Analysts expect pork prices to spike once the current glut is gone.John Morstad/The Globe and Mail
The mammoth scale of expected Chinese food imports is scarcely believable. Meeting this demand will require a global, co-ordinated effort by the farming, technology, engineering (notably water treatment) and transportation industries which, thankfully for investors, should generate outsized corporate profits at the same time.
The Chinese government has made huge strides towards self-sufficiency in rice and wheat production. In other areas, however, imports have soared. The country's imports of coarse grain (used for animal feed) from the United States, for example, increased fivefold to 10 million metric tonnes between 2005 and 2013.
Lester Brown, a former farmer, U.S. Department of Agriculture researcher and founder of the Earth Policy Institute, believes China's demand for food will only increase. Mr. Brown notes that the country's grain consumption has been increasing by 17 million tons per year since 2006, with no end in sight.
The improving standard of living in China is resulting in major changes in diet. China is already the world's largest pork consuming nation, but on a per capita basis, meat consumption remains well below developed market standards.
The OECD projects that China's per capital pork consumption will be the largest in the world by 2022. Mr. Brown makes a startling calculation on how much more grain the Chinese economy will consume if this happens,
"To consume meat like Americans do, China would need to roughly double its annual meat supply from 80 million tons to 160 million tons. Using the rule of thumb of three to four pounds of grain to produce one pound of pork, an additional 80 million tons of pork would require at least 240 million tons of feedgrain."
The stocks positioned to benefit from this trend are numerous. But it's a long-term story and investors should be careful with their entry points. Fertilizer stocks, as an example, should benefit long term but a recent Scotia survey of institutional investors found more interest in shorting Potash Corp. than buying the stock, in light of current valuations.
Agricultural chemical companies like Monsanto Co.and Syngenta AG are obvious winners from rising Chinese demand. Deere & Co., as the global leader in large farm equipment, should also do well.
General Electric Co. is a less direct, but still interesting play on the theme. China's water supply has been sorely tested by the country's agricultural expansion, and the expertise of GE Water will likely be in demand.
Scott Barlow