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4 small cap food producers set to capitalise on rising demand

From honey to pie fillings, kingfish and confectionary, here are 4 small cap food producers that could be well set to profit from rising demand from the world’s growing population, and our close proximity to Asia’s rising middle class.

With market caps of less than $60 million, don’t expect any analysts to cover them, nor do many fund managers own them, giving retail investors the opportunity to get in now, while they are flying under the radar.

Clean Seas Tuna Limited (ASX: CSS) farms yellowtail kingfish and is reporting improving growth rates, reduced mortalities, a return to robust health and appearance leading to better prices and short-term plans to produce 1,500 tonnes per year. The company’s long-term goal is to produce 3,000 tonnes a year, which at current prices of $14/kg would bring in around $42 million in revenues.

FFI Holdings Limited (ASX: FFI) or “Fresh Food Industries” produces fillings for fruit pies, glazing gels, jams, ice cream, various chocolate products, and confectionary. The company is currently struggling with net profit for the last half falling more than 20% to $1.2 million, thanks to high costs in the food manufacturing industry and a lack of sales growth. Supplying ingredients for private label products to the likes of Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) – is a tough business. But Fresh Food industries says it has several initiatives underway that will return it to profitability as market conditions improve.

Capilano Honey Limited (ASX: CZZ) is the market leader for honey in Australia, with annual revenues of more than $70 million, and exports to more than 30 countries. Capilano says it is working on growing the honey category and honey usage, expanding its premium local and export retail markets and focusing on China. Currently trading on a P/E ratio of just 9.3 times, and with close to 50% market share, Capilano could be one stock to watch.

Yowie Group Ltd (ASX: YOW) produces a chocolate product, which contains a non-edible gift inside, similar to a Kinder Surprise, and sold 65 million of them in Australia in one year. By comparison, Ferrero sells 2 billion Kinder Surprise eggs each year or around $3.5 billion in retail sales. In what could be a company-changing event, Yowie has secured approval to launch its products into the United States, unlike rival Ferrero.

Foolish takeaway

While they may be small now, all four companies have the potential to become much larger through exports, new products especially into Asia (and the US for Yowie). Foolish investors may want to add them to their watchlists.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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