Henry Boucher, manager of the £122 million Sarasin Food & Agriculture fund, looks at the global impact of health and diet changes and how investors can benefit from them.
The change in the global diet is a remarkable trend across the world, and one of the factors driving the growth in the food economy. We often think of this trend as one affecting the developing world, as rising incomes see people able to access and afford more types of food for the first time.
However, diet change is occurring in the developed world as well, principally in the form of a cultural shift towards healthy eating. This change is being driven in two ways:
- First, governments are trying to persuade people to maintain a healthier diet in order to reduce the burden on health services
- Secondly, consumer demand is rising as people become more educated about the effects of diet and health, and desire to live longer, with more active lives
So how does this theme play out in the real world? One thing we see is a shift in people’s snacking habits, with increasing amounts of nuts and seeds being consumed in place of sugary treats.
This is partially due to new research that has disproved long-held theories demonising all types of fats, which appear in nuts in relatively high amounts. As a result, they have surged in popularity and are expected to witness significant growth over the next few years.
As investors, in order to take advantage of this potential growth without tying ourselves to the vagrancies of the nut harvest, we aim to buy the enablers of this trend – in this case, the nut traders Amsterdam Commodities (Acomo).
Acomo trades niche soft commodities, including spices, herbs, nuts, and edible seeds, that do not have an exchange. Its trading subsidiaries source and process the raw materials in production areas and sell them in consumer markets.
Acomo is involved in all intermediate stages of transportation, processing, packaging, storage, technical analysis, trade finance and distribution. This is an asset-light business, but Acomo manages the price risk and ensures physical delivery of the goods.
The company has proprietary insights due to its close relationships with farmers, suppliers and auction houses. Its customers are producers in mainly tropical countries (plantations, farmers, co-operations) and industrial consumers of agricultural commodities (spice mills, food processors, wholesalers).
We are drawn to companies like Acomo for their steadily growing source of earnings, driven by the demand for the food ingredients that they trade. As demand increases due to the trend for healthy eating, so should the earnings of companies able to capitalise upon this.
A matter of taste
Another way we see the healthy eating trend developing is in the increasing number of companies reducing the amount of sugar and salt in their products. It’s well known that too much salt isn’t good for you, and consumer distrust of sugar is at an all-time high.
Governments are also getting in on the act, with the well-documented UK sugar tax coming into force in 2018, joining Mexico, France, Ireland, Hungary and Norway and an increasing number of states in the US taking action.
This is why companies like Nestle are prominently displaying their commitment to reducing the salt and sugar content of their products on their website. However, sugar and salt are tasty things, and companies do not want to lose happy consumers.
How, then, do they compensate for the changing taste of the product as a result of this trend? The answer, of course, is through flavouring.
Once again, we like to invest in the enablers – in this case, the scientists.
Flavour chemists develop their wares using natural and synthetic chemicals for a whole range of foods, which can enhance, change, or even completely mask the original flavour.
These flavourings are then sold to food manufacturers, who will add them to their products in the knowledge that they will (hopefully!) maintain the experience of eating or drinking them as a wonderful culinary experience.
High-quality flavourings companies typically have healthy margins, with products that are constantly in demand.
This security of demand is part of the reason we invest in Givaudan and IFF – two of the four leading global flavouring and fragrances companies from whom virtually all staples companies procure their ingredients.
Although certain areas of the food economy can be highly competitive, these companies have robust, stable margins and recurring revenues and offer investors steady, compounding organic growth.
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