January 2011

The Case for Food – A Delicious Slice of Your Investment Portfolio?

My pastor commented recently that the average American man spends most of his time thinking about
five things, food being number one or two on the list. (I’ll leave the other four in his sermon to your
imagination.☺) I must be one of those typical guys because I spend a lot of time thinking about food,
and can get a little grumpy if I miss a meal!

Food is vital, necessary, fun, healthy, comforting, social – in fact if would not be inaccurate to say that
our entire lives are scheduled and built around food and our daily meals. Food also takes up a large
portion of our finances. The average American family spends 12-14% of their money annually on
food, trailing only housing and transportation as our largest budget item. (US Bureau of Labor & Statistics,
Consumer Expenditure Survey) Since food holds such deep significance in our lives – should we also
consider it for a part of our investment portfolios?

What Could Push Food Prices Higher – and Why Might it be a Good Investment?
There are several trends that could continue to lead to increasing food demand and higher prices;
population growth, income growth, increased protein consumption, a weakening US dollar, and
inflation.

Population Growth

The global population is growing rapidly. In 1970, the world had less than 4 billion people to feed.
Today, that number is closer to 6.8 billion – and by 2050 it is expected to be more than 9 billion.

The majority of that growth is occurring in countries like China and India – where the economies are
expanding at a much higher rate than in developed countries. There are more people with a desire for
higher quality food – and, importantly, the incomes to purchase it. (Potash Corp.)
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Source: United Nations Population Division, World Population Prospects, The 2008 Revision.

Fortunately, food production and farming technology have done a marvelous job as world food
production up to this point has somewhat kept pace with the growth of population.

(World food consumption has grown rapidly since 1970.)

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However, more people and more competition for food suggests higher food prices over time and
increasing revenue for companies involved in food production (e.g. fertilizer, tractors, seeds, ag.
technology, etc.)

Income Growth

One particularly bright spot of the global economy has been the increase in personal income of peoples
around the globe. Specifically, developing countries like China, India and Brazil have seen great
strides in the financial well being of their citizens. Although most of those countries are still far behind
the US, it is interesting to note that personal income in those countries is increasing at much more
rapid rate than here in the US.
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So what does this increase in income have to do with food and food prices? We well fed citizens of the
US sometimes forget that some of the rest of the world often does not have sufficient food. When a
family who has been living on a very small amount of money has an increase in income, much of that
higher income immediately goes to more and better food. The chart below tracks the change in pattern
of food consumption and diet composition.
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The conclusion is unmistakable – as the rest of the world’s income increases, so will their consumption
of food.

More Protein and More Meat

I don’t personally eat a lot of meat, but I do have to say that the smell of a steak barbequing on the grill
is a most exquisitely tantalizing aroma, and a great summertime treat. My young daughter loves BBQ
ribs so much, that we jokingly call her a “meatatarian.” This appeal seems to be universal, and that is
why families with rising incomes also tend to eat more meat. World meat consumption has increased
considerably over the last 30 years and most dramatically so in developing countries like India, China
and Brazil.
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An increasing consumption of meat puts additional strain on the world food supplies. It is estimated
that it can take anywhere from two to eight pounds of grain to produce only one pound of meat.

As more consumer food dollars go to beef, pork and chicken, there is a much greater demand for the
grains necessary to raise those animals, again suggesting higher prices and more revenue for food
producers.

Weakening US Dollar
Commodities (wheat, corn, oil, rice, etc.) transactions are almost universally traded in US dollars, even
outside the US. Therefore, if the USD declines in value – it then takes more of those dollars to
purchase that commodity. (Please see our Dec. 2010 client letter, QE – Will the Fed’s Financial
Experiment Work? for more on this subject.)

If the USD continues to decline in value, as it has over the last ten years, than it can be reasonably
expected that food prices will suffer upward pressure as a result.

The price of oil has a multiplier impact on food prices in this scenario. Oil prices tend to rise when the
USD drops, making oil and petroleum based products more expensive for farmers and growers.
Because petroleum costs are 80% or more of farming costs, higher oil prices tend to move food prices
up even more rapidly.
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The investment implications are this; an agricultural/food allocation in a portfolio might help us to
protect and perhaps even profit from a weaker USD.

Inflation and Food

History has demonstrated that inflation tends to strike the hardest blow to non-discretionary essentials
like food. High inflation can wreak havoc on producers and the production cycle, further limiting
supply just when it is needed most.

The US does not have inflation today, at least not as measured by the government’s own Consumer
Price Index (CPI) numbers. However the probability of inflation becoming a concern in the future has
risen immensely because of the Federal Reserve’s irresponsible monetary policy, runaway money
creation, and massive and mushrooming federal deficits.

Again the investment implications are straightforward; an agricultural/food allocation in a portfolio

might help to protect our purchasing power and possibly even profit in an inflationary environment.

How do You Invest in Food?

Food sector investments come in two flavors. The first are investments that track the prices of food and
food commodities like rice, corn, soybeans, and sugar. When the prices of these food items increase,
the price of that investment rises, and of course if those prices decline, the investment loses value also.
Did you know that price of sugar has almost tripled over the last three years?

The second flavor or method of investing in the food sector is by owning stocks of companies in the
food producing industries. As food production increases and food prices rise, you might expect that the
companies that serve that sector; companies that make fertilizers, tractors, chemicals and seeds, and
food producers, might all prosper.

Of course all of the normal and wise investing principles apply; an allocation in this area might only be
a part of an overall diversified portfolio, consider your portfolio goals, objectives and risk tolerances
carefully, and read the prospectus and understand the investment(s) before deciding to invest.

Growing global population, an emerging middle class in other countries enjoying higher income and
eating more and better food, a weaker USD, and the threat of inflation are a recipe for tasty results for
food sector investments.

We would like to review the food/agricultural sector with you as part of your overall diversified
portfolio plan in more detail at our next review meeting. Of course please feel free to call us if you
have any questions before our next appointment.

With Warm Regards,

William R. Gevers
Financial Advisor
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PS: On a human note – all this talk of population growth and food reminds us that there are many
people around the world that do not have enough food to eat and are struggling to survive. Along with
investing for our own financial security, you might be moved to try and help someone enhance their
own food security. My wife and I have been quite impressed by the work of World Vision, and we
have both served them professionally and supported them personally.

My favorite World Vision food/aid program endeavors to help folks to help themselves. The old
saying goes,” Give someone a fish and you feed him for a day; Teach someone to fish and you feed
him for a lifetime.” This particular World Vision program is similar to that as you can give a goat, a
chicken or other farm animal to provide sustenance and a livelihood to people in need. You can read
more about the program here. http://donate.worldvision.org/OA_HTML/xxwv2ibeCCtpItmDspRte.jsp
?lpos=ctr_img_Goat_sb2&item=1597888&go=item&section=10375&

PPS: We have been repeatedly asked by clients if they could share these e-mail notes with their friends
or neighbors. Please feel free to forward this with the stipulation that it may only be forwarded if done
so in its entirety with no portions omitted. We would be delighted to share our comments and opinions
with your friends, and welcome your comments and feedback. If you received this and would like to be
included on our newsletter list, please email us at wgevers@geverswealth.com

Copyright 2011 William R. Gevers. All rights reserved.

Gevers Wealth Management, LLC

I-90 LakePlace Center
1605 NW Sammamish Road, Suite 250
Issaquah, WA 98027

Office: 425.657.2238
Fax: 425.657.2138
E-mail: wgevers@geverswealth.com

The views are those of William Gevers, Gevers Wealth Management, LLC, and should not be construed as individual investment advice. All
information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. All economic and
performance information is historical and not indicative of future results. Investors can not invest directly in an index. Please consult your
financial advisor for more information.

Securities and advisory services offered through Financial Network Investment Corporation, Member SIPC. Gevers Wealth
Management and Financial Network are not affiliated.