As protein demand soars, bulk up on agriculture investments

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The emerging markets-led explosion in protein consumption is well under way and expected to intensify in the coming decades. Chinese meat consumption has shown monumental growth in the past 30 years and Indian demand for poultry is projected to increase in similarly exponential fashion.

In short, the outlook has rarely been brighter for global agriculture companies and while caution is required in the short term, Canadian investors should begin allocating portfolio assets to the sector.

The statistics surrounding Asian meat consumption are simply astounding. According to the Food and Agricultural Organization of the United Nations, Chinese per capita meat demand grew from an annual nine kilograms a person to 50 kiliograms during the 30 years ending in 2006. Looking forward, the Earth Policy Institute forecasts that China's pork consumption will double from the current 80 million tonnes a year by 2020, requiring an additional 240 million tonnes of feed grain a year.

Rising standards of living in India are expected to jumpstart poultry consumption by a whopping 850 per cent between now and 2030. And, if recent predictions that Africa will become the world's economic growth engine come to fruition, the change will put further strains on the global food chain from a region where protein consumption has been stagnant.

Developing countries will attempt to produce the necessary foodstuff internally, but in China there are already signs of strain, which suggest that keeping up with global protein consumption will require a global effort. The CBC reports a Chinese government study concluded that 20 per cent of the country's arable land is contaminated by toxic metals and the overuse of pesticides. The Earth Policy Institute also notes that the water table in China's farming regions are falling by 10 feet per year in some cases.

The long-term trends create drool-worthy profit expectations for a number of agricultural-related industries including fertilizers, seed technology, water treatment and irrigation systems, global shipping, farm land prices and farm equipment.

Unfortunately for investors, however, recent events have conspired to obscure the positive fundamentals. A bumper crop in North American corn has depressed grain prices and led Deere & Co. to lower forward earnings guidance. For Potash Corp., the breakdown of a global cartel reduced global pricing power and reduced revenues.

But investors shouldn't wait to begin adding agricultural investments. As Warren Buffett famously noted, the best returns result from buying "when people are fearful."

A deliberate, diversified approach is best-suited for the long-term agricultural investing theme. There are a host of exchange-traded fund options offering broad-based exposure to the sector including the iShares MSCI Global Agriculture Producers ETF, the Claymore Global Agriculture ETF and the U.S.-traded PowerShares Global Agriculture Portfolio.

The long-term outlook for stocks involved with global food production is extremely promising. Investors who begin slowly, adding small amounts to investments each month or each quarter, should reap the benefits as the trend takes hold.

Globe app users please click here for a chart showing India's estimated protein consumption in 2030