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Why I’m confident about the food sector

Australia is often described as the food bowl of Asia. A lot of countries like South Korea, Indonesia and Japan have enormous populations but do not have the food production capacity to match that.

I’ve been interested in food businesses for a while and the latest piece of media that I’ve consumed on the topic, this TED video on an upcoming food shortage, is yet another example of people more knowledgeable than me on the global food situation saying that the globe is going to experience ever-increasing food demand if the population keeps rising. Except that there may not be enough food to match that demand.

Australia’s population has been growing at a fast rate for a long time and is expected to keep going upwards. Melbourne’s population in-particular is expected to keep growing at above 2% a year for many years to come – its population could be as large as Australia’s current whole population within the next century according to some estimates.

So where does this leave many of the ASX’s food options? I think it bodes very well for shares like Costa Group Holdings Ltd (ASX: CGC), Rural Funds Group (ASX: RFF), Tassal Group Limited (ASX: TGR) and BetaShares Global Agriculture ETF (ASX: FOOD).

None of these shares are going to shoot the lights out over the next few years but they could provide relatively defensive earnings and quite good compounding growth for investors.

If the ASX food stocks can achieve slowly-rising prices for their products and sell more products then it should lead to pleasing revenue growth, higher profit margins and good profit growth.

It could also be good news for businesses that are building brands around their businesses like Costa, a2 Milk Company Ltd (ASX: A2M) and Capilano Honey Ltd (ASX: CZZ)

Foolish takeaway

At the current prices I’m most interested in buying Costa shares because it could achieve sustained growth with plans to expand the business in Australia, Asia and North Africa.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of A2 Milk and Capilano Honey Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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