Quotes of the Day

Economic improvements in recent years have led to a growing middle class of consumers in emerging markets who are seeking better nutrition and, more important, are able to afford it. This group's once predominantly grain-dependent diet now includes meat, milk and cheese, as well as more fresh fruits and vegetables. More than 300 million people in China, probably 100 million in Mexico, Brazil and Indonesia, and millions more in the rest of Latin America and Asia are increasingly beginning to resemble their counterparts in the West in terms of what they eat and how they shop for groceries. There's more emphasis on convenience and packaged foods, and supermarkets are populating the retail arena in ever greater numbers.

Underpinning the changing diets in emerging markets is a redefined agricultural landscape. Farmers are increasingly taking advantage of improved seed and plant varieties, as well as fertilizers and pesticides. In the 25 years prior to 2001, the total worldwide investment in agriculture?including machinery, land improvements and livestock?increased from $1.5 trillion to more than $2.1 trillion, according to the United Nations. Different types of foods are being grown, as basic crops have given way to speciality produce. Instead of growing sweet corn for sale by the ear in the marketplace, for example, farmers are harvesting and selling white corn for the production of tortilla chips.

This shift in dietary preferences and agricultural trends has created investment opportunities in supermarket, food-manufacturing and logistics companies in a number of developing countries. Consider China and India, the world's two most populous nations. Food spending in China is expected to grow 6.7% annually over the next 20 years, making the country one of the world's fastest-growing food markets, according to the McKinsey Quarterly. And in India, urban shoppers are spending more on food, groceries and personal-care items than ever before; the average monthly expenditure on these purchases jumped 14% in 2005 from 2004. According to ACNielsen, 47% of consumers' shopping baskets was devoted to fresh food in 2005, up from 42% in 2004.

With this growth comes a dramatic shift in food-production methods. India, for example, is increasingly focused on modernizing its agribusiness and on encouraging farmers to grow more fruits and vegetables instead of staples like wheat and rice. Improved agricultural output in Asia and Latin America has also meant growing demand for tractors, fertilizers and speciality seeds. Drip-irrigation equipment is particularly crucial to farms in China and India, which must use scarce water supplies more efficiently. Post-harvest, the processing and packaging sectors present opportunities in areas such as food-processing machinery, freezer and cold-storage facilities, and packaging and preservation technologies.

At the consumer end of the food chain, emerging markets are seeing the spread of new self-service stores, including supermarkets, hypermarkets and discount and club stores, as well as chain convenience stores. Through highly efficient procurement and distribution systems, modern chain stores have made significant inroads into traditional markets by offering greater variety, lower prices, better quality and more convenience to populations that are increasingly urbanized and time-stretched. By purchasing fresh fruits and vegetables directly from farmers, supermarkets have also been influential in reorganizing agriculture away from small family holdings toward larger, better organized and more mechanized farms capable of supplying produce according to a schedule, thereby reducing spoilage and cutting transportation costs.

Given the growth prospects, these new trends in food and agriculture promise an array of enticing investment opportunities. But there are plenty of risks when it comes to agriculture. The threats of droughts, floods, pests and overproduction go with the territory?and their effects are often particularly dire in emerging nations. In addition, the weather in such countries tends to be more extreme because many of them are in tropical or near-tropical locations. But the long-term trend is clear: as the middle class in emerging markets grows and prospers, nutritional habits will continue to change?and that should provide a tantalizing menu of investment opportunities on which to feast.

• Clark Winter
• Changing dietary habits in emerging markets offer opportunities for investors