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The effects of food shortages in Asia - from riots to rising prices - have made many of the headlines in Asia over the past few months, and given fresh encouragement to investment managers in the region to sell products based on the theme of food.
The price of basic foods, including grains, meat, dairy products and sugar, has surged in the past year. A basket of 55 such items, monitored by the United Nations Food and Agriculture Organisation, was 53 per cent more expensive in April than a year previously.
Cereals and vegetable oils nearly doubled in price in that time. Rice prices have hit all-time highs in the past few weeks as governments of some of the world's biggest producers - China, Vietnam and India - curbed exports to make sure there was enough for customers at home.
There are many causes, says Paul Schulte, regional strategist at Lehman Brothers in Hong Kong. China's rapid economic growth is one of them. "When econ-omic output reaches $2,000 per head, then protein consumption doubles. There's a very dramatic increase in demand for meat, and for grain to feed cattle. This is exactly what happened in Taiwan, South Korea and Japan when they were developing quickly and now it's happening before our eyes in China."
Despite the recent rise in food prices, Schulte says, in real terms, food prices are below where they were in 1975. For several decades, investment in agriculture showed poor returns, and productivity growth stagnated. But now, as long as governments do not distort markets too much with price controls - a big danger - higher prices give farmers incentives to improve the way they work.
Deutsche Bank was in the vanguard of institutions that spotted an investment opportunity in these disruptive changes in agriculture. It anticipated some of these trends as long ago as 2006 by creating a Global Agribusiness Fund to invest in food-related companies, including plantation owners, biotechnology companies, equipment makers, food processors and distributors.
Deutsche's figures say the Global Agribusiness A2 Fund has risen by 5.5 per cent in the past six months and has outperformed the broader Hong Kong market. In the same period the Hang Seng index fell by 12.5 per cent and showed volatility of 42 per cent compared with the Deutsche fund's volatility of 23 per cent.
A more recent development is structured products. Barclays, the British bank, this month launched its Global Agriculture Delta fund in Hong Kong and Singapore. Retail investors can gain exposure to 20 futures, including grains and live cattle, included in the agricultural sub-index of the Rogers International Commodity Index.
Shortage
Barclays says the food theme goes beyond food itself. Energy sources such as biofuels, made from palm and other vegetable oils, have also created new demand for crops. These have in turn pushed up the prices of these commodities faster than inflation and fuelled investors' interest in the commodity market.
That observation is echoed by Martin Bertsch, who heads Lehman Brothers' capital markets structured products group in Asia. "Biofuels are based on commodities you can eat," he says. Lehman has been selling structured products targeted at Asian investors based on food since August last year. "They have to be catchy," Bertsch says.
This month it launched a range of capital-protected notes based on the contents of a typical Japanese bento (takeaway or lunch) box. The notes are designed for investors with a bullish view over the next year to year and a half on the price of pork, rice and soyabeans. They are available in dollars, Korean won and Australian dollars - the last is particularly attractive because of the country's interest rates being at 12-year highs.
Retail and private banking investors are the main customers, Bertsch says. "Where we sell the most is Hong Kong, some parts of China, Singapore and Taiwan. There is less interest in Korea because Koreans are more focused on their domestic markets."
Bertsch has seen a change in the way Asian investors assess structured notes in recent years that makes such packaging of instruments more effective. "In the past, people were very focused on payouts, and how you calculate them. Now people are looking at themes," he says.
"A lot of it is driven by stories that investors can relate to. The story is of the increasing demand for food, demand constraints and the closely related topic of climate change.
"If the three billion people who live in Asia don't get enough to eat in the morning, there will be severe problems."
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