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Is the agriculture sector set to boom?

In recent months, many of Australia’s richest and most powerful business people have said they think they know where Australia’s next boom will come from. With the government finally making provisions to reignite the Australian agricultural industry, experts are saying forget the mining boom, the dining boom is next.

There seems to be a reasonable basis for their prediction. Asia’s rising number of middle class will soon be demanding much more food as the number of individuals (in the “middle class”) goes from 500 million to 3 billion in coming decades.  With over 20 times more arable land per capita, Australia stands to benefit from China, India and Indonesia’s potentially high demand.

Since the beginning of the year, many notable business people have said they believe the agricultural industry is the next big thing. ANZ boss Mike Smith said that there has been far too little attention paid to a surge in Chinese demand for soft commodities. Anthony Pratt, Australia’s fourth-richest person, said that Australia will become a food “superpower” in coming years and could export as estimated $2 trillion worth of products.

In a sign of acknowledgement, former Macarthur Coal Chairman Keith De Lacy has said the agricultural sector will experience the next big surge of investment. However, we’ve already seen massive amounts of investment by foreign companies taking up large portions of land and also buying up our companies.

Archer Daniels Midland’s takeover of Graincorp (ASX: GNC) is the most recent example of international investors seeing the potentially huge upside of Australian farming. The Financial Review reports that Harold Mitchell, an advertising heavyweight, has bought the 177,100ha Margaret River station for $4.3 million.

Foolish takeaway

There are many stocks that will stand to benefit from a surge in agricultural investment. Some of the smaller players that have healthy balance sheets and are trading quite cheap are Ruralco (ASX: RHL) and Select Harvests (ASX: SHV). However, investors should remember that many agricultural companies have suffered harshly in past years thanks to poor weather and trading environments. Perhaps patience might save you money.

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Motley Fool contributor Owen Raszkiewicz owns shares Ruralco and ANZ.

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