Grains and livestock seen as neat play on China growth

Tue Oct 5, 2010 10:30pm IST

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* Investors should look at chicken, pork in Brazil

* Investment in grain storage may be good bet

By Pratima Desai

LONDON, Oct 5 (Reuters) - Investors looking to gain from China's phenomenal growth should look further at grains and livestock as food demand in the country will outstrip the country's ability to produce it, a conference heard on Tuesday.

Demand for agricultural commodities has raced ahead in China partly due to changing diets, with rising incomes leading to more consumption of meat.

"China will become an increasingly important importer of food, especially animal feeds such as soy and corn," said Larry Brainard, chief economist at research firm Trusted Sources at the World Commodities conference organised by Terrapinn.

"Support prices have been raised to spur production, but the supply response lags urban demand."

Maize (corn) is the most important crop for animal feed and China, the world's number two producer, has moved from a net exporter to net importer in the last couple of years.

A move to cities, higher wages -- in the region of 20 to 25 percent increases over the next five years, according to one speaker -- and lack of land reform in China mean higher demand for grains, used to feed livestock. [ID:nLDE6941KI]

Demand for a more protein-rich diet because of growing affluence in China means investors should also look at livestock companies in countries with large agricultural sectors.

The growth in consumption in China has contributed to record global demand for grain-fed meat while stocks are at the lowest levels in almost 30 years, according to figures issued by the U.S. Department of Agriculture.

Jack Dzierwa, a portfolio manager at U.S. Global Advisors said companies specialising in chicken and pork in Brazil, Uruguay or Argentina are good bets.

China has been building up strategic reserves of agricultural commodities.

"In the last 50 years the planet's population has doubled, but stocks haven't changed," Greg Smith, chief executive at Australia-based fund firm Global Commodities said.

"You should have fabric in your portfolio."

Reluctance by China's government to reform land laws is part of the problem.

"Ideological barriers are blocking reform of land tenure and labour mobility ... Brazil will be a major beneficiary of rising global demand for agricultural products," Brainard said.

Brainard recommends investors look at grain storage. "There will have to be massive new investment in grain storage."

(Additional reporting by Nigel Hunt in London)

(Editing by Veronica Brown)

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