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It’s been almost three years since the signing of the China-Australia Free Trade Agreement (CHAFTA) accelerated talk of an emerging “dining boom” to reinvigorate the Australian economy from the doldrums of a fading “mining boom.”
The tariff reductions spelled out in the agreement were expected to add tailwinds to two megatrends already underway – an emerging Asian middle class demanding better quality and safer food.
Despite the risks associated with arguably one of the most volatile of all commodity sectors, some investors were enticed to jump into any ASX stock perceived as a potential contributor in Australia’s emergence as the upcoming “food bowl of Asia.”
The following table, listed by market cap, looks at the current and five-year performance of some of those stocks.

Skeptics scanning over the table would be justified in asking “where’s the boom??”
Market experts warn retail investors that they will typically be late to the party, as insiders are the first to jump on a trend.  They also warn against abandoning the kind of due diligence that should precede any share market investment just to get in on a long- term trend. Some companies are better than others, with some not in a position to benefit from the trend at all.  There are solid ASX agricultural stocks that operate domestically only, with no plans to expand internationally, often due to the cost and increased risk.  
Australia is not the only country meeting the agricultural needs of the Asia-Pacific region, with fierce competition coming from other major food producing nations.  Agricultural production is at risk from the most unpredictable of all risks – the weather. This is particularly true for single commodity agricultural producers operating in limited locations, increasing risk for weather abnormalities in a region.  Local import regulations pose another major risk, as the beneficiaries of the boom in infant formula imports to China learned.  
While all the warnings may keep conservative investors from entering the sector, longer term investors often ignore the negatives pending the answer to two questions.  Is there explosive demand in the coming years?  What companies are in the best position to benefit from the demand?
In the early days of the burgeoning boom, much of the hype centered around the demand for high quality protein from consumers imprisoned for decades in a grain-dominant diet.  The following chart shows the explosive growth in Chinese demand for beef from Australia through 2015.

Australian Agricultural Company (AAC) is our largest beef producer as well as our “oldest continuously operating company.”  Yet despite solid earnings growth over the last five years, shareholders have yet to benefit.
As is the case with many long-term trends and hot sectors, many investors choose to invest not in the product providers, but in the companies that service them.  In addition, savvy investors look for companies producing food where the target country, like China, lacks domestic production to meet demand.  China has acknowledged it cannot keep up with demand for beef and now will import previously banned beef products from the US. 
Salmon is a protein source with growing demand in China, as is the case with dairy products, and some produce.  Service providers have the obvious advantage over producers since weakening in one commodity has less impact on a service provider dealing with multiple producers in multiple commodities.
The agricultural service providers in our table include NuFarm Limited (NUF), Elders Limited (ELD), Ridley Corporation Limited (RIC), and Ruralco Holdings Limited (RHL).  
NuFarm is the least diversified of the three, providing pesticides, herbicides, and specialty seeds to agricultural producers around the world.  The company has developed an omega-3-rich canola oil from genetically modified grapeseed.  Testing is underway, and the product is expected to be suitable as feedstock for Salmon aquaculture producers.
Elders has had the hot hand this year, confirming the success of its cost cutting and operational restructuring efforts.  Full Year 2017 profit jumped from $64.4 million to $116 million.  Elders supports Australian agricultural producers at every point in their business cycle, from financing and real estate services, to seeds and fertilisers, to animal health products, to livestock, wool, water, and grain trading. The company is bringing “smart” technology to the farm with the Elders Weather mobile application being a prime example.  The stock price is up 500% over the past five years.  Rival Ruralco’s business model is comparable to Elders, but the share price has lagged.

Ridley is less diversified, providing animal health solutions across Australia, serving producers of dairy, pig, poultry, beef, horse, sheep, aquaculture; as well as pet food providers and animal research laboratories. The company also exports some of its services internationally and maintains a portfolio of property assets.  These service providers touch the primary producers who will make or break the vision of Australia as Asia’s food bowl.
Salmon imports in China are booming but Australia’s main producers – Tassal Group (TGR) and Huon Agriculture (HUO) are embroiled in regulatory battles in Tasmania, where both operate.  Tassal now sits in the ASX Top 30 Short List, while Huon, in favor of more regulation of aquaculture in Tasmanian harbors, has been spared the wrath of activists.  Ridley is building an aquaculture feed mill in Tasmania and has sued Huon over non-payment of fish food supplied by Ridley.  The company has suffered from the loss of the Huon business. 
Investors preferring to avoid the situation with the major Australian Salmon producers have a new option to consider – New Zealand King Salmon Investments (NZK).  
The company is dual listed, coming on the ASX in October of 2016.  It appears to be under the radar of most Aussie investors as average trading volume is a miniscule 4,300 shares, compared to 873,000 for Tassal and 63,000 for Huon.  Nevertheless, the stock price has appreciated 70% since it began trading, outperforming both TGR and HUO.

In the recent earnings reporting season, agricultural produce operator Costa Group Holdings (CGC) was a standout, reporting Half Year results showing a 9.9% revenue increase along with a 15.4% increase.  In addition, the company raised its Full Year Profit guidance from 20% to 25%.  Perhaps of greatest interest to informed investors was Costa Group’s plan to become our largest grower of avocados.  With the backing of Macquarie Agricultural Funds Management, Costa acquired New South Wales producer, Coastal Avocados. 
While demand for protein in China and throughout emerging Asian economies has received the majority of analyst and expert buzz, demand for quality, safe, produce is not far behind.  Numerous financial websites are reporting Chinese demand for avocados – trending as a “heart healthy” nutrient source – could more than double in 2018.  Demand for berries is also rising, and Costa recently acquired a controlling interest in Moroccan blueberry provider African Blue, supplementing Costa’s two existing berry farms in China. 
Although the quality of the food is a key driver behind exploding agricultural imports to China and elsewhere in Asia, a less cited concern is food safety.  
In a 2012 report submitted to the Australian Government Department of Agriculture, Fisheries and Forestry entitled Food Consumption Trends in China, researchers acknowledged that “Increased disposable income coupled with small family size leads to increased demand for foods of premium quality. Foreigners in China (tourists and expatriates) also demand higher quality food.”
The report extends the quality discussion to include safety: Quality and food safety concerns can affect the demand of domestically produced foods and lead to the substitution of domestically produced food by imported foods. 
Food safety is a major issue in China, stemming in large part from questionable practices in the dairy industry that led to infant mortalities.  Counterfeit food – currently referred to as “fake foods” – is a major problem.  In early 2017 the Chinese government shuttered 50 factories producing “counterfeit” seasoning, imitating recognised brands.  The counterfeit products contained dangerous ingredients.
Not all investors are aware the impetus for importing foreign food is not just quality, but the perception the food is from a country like Australia with regulations ensuring the food is safe. In late 2016 the global cost of food counterfeiting was said to be between US$30 and $40 billion annually.
There is a small company on the ASX that may be developing a competitive advantage in the realm of food safety.  The company may appear a punter’s special to some; but it may merit more than a casual look.
The company is Beston Global Food Company Limited (BFC). Beston’s goal is to become a manufacturer, distributor, and exporter of Australian Foods.  Current operations are focused on the dairy sector, with growth plans for meat and seafood products along with health and nutrition products via investment and partnership arrangements with established privately owned companies.  The company is directly targeting China, with sales offices already established there.
What makes the company of interest is its proprietary technology platform – Oziris – which contains food traceability and anti-counterfeiting features.
Oziris is a mobile app that will allow ordinary consumers to verify the authenticity of the foods they purchase. Beston Technologies Pty Ltd, a 100% owned subsidiary of BFC, holds four provisional patents for its technology developments.  BFC built the platform, extending the capabilities of verification and anti-counterfeiting technology and applications built by DataDot Technology Limited (DDT) and Brandlok Brand Protection Solutions Pty Ltd. 
The first version – Oziris 1.0 – is available on both the iOS and Android app stores.  Consumers scan the product bar code which traces and tracks the product “from farm to table.”
On 16 February DataDot and Beston announced a proposed merger between DDT and Beston Technologies to allow expansion of OZIRIS technology to other applications.  
According to a recent research report commissioned by Beston and conducted by Australia’s Independent Investment Research, the Oziris technology incorporates block chain technology and enables users to generate data on their customers, which can be used to analyse and identify trends and obtain insights into customer behaviour, providing a significant tool for product development and marketing.

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