As we look at the current environment, the world is beginning to seriously address critical food supply and sustainability issues, and investors can turn to exchange traded fund strategies to tap into this theme.
In the recent webcast, Food Fight: The Immediacy and Opportunity in Agriculture Investing, Shawn Reynolds, portfolio manager at VanEck, noted that global agriculture and food markets face potentially severe, disruptive headwinds over the near- and long-term. In the near-term, lingering supply issues and growing trade protectionism have exacerbated already record-high food prices. Over the long term, critical food supply and environmental sustainability issues must be addressed, along with shifting consumer habits.
“Public market investments should continue to serve as a valuable support mechanism, in our view,” Reynolds said.
Reynolds pointed out that lingering supply disruptions and growing trade protectionism have exacerbated already record-high food prices. Specifically, the Food & Agriculture Organization of the United Nations (FAO) Food Price Index has reached a record high. Additionally, while rising food prices are most noticeable to consumers, high fertilizer prices remain a significant source of concern for crop producers, globally
Geopolitical risks have contributed to this latest round of global food insecurity. Russia and Ukraine account for a large portion of the food supply for countries in the surrounding or nearby regions. In addition, disruptions in global fertilizer markets are likely to have lasting spillover effects in the months and years ahead.
Meanwhile, Reynolds argued that growing protectionism in face of the increased global food security issues could make matters much worse. He noted that approximately 16 countries have taken steps to restrict agriculture exports since the start of the war in Ukraine, with protectionism at its highest level since the food price crisis in 2008. Looking beyond just Russia and Ukraine, countries like India, Indonesia, Argentina, Turkey, Malaysia, and Kazakhstan have also restricted trade in key products to control domestic inflation.
Food supply concerns will remain a long-term issue, especially with global population trends on the rise. Feeding an ever-growing population presents a unique challenge, Reynolds added. Even today, agriculture markets are falling short of meeting our current global population needs to the tune of +850 million people.
Ammar James, deputy portfolio manager at VanEck, also underscored the sustainability issues associated with food security. Agriculture, forestry, and other land use contribute nearly as much to global emissions as electricity and heat production. Consequently, James argued that addressing agriculture, including food production, is a crucial component of tackling climate change, particularly as the global population increases and with it, the need for sustenance and land.
Meanwhile, shifting consumer preferences also presents a growth opportunity, James added. Growing demand for cleaner, healthier, and more environmentally sustainable foods are creating growth opportunities in downstream areas such as alternative protein and dairy as well as the technologies needed to produce these products.
To access opportunities that address these growing challenges, investors can turn to something like the VanEck Vectors Agribusiness ETF (MOO), which captures the play on global population growth and supply concerns that are driving increasing food demand and the need for efficient agricultural solutions.
VanEck Agribusiness ETF seeks to reflect the performance of the MVIS Global Agribusiness Index, which is intended to track the overall performance of companies involved in agri-chemicals, animal health, and fertilizers, seeds, and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leaves, grapevines, etc.), and trading of agricultural products.
Additionally, the VanEck Future of Food ETF (YUMY) is an actively managed ETF that provides exposure to companies engaged in more sustainable agri-food processes and technologies to provide for a future with more affordable, nutritious, and safe food for all.
The VanEck Future of Food ETF is an actively-managed ETF that seeks long-term capital appreciation by investing in companies engaged in agri-food technology and innovation, which encompasses industries and companies that are leading, enabling, supplying, disrupting, or benefiting from new environmentally sustainable agriculture and food products and services.
Financial advisors who are interested in learning more about agriculture investing can watch the webcast here on demand.