Here at International Living Investor we like big, unstoppable trends. Trends you can profit from year after year…and even decade after decade.
One of those trends is the growth of the emerging market middle class. In China, for example, the middle class is forecast to double over the next 10 years.
That means more demand for fridges, washing machines, laptops, mobile phones and foreign holidays – all the things middle-class people spend their money on.
Another thing these new middle class Chinese will demand is a higher protein diet.
This is an opportunity to profit for forward thinking investors.
You see, more protein requires more grain production. That’s because fattening the extra hogs, cattle and chickens requires more grain-based feed.
More grain means more farmland. Problem is China is running out of farmland – fast.
China has 20% of the world’s population and just 7% of the world’s arable farmland. And according to U.S.-based farmland investing experts Colvin & Co., the situation is getting worse because of development, desertification and erosion.
Put simply, as China urbanizes it is losing its farmland – at an alarming rate. A recent report by Colvin & Co. revealed that between 1997 and 2007, China lost roughly 755,000 hectares of farmland.
As you can see from the chart above, this is a worrying trend.
Worse: once this farmland is lost it isn’t coming back. Farmland lost to desertification and erosion is too difficult to recover.
This puts the government in Beijing in a sticky situation. The Colvin & Co. report says that to be self-sufficient in grain production, the Chinese government estimates it needs to maintain 120 million hectares for crop production until 2020.
Government figures estimate that the current amount of arable land is roughly 122 million hectares. But Bank of America estimates that the real figure has already fallen below the 120 million mark and could fall below 117 million hectares by 2015.
Why You Can Expect More Grain Imports into China
The big question is: How will China feed its growing middle class?
Answer: It won’t…unless it starts importing grains from abroad.
Bank of America estimates that China will import 17.4 million tons of corn by 2015.
One effect of this will be upward pressure on grain prices. This will be good news for U.S. farmers, as the U.S. is one of the biggest grain exporters in the world.
It will also be good news for investors in agriculture exchange-traded funds such as the Market Vectors Agribusiness ETF (NYSE:MOO) and the PowerShares DB Agriculture Fund (NYSE:DBA).
The appropriately named MOO tracks the performance of a basket of agriculture related companies. These include Potash Corporation of Saskatchewan (NYSE:POT), Deere & Company (NSYE:DE), The Mosaic Company (NYSE:MOS) and Archer-Daniels Midland Company (NYSE:ADM).
DBA, on the other hand, is composed of futures contracts on some of the most liquid and widely traded agricultural commodities, such as corn, wheat, cattle and soybeans.
MOO and DBA have different advantages and disadvantages. Of course, neither is a pure play on China.
Another way to play China’s land crisis is to invest direct in Chinese companies that are already busy feeding China’s middle class.
Paid-up members of International Living’s emerging markets research service, Alpha Hunter, have already received a specific recommendation on a Chinese food producer that stands to gain from the growth of the middle class there.
I can’t reveal the name of this stock here, as it would be unfair to Alpha Hunter’s paid-up members.
But if you are interested in receiving these kinds of recommendations on a regular basis, you can find out more about the benefits of membership here.
