Economy

Why food prices may rise even higher (and how you can invest in the thematic)

Mon 25 Sep 23, 10:54am (AEDT)
Expert Insights PrimaryYoutube - 2023-09-21T100420.105
Source: Livewire Markets

Key Points

  • Australian food prices are rising sharply and are likely to continue to do so in the long term
  • The main drivers of food price inflation are the war in Ukraine, climate change, and rising land prices
  • Investors can play the broader food thematic by investing in companies that produce or distribute food, or that provide services to the agricultural sector

Australian produce and products are among some of the highest-quality and most sought after on the planet. But our agricultural output is also among some of the world's most expensive. ABS data shows that food prices rose 7.5% between the June quarter of 2022 and the June quarter of 2023. 

At one point during this current cycle, food inflation was nearly 10% nationally (and obviously worse if you live in a major city). And the same ABS data suggests that in the last five years alone, food inflation has soared 25%. 

So is there any relief in sight? Dania Zinurova, lead portfolio manager for the WAM Alternative Assets Fund (ASX: WMAhas an answer which may hit your wallet like a cold shower in a Tasmanian winter.

"Some econometric models predict it will go down to 1.5% next year. I predict it will trend at about 9% by the end of next year," Zinurova argued at the recent Livewire Live investor event.

Zinurova brought along her three key reasons for why she thinks food price increases are here for the long haul. 

Chief among them is the ongoing war in Ukraine and other geopolitical tensions. The impact these conflicts have had on the global food supply chain is seen everyday through increased freight costs and higher spot prices in the commodity markets. Remember, just because wheat futures are near 12-month lows does not mean it will automatically translate to cheaper bread and pasta. 

Other reasons include the evolving climate and more extreme weather events occurring more often. Finally, the average price of farm land has soared in the last 10 years. ABARES, the national body overseeing agriculture developments, estimates the cumulative increase to be nearly 200%. And there may be more coming with foreign buyers knocking on the doors of farm owners all across Australia. 

But if those are the headwinds, what are the ways to turn these concerns into profitable ideas? Zinurova shares the ways she is playing the broader food thematic as part of her "Shocking Prediction". You can view her presentation from the event here.

This article was originally published on Livewire Markets on Monday, 25 September 2023.


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Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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