Graincorp shares soar -- is food the next investment boom?

Graincorp shares soar — is food the next investment boom?

Forget the mining boom. The world will have 9 billion mouths to feed by 2050. Buy food.

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 22, 2012 3:47 pm AEDT

The world's population is expected to hit 9 billion people by 2050 – that's a lot of mouths to feed.

Today's takeover offer for one of Australia's last listed agricultural companies, Graincorp Limited (ASX: GNC) should come as no shock then. The opportunities for companies involved in farming and food production are huge. The fact that Graincorp's share price has surged well past the offer price of $11.75, suggests investors know how valuable the company is, and either expect a higher offer to come, or another bidder, which could trigger a bidding war.

As we mentioned back in August, global grain demand is expected to grow by 1 billion metric tonnes or 50%, due to population growth, and Graincorp stands to benefit enormously from that fact.

The large size of Australia and low population per square metre, means the country is well suited for agriculture, which requires large amounts of land for growing crops, raising sheep, cattle and other animals. Well suited, yes. Perfect? No. Extreme weather conditions mean we have severe droughts and floods, which can wreak havoc on the farming industry.

ANZ recently released a report it had commissioned by Port Jackson Partners suggesting rising food demand could boost Australia's and New Zealand's agricultural exports by around $2.8 trillion by 2050. Demand is being driven by Asia's growing population and expanding middle class, who can afford to eat more grain-intensive food, such as meat.

But cashing in on the boom in food demand is going to be difficult, according to the report. Australia's agricultural industries have gone backwards, and needs an estimated $1 trillion of additional investment to kick start declining productivity growth. An aging rural population – the average age of an Australasian farmer is in their mid-50s – rising productivity costs, constraints from natural resources and competition for land could see newer agricultural powers, like Brazil and Indonesia elbow Australia out of the prize.

International companies have already recognised the potential – witness the Graincorp takeover, the Australian Wheat Board accepted a takeover bid from Canadian agricultural giant, Agrium in 2010 and recent buying of Australian sugar assets by Chinese companies. Now it's up to Australians to come to the same conclusion.

For those Foolish investors looking for the next 'Graincorp', you might want to take a closer look at dairy company, Bega Cheese Limited (ASX: BGA), salmon farmer Tassal Group (ASX: TGR) or agricultural investment company PrimeAg Australia Limited (ASX: PAG).

If you only invest in one company this year, make it our "Top Stock for 2012-13". Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.