Protein categories gaining over cereals

Former MetLife director of research Hugues Rinfret lays out the case for a protein-food centered investment strategy.

Chief among evolutions brought on by the growth in the global middle class is the growing popularity of protein-based diets at the expense of traditional grain-based foods. In this changing market environment, investors would be well advised to seek growth opportunities in the protein food category.

In terms of total calorie intake per capita, the dominant cereal category is gradually losing ground to the benefit of protein foods.

Seeking higher returns in the agri-food space suggests a focus on protein-based foods like tree nuts, fish and eggs.  Despite all the talk of proteins gaining at the expense of cereals, all the major proteins groups – from meats to tree nuts – still account for a relatively small share of the consumer’s calorie intake. Cereals, which include food grains unprocessed and processed into a wide variety of foods from breads and pasta, remain the largest food category accounting for nearly half of the consumer’s dietary intake (see calorie intake per capita in the bar chart). However, FAO data on average global consumer calorie intake suggest major changes in consumption patterns have already begun.

rinfrets graph

Globally, cereals still hold a 45% share of the total food calorie intake by the average consumer. Despite being in distant second place behind cereals, meats capture about 8 percent of total calorie intake per capita. followed by dairy with a 6 percent share. All the remaining protein categories capture less than a 2.5 percent share, ranging from 2.4 percent for pulse crops like dry peas and lentils to 0.6 percent for tree nuts like almonds, pistachios and walnuts. However, all these protein foods are gaining market share at the expense of flat-growth cereals.

The chart also illustrates the compound annual growth rate (CAGR) by category over the past 20 years, a period that corresponds with the emergence of China as a dominant emerging economy with accelerating food spending. By this measure, the fastest growth category is clearly tree nuts, with a 3.5 percent CAGR. This is more than double the rate of the next fastest category, fish, with 1.5 percent CAGR and eggs with 1.3 percent CAGR.  The meat category still exhibits a respectable 1.2 percent CAGR. This is led by poultry sector, followed by pork meat while beef faces slower global demand. By comparison, cereals show a decline of 0.1 percent CAGR during the same 1994-2013 period. Unfortunately, the latest FAO data is updated to 2013 only, leaving out several more years of middle class expansion and its corresponding impact on the global consumer’s calorie intake. But at least the data gives us an indication of the major changes to come.

Considering the evolving consumer preferences towards protein-based foods, companies that operate in tree nuts, fish/seafood, eggs and dairy products are likely to outperform their peers in the cereal category. The dairy category, which exhibits 0.9 percent CAGR, is moderated by the large and slowly declining demand for fluid milk. However, cheese, yogurt and other protein products are becoming more popular and are supporting more attractive growth for companies operating within that space.

In all, the global food supply chain is increasingly shifting focus from cereals to protein-based foods as millions of consumers in emerging economies are reaching middle-class status. More consumers with more money in an age of rapidly changing tastes and preferences suggest that higher value protein foods face higher growth potential, with several non-meat proteins even outpacing the growing meat category.