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Investment - Making the most of food
Most of us aren't that worried about how much we pay for our food - we spend well under 10 per cent of our incomes on it and routinely buy foods that were considered luxuries only a decade ago, writes Merryn Somerset Webb
This may not be the case for much longer. The price of wheat has risen 33 per cent over the past two years. Rice has gone up 50 per cent over the same period, barley has risen nearly 60 per cent, and pork is up 30 per cent. For years the prices of all our basic foodstuffs have been falling. Now they are rising.
There are two reasons for this. The first is that the emerging middle class across Asia is fast improving its diet, which is pushing up demands for both protein and grains (it takes a lot of grain to grow a chicken). This trend will accelerate as millions more Chinese people find themselves on middle class incomes.
The second is the boom in the production of biofuels (made from grain, sugar and palm oil), which is likely to continue for as long as oil prices remain high and for as long as politicians continue to see biofuels as a solution to global warming (given the rate of forest clearances needed to create the land to grow the grains to make the biofuels, it is not, but few people seem to say so).
Research shows that to make enough ethanol from corn to fuel an average American car requires 11 acres of farmland. The same amount of land could feed seven people.
Unfortunately, while demand for these 'soft' commodities is rising, the supply is not there to meet it: large areas of agricultural land have been lost to urbanisation in Asia, while volatile climatic conditions all over the world have been reducing yields. The result, according to Bedlam Asset management, is that "basic food prices will double in the next five to 10 years and some key foodstuffs will become temporarily unavailable".
The easiet way to make money out of all this is to buy Exchange Traded Commodities (ETCs) on the London Stock Market. These track the prices of soft commodities or baskets of soft commodities and can be bought and sold like shares.
You can buy them on single commodities (just sugar for example), but as individual soft commodity prices are notoriously volatile you are probably better off with the 'softs' ETC (which includes sugar, cotton and coffee), the 'grains', or the 'agriculture', which combines the two. Otherwise Schroders has launched an actively managed agricultural commodities fund (Schroder AS Agriculture Fund A).
I hesitate to recommend it wholeheartedly, simply because it comes with an outrageous five per cent initial fee as well as a performance fee - most brokers should offer you a discount on the five per cent, so if you intend to buy make sure you get one.
* The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
