The world population is growing. Particularly in China and South-east Asia, there is a much greater demand for high protein food such as beef, which means that the demand for animal feed is increasing enormously.
Furthermore, biofuel producers are using up a great deal of the grain-bearing land. For example, in the US, one-third of the country’s corn crop will be used for biofuels, up by over 20 per cent since last year.
The US Department of Agriculture is predicting that corn stocks will fall to a 33-year low by the end of the year.
The Sarasin fund does not invest directly in the commodities themselves but mainly in companies which will benefit from this high demand situation without the volatility of the prices of the commodities themselves.
It will focus on five main themes, including companies with superior intellectual property, especially those which dominate the research and development spend of their industry, companies with pricing power which will drive earnings forward and justify a rerating and companies with business models which can exploit the convergence of global food and agri-business.
Other companies which are attractive include those with a security of supply. Last, Sarasin will invest in companies where value will be created either by soon-to-be-initiated internal programmes or due to external pressure.
This fund is substantially different from other funds available to UK investors and should form part of a diversified growth portfolio. I like it.