The recently signed Trans-Pacific Partnership (TPP) has thrown the spotlight onto Australia's agricultural sector with suggestions that the sector will benefit from an extra $3.7 billion in annual exports.
As I noted here, the agricultural sector is set to be one of the biggest beneficiaries from the TPP.
As far as an investment thematic goes, Australia's farming sector literally has the potential to "feed the Asian region" which can certainly make for an appealing investment case. However, identifying specific stocks that will benefit can be challenging.
Blame it on the rain
Milli Vanilli might have sung "blame it on the rain" but when it comes to farming, it's not just when it rains but also when it doesn't that matters! The weather is inherently unpredictable and also uncontrollable which makes the business of farming incredibly difficult.
For conservative investors looking for exposure to the "feeding Asia" theme, it is arguably better to focus on diversified agricultural suppliers and producers as these companies are more protected from the vagaries of any one specific weather event and also less reliant on any single commodity exposure. For this reason, a stock such as Graincorp Ltd (ASX: GNC) which is heavily exposed to eastern Australia's weather and its effect on grain growers may not be appropriate for conservative investors.
In contrast, here are four stocks which offer investors a diversified entry into the agricultural space:
Elders Ltd (ASX: ELD) is currently clawing its way back from a near-death experience and now operates a simplified, rural focussed business model. With a services offering which spans livestock trading, real estate, rural merchandising, live export and wool broking, the company is well diversified.
Select Harvests Limited (ASX: SHV) while perhaps not a widely known stock amongst investors is actually one of the largest listed stocks in the agricultural sector with a market capitalisation of $800 million. The company operates across the horticulture, orchard management and food manufacturing space with a particular focus on almonds.
Two other recently listed agricultural plays could also interest investors.
BEST GLOB FPO (ASX: BFC) listed via initial public offering (IPO) in August at 35 cents per share. The company offers investors access to a broad range of agricultural industries including seafood and dairy along with established access to Asian markets.
Costa Group Holdings Ltd (ASX: CGC) is a major player in fruit and vegetable production within Australia. The company has been listed since July and has a market capitalisation of $686 million.
