by Carl Delfeld, Global Markets Strategists, The Oxford Club
Thursday, November 1, 2012: Issue #1894
We take a steady supply of high-quality food at reasonable prices as our birthright, but it wasn’t always so.
A few decades after the Civil War, almost all Americans toiled on a farm. And many of the European immigrants who flooded the country in the late nineteenth century were also farmers looking to start a new life on cheap and productive American farmland.
Then began both the mass migration to the cities and huge increases in productivity… leading to only 2% of Americans making a living off the land today.
It’s also a very different story in many parts of the emerging world. In India, for example, more than 50% of workers are still involved in small-scale farming.
Food represents 14% of our consumer spending, but in emerging market countries it ranges between 30% and 70%. In India, where 75% of the population lives on $2 a day and 40% of children are malnourished, 44% of income is spent on food.
Here’s the Big Picture…
As the incomes of emerging nations (93% of the world’s population) rises, food prices will also increase.
The world’s population recently exceeded seven billion, and adds 200,000 people per day. By 2050, the planet is expected to hit the nine-billion mark.
And rising incomes in countries such as the Philippines, Peru and Ethiopia mean more money for any family’s top priority: food. To meet this growing demand, the World Bank estimates that farms worldwide will have to produce more food in the next 50 years than it did in the last 10,000 years.
In addition, as the global middle class has gone from 2.6 billion to 5.1 billion in 2020, the quality of diet increases, as well.
Taiwan is a telling case study of what’s happening all over the world.
A study by two economists from Nomura, Rob Subbaraman and Sonal Varma, looked at changing diets in Taiwan from 1980 to 1995, and found that consumption of rice and vegetables fell but the demand for meat, milk and fruit jumped. And eating more beef, pork and chicken drives demand for grain as animal feed.
One big challenge to feeding the world is that the land and water necessary to support increases in agriculture are dwindling. Farmers are pushing into lower-quality land that lacks access to natural irrigation. One in five countries will face severe water shortages by 2025. And building more roads and other infrastructure to get produce to markets before spoiling is also a big challenge.
The good news is that your choices to invest in this unstoppable trend are endless. There are quite a few agriculture and commodity exchange-traded funds (ETFs). Likewise, there are some great fertilizer companies like Chemical & Mining Co. of Chile Inc. (NYSE: SQM) or Archer Daniels Midland Company (NYSE: ADM), and big food giants like Nestle S.A. (OTC: NSRGF.PK) and Kraft (Nasdaq: KRFT), which recently spun off its international unit as Mondelez International (Nasdaq: MDLZ).
One of my favorite strategies over the past few years has been investing in emerging market food companies, like Brasil Foods (NYSE: BRFS) or Thailand’s CP Foods (OTC: CPOKY.PK). These companies are at the sweet spot of supplying protein to their country’s vibrant and rising middle class – and are also big exporters.
The main point is: You can’t go wrong having a good dose of food in your global portfolio.