Opportunities for investors

Opportunities for investors as population growth puts strain on global food production

Mark Page, fund manager of the S&P AA rated LV= European ex-UK Growth Fund, discusses one of the investment themes he is currently pursuing, reminding us that successful investment in any market requires a global view.

Looking for a long-term market play? Then here is some food for thought - global population growth suggests that in order to keep feeding the world, agricultural production will need to grow by 40% over the next 15 years. Each year between now and 2050, there will be an additional 85 million mouths to feed - equivalent to the entire population of Germany. At the heart of the food production cycle lies grain and according to the UN Food and Agriculture Organisation, developing countries will need an additional 1bn tonnes of cereal per year by 2030 to meet this demand.

History shows us that population growth typically coincides with increased wealth and this in turn leads to an increase in average calorie consumption, particularly through protein-rich foods such as meat, poultry or fish. And, yes, you've got it, much of the world's meat production relies on grain.

So where's all the grain coming from?
The growth in global food demand to date has been met by improved crop yields and not by an increase in farm acreage or the number of farmers. Since 1960, there has been a mere 9% increase in acreage while crop yields have improved by 190% resulting in 170% increase in food production. If the world is not to go hungry in the next 15 years, then a further dramatic increase in food production is required. Over the last ten years, there have only been three years of grain surplus, with 2009 looking to be the second highest on record following the high set in 2008. Despite this, the amount of global grain in storage (known as the grain inventory) is due to fall to 75 days from a long-term average of 110.

East meets West
This is where we believe Europe's agricultural stocks come into play. As the East gets richer, it will increasingly rely on the technologies and global production bases of the West's fertiliser and crop science industries to squeeze even more food out of the same amount of land. It is by no means a stretch of the imagination to assume that within the next decade global grain inventories could be entirely wiped out if the situation remains unchecked. Governments have a moral duty and a political imperative to keep the cost of food as low as possible not only for their populations, but also for the world's poor and disadvantaged. We therefore believe that rising food prices will inevitably result in greater demand for further increases in crop yield. This will require increased use of fertilisers, improved seed and crop protection and best practice farming technology and machinery.

Opportunities to buy into a growth industry
Over previous economic cycles, the beginning of a recession has normally coincided with falling crop production, static demand and a short-term increase in crop prices. In 2008, this effect was magnified by speculators and other factors. The global economic downturn in 2009 resulted in a drop in demand from developed markets for sources of protein and hence grain. Early season poor weather has now reversed and the latest crop reports suggest better yields than expected and higher global corn acreage. The resultant dramatic fall in crop prices is a great opportunity to buy into a long-term structurally growing industry that needs to drive agricultural productivity to make more food for the world. As with all investments, there are no guarantees that the capital invested will increase in value and it is always worth bearing in mind that you may not get back what you originally invested. However, in order to be able to take advantage of this opportunity, LV= European ex-UK Growth Fund is positioned with a strong bias towards European-based multinationals involved in the wider agricultural universe including fertiliser, pesticide and agrochemical producers and providers of agricultural products, crops, seeds, herbs and fungicides.

Stocks to Watch
There are several European companies which we believe will continue to benefit from ‘The Grain Drain', and which we own in LV=European ex-UK Growth Fund. Examples include:

Yara
Yara is a Norwegian company specialising in agricultural products and environmental protection agents. As the world's largest supplier of mineral fertilisers, Yara helps provide food and renewable energy for a growing world population. Its products also help cleanse the air and eliminate toxic waste.

Syngenta
Syngenta is one of the world's leading agribusinesses offering crops, seeds, herbs, fungicides, pesticides and related chemicals. Through world-class science, Syngenta helps customers to increase crop productivity, protect the environment and improve health and quality of life.

Nutreco
Nutreco is a Netherlands-based leader in the field of animal nutrition and fish feed. In essence, the company enables producers to gain higher yields from limited natural resources, without compromising the sustainability of resources, food quality for millions around the world or animal welfare.

Meet the Manager
LV= Asset Management (LVAM) is the investment management arm of LV=, one of the UK's best-known providers of insurance, pensions and investments. LVAM traces its asset management heritage back to 1843, and the formation of what is now Liverpool Victoria Friendly Society, the largest mutual society in the UK*. LV= has a long record of financial stability partly because, as a mutual friendly society, we have no shareholders - we are owned by our members. Today, LVAM manages around £6.9 billion in assets** for a wide range of customers, including private investors, institutions and private client discretionary managers.

Mark Page - Fund Manager

Mark is head of European equities at LV= Asset Management. He is the fund manager of LV= European ex-UK Growth Fund and is responsible for all continental European equity investments at LVAM. Prior to joining LVAM in October 2001, Mark was a Director of Schroder International Investment Management Ltd. He holds a BA (Hons) in Economics and Economic & Social History from the University of Kent.

Although it is necessary to point out that past performance is not an accurate indicator of future returns, launched in 2003, LV= European ex-UK Growth Fund has built a solid record of strong performance relative to competitor funds with low volatility. The fund also carries Standard & Poor's ‘AA' Fund Management Rating.

How to apply

The fund is available through Chartwell Direct at 0% initial charge.  You can invest by downloading an application form or logging into your Cofunds account online. 

Alternatively, if you have any queries please do not hesitate to contact our Investment Helpdesk on 01225 823915

* Association of Friendly Societies Key Statistics 2008. Total Net Assets.** As at 30 September 2009