A white paper from Aussie ETF provider Betashares finds that Australian investor portfolios currently have a relatively low exposure and therefore limited potential to take advantage of the growing agricultural sector.
BetaShares’ research found that the benchmark S&P/ASX 200 Index has significantly less than 1 per cent exposure to agricultural companies. However, agriculture is a key global sector with the potential to enjoy solid long-term growth as the quantity of food demanded worldwide increases.
“The growth of the global population means the agriculture sector has compelling long-term growth potential as there are increasingly more mouths to feed. In addition, unusually extended periods of good global growing conditions have pushed many agricultural commodities prices to relatively low levels too, meaning the outlook over the short-term has good upside price potential should conditions change,” says BetaShares Chief Economist David Bassanese.
The company gives as an example that after slowing from a 3 per cent annual growth pace in the 1960s to a low of 1 per cent in the late 1990s, growth in global grain consumption returned to a near 2 per cent annual growth rate over the past decade largely due to rising demand from emerging economies.
“While agricultural prices tend to be volatile from year to year – reflecting the impact of weather on supply conditions – there is a clear underlying trend for growth and agricultural investments can play an important role in a diversified portfolio.
“To invest in agriculture, investors can directly own grain, livestock or even farms, however these methods are not practical for most investors. Another option is to gain exposure through commodity price futures – though this is a sophisticated investment strategy not typically accessible to the majority of investors,” says Bassanese.
“Exchange traded funds are a simple, cost-effective way for Australian investors to gain transparent and diversified exposure to agricultural commodities or agriculture companies.”