The agriculture sector is likely to play a key role in spurring domestic growth in 2016.
In the new year it appears increasingly that sectors outside of the big four banks and miners will provide growth to the economy. Picking the right growth shares in the right sector will determine how well a portfolio performs in 2016.
Some of the sectors that are expected to be the winners in 2016 are tourism, technology, US dollar-exposed companies, renewable energy, agriculture, and online shopping.
The agriculture sector stands to benefit from the rising food demand from Asia, and the following three companies could end up being beneficiaries.
Australian Agricultural Company Ltd (ASX: AAC) – The Australian Agricultural Company Ltd (AACo) sells both beef and live cattle. A key change has been taking place in the composition of revenue being earned by AACo. The sale of beef as a percentage of total revenue has increased from 47% to over 84% in the last two years.
The beef is predominantly sold in the international markets not affected by the domestic seasonal conditions. Although AACo's share price has not gone anywhere in the last five years, it wouldn't come as a surprise if a new major agreement is signed or a foreign partner from Asia takes an ownership interest in the company.
Graincorp Ltd (ASX: GNC) – Graincorp is an integrated agribusiness with storage, logistics, marketing, and processing facilities. Its business revolves around three core grains; wheat, barley and canola. A takeover attempt by US agribusiness giant Archer Daniels Midland Company in November 2013 was blocked by the then government.
The current regime under the new prime minister is more friendly and unlikely to block a takeover offer. If Archer Daniels makes another takeover offer, it will have the benefit of a lower Australian dollar on its side this time around.
Capilano Honey Ltd (ASX: CZZ) – Capilano supplies honey to more than 30 countries across the globe. The potential for export markets is huge, as Capilano has an established and well known brand name.
Export retail sales increased by 29% for the last financial year ending June 30, 2015, with Asia recording 29% growth, North America 36%, and the Middle East 33%. Capilano is taking steps to expand business in key export markets. A new sales support setup has been put in place in Asia and North America and significant effort is being made in developing on-line sales capabilities for the overseas markets.
Foolish takeaway
The agricultural sector is prone to natural disasters, climate change, rain, drought, floods, etc. But despite these risks the demand for agricultural products is on the rise, and adding exposure to the sector in a diversified portfolio is a must for 2016 in my opinion.
