Themes: Agricultural, Commodity Prices, Population Growth, Food Shortages
Scarcity makes things valuable. That’s why precious metals and fossil fuels are major investment themes.
But it’s the scarcity of another commodity I want to focus on today – and some ways you could profit from it.
The world’s population has grown by 138% in the past 50 years. It’s projected to swell by another 50% in the next fifty years. That means another three billion mouths to feed.
This would be no great problem if the amount of agricultural land was going to increase by the same proportion. But of course it is not. And it’s because of this real scarcity of land that the argument for investing in the agri-sector is stronger than that for investment into hard commodities. Let me explain.
There is no real shortage of sources of most metals. It’s just a matter of finding them and getting them out of the ground fast enough. But agricultural land cannot be created. It needs soil, sun and fresh water. Not only that, but land is being affected by climate change, a shortage of fresh water and by the methods of intensive farming that destroy fertility.
A major investment theme unfolding
Up to 19.7m acres of land falls fallow every year due to deteriorating quality. And there are two further pressures on food supply. One is the increasing penchant of farmers to grow biofuel crops. The other is the demand for meat that goes hand in hand with rising prosperity in developing countries.
It takes 2kg of cereal to produce 1kg of chicken meat, 3kg for every 1kg of pig meat and 7kg for every 1kg of beef. Fortunately, the world’s chemical companies have been extremely successful at improving crop yields. Cereals are still by far the world’s most important source of food and since the mid 1960s the world has managed to raise cereal production by almost a billion tonnes...
Over the next thirty years it must do so again, and conventional agrochemical technology can still further significantly enhance yields. But even so, there will still remain a gap of about 40% between the theoretical maximum crop yield and that actually achieved. And this is a gap that could be filled by new techniques.
One of these is the genetic modification of food crops. This is a controversial issue that raises the hackles of both consumers and environmentalists. In spite of that, these so-called biotechnology crops are now being planted on 125m hectares worldwide, triple the area of 2000.
While the western world agonises over issues of sustainability, the developing nations are leading the way. China is aiming to become self-sufficient in food production. Last year it launched a $2.9bn plan to develop GM crops, while in India biotechnology techniques are being used to improve bananas, cabbage, cauliflower, sweet corn, groundnuts and okra.
A second area of innovation is into ‘natural’ growth enhancers. The idea here is that plants are treated in ways that enhance their natural properties of development and resistance without any damaging side effects. This is something that is popular with consumers, or to be more accurate with supermarkets that like to push ‘natural’ foods. And it is also popular with government regulators who are increasingly concerned at the impact of intensive farming on the wider environment.
Ways you can play this
For investors there are plenty of ways to get involved. If you have the stomach for it you can, of course, trade soft commodities. But if you are a longer-term player you can find a variety of investment opportunities.
A recent report from Equity Development has some suggestions that are worth a look. Amongst the farmers there is AIM-listed MP Evans (ticker: MPE), which owns palm oil plantations in Indonesia and has cattle ranches in Australia. The report also mentions some innovative small companies, including AIM-listed PureCircle (ticker: PURE), the maker of a high intensity sweetener and Tyratech (ticker: TYR), which makes plant-derived pesticides.
It’s clear that with rapid population growth, there will be long-term pressures on supply and demand for agricultural products and soft commodities. So this is an investment trend to follow closely.
Productive agricultural land is scarce. And yet we need more food to sustain growing world population. It’s a trend that will continue. That means there is money to be made.
Good investing,
Tom BulfordFor The Right Side
P.S. Whilst researching the Equity Development suggestions above, I came across one particularly strong penny share which provides a crucial service to farmers in Africa. I described it in detail in the latest issue of my Red Hot Penny Shares newsletter. You can read it by putting your name down for a trial subscription. Learn more here.
P.P.S.: Talking of how scarcity leads to investment opportunities, oil is a great example of this. That’s why I wrote my recent report on the oil sector. One of the small companies I recommended in that report doubled in value overnight when it struck oil last week! But there could be more to come. Discover this company and TWO others in my 3 Tiny Stocks and One Big Oil Boom report.
Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Please seek independent financial advice if necessary.
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