depth research identifying the companies most likely to benefit from changing diets and packaging requirements.
While consumption in developed markets remains stagnant, the Observer identifies India and sub-Saharan Africa as likely to play starring roles in the emerging-markets diets growth story, overturning the Chinacentric narrative.
“We expect caloric gains in India in the next decade to exceed China’s impressive growth of the past decade.
“Intriguingly, the outlook is even better for sub-Saharan Africa, where we expect caloric intake to increase by nearly the total caloric intake of the US.”
In contrast, Chinese caloric intake is likely to plateau after gains in the past three decades, which have pushed calories per capita near rich-country levels.
“Emerging countries occupy different positions on the income-calorie curve, implying dissimilar growth potential.
“With average caloric intake approaching that of rich countries, China’s high-growth days are behind it. The same is true of Brazil. By contrast, sub-Saharan Africa, India and most of Southeast Asia are likely to see robust caloric intake gains.”
Morningstar says China will continue to define food and agriculture markets with shifts in its dietary mix, which will include more meat, yoghurt and milk products in the diets of the average Chinese person replacing a reliance on grains.
Chinese beer consumption is also expected to be nearly double that of the US by 2022.
While there are not a lot of South Africa-based companies that stand to be catapulted by the changing diet landscape, even in sub-Saharan Africa, given the entrenched presence of multinationals such as Unilever and Nestlé, SABMiller is one of the companies identified as a likely beneficiary.
The top 10 companies poised to benefit are Hindustan Unilever, Mead Johnson, Mondelez, Monsanto, Nestlé, PotashCorp, Rexam, SABMiller, Want Want China Holdings and Yum Brands.
SABMiller’s advantage is that it has the greatest exposure to China among global beer makers. Morningstar is predicting a sizeable increase in beer swilling.
The brewer is also well positioned in sub-Saharan Africa, where Morningstar predicts the biggest increase in beer consumption.
Seed producers such as Monsanto and Dupont stand to ben- efit. That will require fertiliser producers such as PotashCorp and Mosaic to step up output.
“Among poorer countries, the outlook for cereals is very positive. The outlook for cereals is negative among higher-income emerging market countries.
“We expect total rice consumption to decline 5% in China, the world’s largest consumer of the crop.”
Nestlé leads its peers in exposure to emerging-market mouths, given a vast product portfolio, a long history of playing in these territories and a detailed understanding of customers and routes to market.
Morningstar says Unilever and Mondelez currently have greater exposure to India than their global peers, while Mead Johnson and Nestlé are best positioned in China.
Unilever brands include Robertson spices, Joko tea and Rama. Mondelez owns Cadbury, Oreo and Dentyne.
Mead Johnson and Nestlé compete in the baby-nutrition category, and strong Chinese parent loyalty to these brands should entrench their representation there.
Closer to home, the researchers say that although sub-Saharan Africa represents a tiny morsel of revenue for most global food companies, they expected the region’s relative importance to rise in the next decade on strong growth in food consumption.
“Mondelez and Nestlé have staked out strong positions in the region, and are poised to benefit most from dietary tailwinds,” Morningstar says.
“In Nestlé’s case, the firm is poised to take advantage of a growing middle class but also serve a more constrained consumer base through its ‘ popularly positioned products’ strategy, which, according to the company, offers a similar quality and nutritional profile as its core product base, but at more affordable prices.”