In our previous articles we talked about alternative investments, and in this article Bryan will make a deep dive into the art sector.
Mr. Ersintepe shares an interesting, but mostly forgotten investment opportunity with us: the (organic) food industry. He explains why this sector should not be overlooked by the investor community. Will food become the new trend?
Food will become the new trend
While new technologies like social media and cloud based computing are under enormous attention, there is a sector forgotten by investors, but with a lot of potential: the food industry, especially the organic food industry. The main driving force behind this sector is the growth in global population, combined with increased awareness of food safety issues.
Except Jim Rogers, there are few experts interested in the agriculture sector. This could be a good sign for investors who like to benefit from these types of opportunities. The market gurus have been positive on agriculture for years, some predicting that the sector is one of the most exciting opportunities for investors in the next ten years.
The sales and production-expenses have reached new records. For example, American producers have sold $394.6 billion of products in 2012, with the costs of these goods sold amounting to $328.9 billion according to figures released by theU.S. Department of Agriculture.
In the United States of America, the total revenue of organic products from farms has increased with 82% since 2007, to an amount of $3.1 billion. At the moment there are 3.2 million farmers working on 2.1 million farms, on 914.5 million hectares of land. Around 78% of all the American farms are run by families or individuals. 75% of all farms have revenues less than $500,000 per year, and these combined cover only 3% of all products sold in the entire sector. Large farms dominate the market; farms that produce over a million dollars per year have a combined market share of 66%.
Wealthy Chinese are getting in
Smart investors have discovered this trend. Chinese billionaires, who earned well in technology or real estate, are now focusing on food as a new investment opportunity. They are following the footsteps of the rich and celebrities of the West, like Prince Charles, who founded the first premium organic food brand ‘Duchy Originals’ 24 years ago.
Also supermarket chains are competing. The American Whole Foods Market has designed stores especially for people concerned about health and food safety. The opportunity for modern agriculture and the relatively stable price of quality food have attracted entrepreneurs and investors into this sector.
Rat and fox meat sold as lamb
Chinese billionaires have moved their attention into biological foods due to recent food scandals linked to baby milk, the dumping of 16,000 pigs in the Huangpu-river of Shanghai, and rat and fox meat being sold as lamb.
Consumers in the Netherlands have also become more aware of their food following a series of scandals; an example being horse meat sold as beef. Environmental factors are also playing a part. Consumers choose animal and environment friendly produced food more often. Last year consumers in the Netherlands spent €257 million more on animal and environment friendly food compared to 2012: an increase of 10.8%, giving total sales of €2.5 billion. This is reported in the fourth edition of the “Monitor Duurzaam Voedsel 2013”, which was sent to parliament by State Secretary Dijksma of Economic Affairs in June 2014.
The report confirmed the increasing demand for animal and environment friendly products.
Elsewhere in Europe there is also an increased awareness of safe food. More and more Germans are growing their own fruits and vegetables. In February, the German retail market Toom commissioned the research facility Forsa to survey 1,000 German garden owners. According to this research, 68% of the respondents are paying attention to the bio-quality of their fruits and vegetables. Furthermore, 50% of German garden owners are cultivating their own vegetables, fruits and herbs, and half of these are focusing on the bio-quality of seeds, planting material, ground and fertilizer.
Biological products in Germany are rapidly expanding, but German farmers cannot satisfy the demand. For Dutch farmers the German bio-market is providing huge opportunities, if they are able to meet the strict demands from the critical German consumer. In the Netherlands there are approximately 1650 organic farms, which export €900 million worth of biological products.
Organic foods in demand
The demand for organic and natural food is rising. Organic food is unstained food, no fertilizers whatsoever – pure nature. There is an increase in people who go to stores which provide these products. From the report by the U.S. Department of Agriculture, in 2004 the total revenue of organic food in America was $11 billion, in 2011: $25 billion, and in 2012: $28 billion. Compared to 2004, revenues increased over 150%. According to the business paper The Wall Street Journal, revenues of organic stores have increased by 800% to $48 billion dollars since 1998.
If you want to benefit from this trend, there are a number of companies you could invest in. Earlier I mentioned Whole Foods Market. Another Firm is United Natural Foods Inc. (UNFI), a leading distributor of organic and biological food. UNFI is growing rapidly because of takeovers. Revenues of UNFI have risen from $3.75 billion in 2010 to $6.75 billion in 2014. With a reasonable valuation of 22 times the price/earnings ratio and a double-digit profit and sales forecast, it may be a good time to keep an eye on to UNFI. In addition, health food specialist Hain Celestial (HAIN) is one of the most famous companies in the organic food branch. They have brands like Celestial Seasonings tea. They produce for over forty years, purely natural tea with unique and powerful flavors. Their share price increased by 43% in the last 12 months, and the company itself increased since 2009 by 430%, beating the broad market with flying colors. Finally I want to mention Sprouts Farmers Markets (SFM), active on the market of organic food and health products. Given the strong growth rate in this sector, and the available cash in the company, investors could expect a strong growth in revenue.
Of course it is possible to spread your investments throughout the sector using a tracker (some kind of mutual fund). With Critivestor, our newsletter for long-term investments, we were early to buy Market Vectors Agribusiness (MOO). Share price has grown over 24% (excl. dividends) since 2011.
Disclaimer: The author has no position in the referenced shares/stocks.
Satilmis Ersintepe is founder of the financial website: De Kritische Belegger
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