Archer Daniels Midland Will Benefit from Slashed Food Tariffs

Dec.20.07 | About: Archer Daniels (ADM)

What do Turkey, The European Union, China, Russia, Mexico, Morocco, Azerbaijan, Bosnia, Egypt, Philippines, Taiwan, Bangladesh, India, Nigeria, Ghana and Peru all have in common?

They have all dramatically slashed tariffs on food in recent months. Turkey, for instance announced a reduction on wheat tarrifs from 130% to 8%, corn from 130% to 35% and scrapped the previous 100% duty for barley.

This follows moves by Morocco cutting its wheat import tariff from 130% to 2.5%, China cutting its soyabean import tariff from 35 to 1%, Russia cutting its import tariff for soya oil and rapeseed oil from 15% to 5% and Nigeria cutting its rice import tax from 100% to just 2.7%.

The cuts come as cereals and soyabean prices have risen to new highs and a warning by the US Department of Agriculture recently that insatiable demand from emerging countries is denting inventories dramatically.

As an investor, who benefits? Food processors. The top choices will be Archer Daniels Midland (NYSE:ADM) with processing, distribution and trading operations in over 35 countries and privately held Cargill. As demand rises exponentially throughout the world, ADM's distribution and trading segments are poised to reap the benefits.

The virtual elimination of tariffs will only serve to increase the demand as prices for imports of the affected products drop by half in most cases. Aside from the demand increase, the moves will also increase traffic in the goods. As these goods are moved from producers to end-user, ADM profits.

Between the recently passed energy bill and this news, ADM's major segments are both poised for prolonged growth.

Disclosure: Author is Long ADM.