VanEck Sees ‘Minimal’ Impact on Food Industry From Agriculture Security Bill
As concerns over China’s balloon heightened national security concerns in recent days, a bipartisan group of U.S. legislators wants to protect U.S. farms from foreign ownership.
"Chinese purchases—whether it be businesses, government, individuals, some kind of Chinese entity—of our agricultural land is still quite small, but it's actually growing very quickly,” Dexter Tiff Roberts, a senior fellow with the Atlantic Council's Asia Security Initiative, told Scripps News. “So, I do think we should pay attention to that."
The Promoting Agriculture Safeguards and Security (PASS) Act aims to prevent China, Iran, Russia and North Korea from investing in U.S. agriculture companies.
China specifically faces a considerable disparity between population and farmable land: Although the country makes up 20% of the global population, only 7%-9% of its land is arable. This issue has prompted Beijing to look outside of its borders to provide the necessary food supply for its people. This buying spree created a security issue.
Impact of New Legislation on Food Insecurity ETFs
While the PASS Act aims to reduce the competition faced by U.S. farmers and improve food supply control, the overall impact of the new legislation may be limited in the long term.
Shawn Reynolds, portfolio manager for the active Natural Resources Equity Strategy at VanEck, sees little impact from the PASS ACT for the U.S. food industry.
"This act seems to try to prohibit land acquisition adjacent to or near sites of significant national military or intelligence significance. The U.S. has almost a billion acres of farmland, the second most arable land in the world after India. The ability to impact food production by hostile countries acquiring agricultural land is minimal," he said.
Reynolds argued that food insecurity will likely increase in the next several years as the global population grows from 8 billion to 10 billion by 2050, urbanization increases and the middle classes expand.
The agriculture sector is also responsible for using 50% of habitable land, 70% of global freshwater and 78% of the world's ocean and freshwater pollution. Additionally, domestic livestock accounts for 94% of all mammals on the earth, excluding humans.
"Food insecurity ETFs must focus on increasing the production of food, but also on doing it more sustainably and while improving the nutritional content of diets," Reynolds added.
VanEck has two agriculture-related ETFs: The Agribusiness ETF (MOO), which has been around since August 2007, and the Future of Food ETF (YUMY), with an inception of November 2021.
MOO invests primarily in large and midcap companies in the traditional agricultural industry. YUMY invests mainly in agri-food technology and innovation companies, including those addressing food insecurity.
Global Food Crisis
With food prices reaching new highs, the number of severely food-insecure people has doubled in the past two years. There are more than 850 million undernourished people today, and with the world population set to grow 30% by 2050, this figure will continue to rise.
Moreover, the war in Ukraine has contributed to a significant disruption in the food supply. Russia and Ukraine have been responsible for almost 30% of wheat, 15% of corn, 25% of barley and more than 75% of global sunflower oil production over the last five years.
Another significant disruption caused by this conflict is the increase in fertilizer prices; Russia is the leading exporter, and many countries had to reduce crop production after facing higher costs driven by the disruption in the global supply of nitrogen and potash nutrients, which are essential fertilizers in commodity crops like corn and soybean.
ETFs to Consider
Outside of YUMY and MOO, investors can navigate this global food crisis with other great ETF opportunities. The Global X MSCI SuperDividend EAFE ETF (EFAS) tracks an index of stocks from developed countries outside North America. This ETF includes holdings in companies such as Nestle, Danone and Unilever in Europe, Australia and Asia.
It has an expense ratio of 0.55%. Even though it is relatively new to the market, it has seen a 7.8% year-to-date gain, and in the last three months alone, it registered more than a 28% gain.
The Invesco Dynamic Food & Beverage ETF (PBJ) offers exposure to 30 U.S. stocks in the food and beverage industry, such as PepsiCo, Hershey Company and Kroger Co. The portfolio also includes restaurants and food retailers; it has a weighted average market cap of $34 billion and an expense ratio of 0.63%.
The First Trust Nasdaq Food & Beverage ETF (FTXG) follows a liquidity-selected, multifactor-weighted index of U.S. food & beverage companies. It includes 30 U.S. food and beverage companies. It has an expense ratio of 0.60% and more than $920 million in assets under management.
Both ETFs offer exposure to U.S. companies and have generated average returns of 6% and higher in the last five years.
More risk-averse investors may prefer the Global X AgTech & Food Innovation ETF (KROP) since it is a passive investing fund with a relatively low expense ratio of 0.50%. It tracks companies related to advancing innovation and technologies in the agricultural and food industry space.
Lastly, the Teucrium Wheat Fund (WEAT) may be a good choice for investors who want to capitalize on sudden shocks in the market but need to be aware of the risks implied in commodity-driven ETFs. The ETF charges an expense ratio of 1.14% and has almost $200 million in AUM.
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