Defensive Stocks: Agriculture is Popular

Investors should raise their exposure to agricultural commodities and buy into stocks in the sector, as demand from emerging markets increases and the size of arable land is shrinking, putting additional pressure on the already tight supply, analysts said Friday.


New consumption patterns appear, as China and other emerging nations seek to move their diets into a more protein-based Westernized diet, and demand is rising because grains are now also used as a source of fuel, William Rhind, head of UK sales at ETF Securities told "Squawk Box Europe."

"Right now for grains the fundamentals are very positive," Rhind said.

The European Union has until Friday afternoon to comply with a World Trade Organization ruling to end its 6-year ban on imports of genetically modified organisms. But Brussels may stall for more time, as the debate over GMO continues to cause controversy in some key member states.

GMO is a largely political issue, as although it essentially increases the yield out of a crop, consumer groups and environmentalists in Europe argue that its long-term effects on the health and environment have not been tested.

Health Fears

Brussels have had difficulty in implementing the ruling since some of its 27 member states are operating their own bans, which EU law allows them to do under certain conditions.

Between 1997 and 2000, five EU countries banned specific GMOs on their territory, focusing on three maize and two rapeseed types that were approved shortly before the EU's six-year moratorium on new biotech authorizations, according to Reuters.

The world's top three growers of GMO crops, Argentina, Canada and the US, stand to gain substantially if the ban is lifted. Likewise biotech companies such as Monsanto could see their sales flourish.

Monsanto, in particular, stands to gain the most as it has a number of key maize products that are banned under the ruling.

Analysts do not foresee an immediate reaction for the grain market from the ruling, but say that over the long term, if there is more supply on the market, prices of products may come down.

For the moment, though, investors can take advantage of the boom in commodities by investing in connected areas, Stephen Pope, chief market strategist at Cantor Fitzgerald, said.

Investors could look at chemical companies like Syngenta that specialize in herbicides and phosphates that actually enhance the crop as it grows instead of focusing on actual genetically modified crops, Pope said.

"I think there's plenty of scope for the demand for crop enhancement to carry on, and I think this story has plenty to run as an alternative to different sectors this year," Pope said.