A mature investment: take a bite of the cheese market

Inside the vaults of a bank in the Emilia-Romagna region of northern Italy is stored not bars of gold but another precious yellow material. It holds more than 300,000 wheels of Parmigiano Reggiano, with a total value of around £140m. This bank realised that a good cheese, like a good investment, gets better with age.

As well as being a traditional bank, Credito Emiliano supports the region’s cheese producers by offering them loans for new equipment and cows, accepting wheels of parmesan as collateral. These cheeses need to age for two to three years, by which time each 88lb wheel is worth a few thousand pounds, ensuring the bank a safe return on its investment.

Appetites for cheese are growing, particularly in China, Brazil and Russia, and British cheesemakers are reaping the rewards. Between 2015 and 2017 the amount of British cheese exported to China soared from 49 to 786 tonnes – and savvy private investors are catching on.

London-listed Dairy Crest is among the top 10 holdings of Fidelity’s £102m UK Opportunities fund. The dairy company owns Cathedral City, the cheddar voted one of Britain’s top 10 brands by consumers in a YouGov survey earlier this year.

Leigh Himsworth, the fund’s manager, said: “Dairy Crest is an exciting opportunity for investors. The company is growing and in the process of spending £85m to expand its factory in Cornwall to meet increasing international demand. It is looking to extend its distribution in countries where there is a poor supply of quality unprocessed cheese, such as America and China. The company uses only milk from dairy farmers in the South West of England. Everything is supplied from Britain, meaning that, unlike with a lot of its competitors, Brexit doesn’t pose a big concern.”

Fidelity UK Opportunities has returned 38.1pc over five years and charges an annual fee of 0.95pc. The dividend yield of Dairy Crest, also held by the £2bn Royal London UK Equity Income fund, is 5.1pc.

For those interested in smaller businesses with potential for growth, crowdfunding websites are fertile ground. The Cheese Truck, a British food start-up that sells grilled cheese sandwiches from the back of a van, is looking for backers through investment website Crowdcube. Described as possibly “the best street food truck ever” by the Metro newspaper, the company set up a restaurant in Camden, north London, following two crowdfunding campaigns. The Cheese Truck hopes to use the third round of fundraising to grow to five sites by 2022.

Investors get shares in the company as well as various rewards, which have previously included a discount at the restaurant, free cheese-and-wine evenings and events catering.

Mathew Carver, the company’s founder, said: “Our crowdfunding campaigns have been a huge success. In our first we raised £130,000 and hit our target in just three days. When investing it’s important to put your money in something you understand. People love cheese, love the truck and get the idea straight away.”

The company wants to show off small British farmers who use traditional methods. “We have an amazing cheese industry here,” Mr Carver said. “Britain makes more types of cheese than France and we want to celebrate that.”

Mr Carver hopes to create returns for investors by selling the business when it hits its five-restaurant target. “If we don’t find a buyer initially we’d start to pay dividends at that point,” he said.

The shares are bought directly from the company and can be sold through it. One investor who put in £1,000 two years ago sold his shares during the recent round of crowdfunding at a slight discount to the market price and saw a 380pc return on his money.

There are other ways to invest in this industry beyond buying into the cheese companies themselves. Denmark-based Chr Hansen, a global bioscience firm, produces the most extensive range of cultures and enzymes for cheese in the world, allowing cheesemakers to improve

texture and flavour while reducing waste levels and salt.

Soeren Herskind from the firm said the cheese market was growing at 2pc a year in volume terms, creating a “hunger for new functionalities and flavours”.

Chr Hansen is among the top 10 holdings of Barings’ £1.9bn Europe Select Trust, which has an annual charge of 1.55pc.

There’s even a way to invest in the cheese market without going anywhere near dairy. The number of vegans in Britain has increased more than threefold over the past decade, according to The Vegan Society, sparking a spurt of new companies offering plant-based alternatives.

One such firm is online supermarket Ocado, which in January added 90 vegan products to its stock. The retailer offers more than 20 non-dairy cheese alternatives, including mozzarella, gouda and parmesan – made with cashew, tofu or almond.

The company is expanding

Appetites for British brands are on the rise – and they can offer some tasty returns, finds Marianna Hunt ‘It’s important to put money in something you understand. People love cheese’

globally and in June secured a deal with Kroger, America’s largest supermarket chain by revenue. The United States is also experiencing a wave of interest in plant-based food and has seven times as many vegans as it did in 2014, according to research firm GlobalData. Henry Boucher manages the £212m Sarasin Food & Agriculture Opportunities fund, which holds Ocado shares. As well as the retailer’s exposure to the non-dairy cheese market, Mr Boucher said it was a strong holding because of its “worldleading technology”. He said: “Because it stocks the food items in a handful of central warehouses rather than on shelves in thousands thousan of supermarkets, it is possible to hold a much wider variety of i items at better value and incur les less waste.” Oca Ocado is also among the top five holdings of the £441m Edi Edinburgh Worldwide inv investment trust and £394m Ba Baillie Gifford Global D Discovery fund. With the value of British c cheese exports rising by 2 23pc in 2017, generating £615m, according to data from HMRC, growth in the industry does not look likely to slow any t time soon. Is it time for investo investors to put their money where their th mouths are?