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Since food is a necessity, investing in food stocks can sound like a lucrative venture. But it involves some risks you need to consider.
What is a food stock?
Food stocks are stocks in any company involved in the production and transportation of food from the farm to your stomach. So you can invest in stocks related to any of the following industries:
Farming equipment
Farming
Food processing
Food packaging
Food distribution
Groceries
Supermarkets
Restaurants
These industries keep the world food supply running and are essential to everyday life. For instance, think about how your morning coffee ended up in your cup — it all started in the ground as a coffee bean.
Farmers need water, fertilizers and other resources to grow these beans. Beans then need to be processed, transported, roasted, brewed and finally poured into your cup. This process involves companies making farming equipment and chemicals, transportation services, roasters and employees at cafés around the world — just to name a few players.
Why invest in food stocks?
Because humans need food, some investors may find food stocks consistent and stable. A growing health-conscious population has also made vegan stocks, organic-food stocks and similar securities grow in popularity.
The Canadian food and beverage industry produced $117.8 billion worth of goods in 2019, making it Canada’s second largest manufacturing industry. It accounts for 17% of the country’s manufacturing sales and 2% of its Gross Domestic Product (GDP). According to Statista, the United States food market revenue in 2020 has amounted to nearly $924.39 million and it’s expected to grow annually by 1.8%.
But to invest in food stocks, you need to know what role these companies play in the food-production process and the risks involved.
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Restaurant stocks vs. food stocks
Restaurant stocks are a subcategory of food stocks. These include stocks of full-service restaurants, fast-food establishments and snack bars. But they may be particularly volatile.
At the beginning of the COVID-19 pandemic, many restaurants were forced to temporarily close. Some didn’t come back. And the ones that did may face particular challenges such as smaller menus and capacity. In other words, many can’t operate at full force and that may hurt their bottom line.
Still, you can find restaurant stocks tied to large chains that operate throughout the country. Many restaurants are also benefiting from delivery services like DoorDash. In any case, you should carefully evaluate restaurant stocks and the companies behind them before you make a decision.
Risks of investing in food stocks
Because many industries and companies are involved in food production, it can run into several risks. For instance, weather can severely affect crop production. Political turmoil in a country can substantially impact the food and raw material they export.
Most recently, the COVID-19 pandemic has affected how food is processed, handled and transported. The lockdowns and social distancing rules had harmful effects on the restaurant industry. In some states like New York, restaurants are only beginning to allow patrons inside at limited capacity after having been closed for months.
Grocery stocks are a different type of food stocks, encompassing supermarkets and other major stores where you can buy prepped food and food ingredients. While the pandemic hurt many restaurants, many grocery stores saw a spike in revenue.
For example, Costco stocks closed at $281 on February 24, 2020—just a couple of weeks before the World Health Organization elevated COVID-19 from a public health emergency to a full on pandemic. By November 23, Costco stock had risen 38% to $388. By November 30, it reached an all-time high of $391.77.
Regardless of what types of food stocks you invest in, make sure you carefully analyze your options as well as the risks they may face.
If you’re not into stock picking, you may consider investing in exchange traded funds (ETFs). These have become popular in recent years because they offer access to a diversified basket of stocks. Here are some food stock ETFs you may be interested in.
First Trust Nasdaq Food & Beverage ETF (NasdaqGS: FTXG)
To invest in food stocks, you need to open a brokerage account. Shop around to explore your options.
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Bottom line
Because food will be consistently in demand, food stocks may sound like stable investments. But they carry risks and require careful analysis. Before you start investing in food stocks, carefully compare stock trading platforms.
Frequently asked questions
The food industry is generally considered to include companies that make or sell food and nonalcoholic beverages. But this doesn’t mean you can’t invest in alcohol stocks like wine or beer stocks.
Yes. There are several index funds that invest in food stocks. You can also invest in food industry ETFs. Both track large indexes which include various food stocks. Speak to your adviser or research online to learn more about your options.
You can invest in food stocks by opening an account with virtually any brokerage. Check out online trading platforms if you want self-directed, flexible trading options. If you prefer low-maintenance investing with a “set it and forget it” approach, take a look at robo-advisors.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
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Javier Simon is a freelance finance writer at Finder and a certified educator in personal finance (CEPF).
He’s featured on NerdWallet, Bankrate, Yahoo Finance and Fox Business, where he’s shared his expertise on personal finance topics, such as investing, retirement planning, taxes, budgeting and savings.
He has also covered breaking news, such as student loan forgiveness initiatives, the housing market and inflation’s impact on consumers’ wallets.
His passion is turning complex financial concepts into actionable content that can help people improve their financial lives.
Javier holds a bachelor’s degree in multimedia journalism from SUNY Plattsburgh.
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