By Kristen Le Mesurier, Senior ESG Analyst, Investment Research, AMP Capital
Sugar is emerging as one of the most prominent investment risks for the global food and beverage industry. Science has linked high sugar consumption to obesity and Type 2 diabetes at a time when obesity rates are rising and healthcare costs for governments are growing.
Globally, 39% of adults worldwide are overweight1
. The number of obese adults doubled between 1980 and 20142
. China is expected to have the highest number of obese children in the world by 20253
. There is already three times the number of teenagers in China with diabetes than in the US4
In fact, obesity alone accounts for 21% of healthcare spending5
in the US and in the UK, 10% of the NHS budget is spent on Type 2 diabetes6
A long-term trend toward health and wellness is already limiting the growth profile of companies manufacturing and selling products with high sugar content. This would deepen materially if any of the following occurs:
- Increased public concern from medical and public health organisations about the health impact of sugar consumption and greater awareness from consumers about the sugar content of food.
- Clear numbers on the cost of delivering health services to combat obesity. This would create the political will to impose sugar taxes, nutrition labels and/or advertising restrictions in an attempt to reduce consumption.
- Scientific evidence that sugar is the cause of particular diseases that cause death, which may enable large-scale litigation.
There are early signs that the first two are occurring. The World Health Organisation halved its recommended proportion of daily calories from sugar to six teaspoons a day in 2015 and publicly called for governments to impose sugar taxes on beverages for the first time in 20167
There is evidence of increasing numbers of consumers making healthier food choices. Soft drink sales for some listed companies are flat lining or trending lower and processed food purchases per capita are down in some markets.
Some countries and states are already responding with sugar taxes. There are now soda (soft drink) taxes in Mexico, the UK, Philadelphia in the US (the first large US state to impose a tax on soda), the city of Berkeley in California, and there is a current proposal in Ireland. Thirty-three cities in the US have attempted to introduce some form of soda tax. There are restrictions around advertising to children in Mexico and France and nutrition labels that include sugar content are being imposed for the first time in the US.
In Australia, the Greens have a soda tax on its policy platform and the party has said it will introduce a private senator’s bill by the end of 2017 if the Federal Government does not move to introduce one of its own.
While the major parties in Australia do not yet have plans to introduce any form of soda tax, the public discussion generated by the possibility of a soda tax has the potential to reduce consumption given that it shines a spotlight on the issue and accelerates consumer education about the health impacts of sugar.
We believe these discussions will step up a notch during 2017.
For more information on ESG issues, please see our latest corporate governance report.
1 World Health Organisation Obesity and Overweight fact sheet, June 2016
2 As above.
3 Planning for the worst: estimates of obesity and comorbidities in school-age children in 2025 by Lobstein & Jackson-Leach, Pediatric Obesity, September 2016
4 S. Yan, J. Li, S. Li, B. Zhang, S. Du, P. Gordon-Larsen, L. Adair, B. Popkin The expanding burden of cardiometabolic risk in China: the China Health and Nutrition Survey, Obesity Reviews Volume 13, Issue 9, September 2012
7 World Health Organisation Fiscal policies for diet and the prevention of noncommunicable diseases - Technical meeting report, published October 2016
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