Is sugar turning Big Food into the next Big Tobacco?
And, if so, is legislation the best option? David Prosser of The Times canvasses opinions on either side.
23 October 2018
Illustration: Andrea Ucini
Important Information: This article was written by The Times, all views and opinions are those of the publication unless otherwise stated. The views and opinions are those of the authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
Will the socially responsible investors of the future shun food and drinks companies in the way that they avoid tobacco companies today?
Investors hold big tobacco responsible for selling a product that is proven to damage the health of the people who buy it. The high quantity of sugar in many of the food and drinks products that we buy means manufacturers could be accused of behaving in the same way.
Moreover, as with smoking, the impact of this behaviour is highly visible. Last year, NHS Digital warned that more than a quarter of English adults were officially obese, as were nearly 10 per cent of children starting school.
The government hopes to change behaviours among both consumers and manufacturers through tax policy. In the same way that it has taxed tobacco products to deter consumption, it introduced a sugar tax in April that adds 24p to the cost of a litre of the most sugary drinks.
This policy shift underlines the dramatic change in attitudes in the UK. Some investors may steer clear of Big Food for ethical reasons while others will simply reason that this is an industry with poor prospects unless it changes its ways.
Now read what our experts say and make up your own mind
Yes, it is true
Tam Fry, Chairman, National Obesity Forum
"The simple answer is yes. This is a recent development, but people are finally beginning to get the message about sugar: they recognise that this stuff is just as lethal as tobacco and they will hold the companies that sell it to them responsible.
"There is a difference however. With tobacco, we had years of the industry denying that its product had an impact on health, but food and drinks companies have been more willing to accept that they are part of the problem and that they must be part of the solution.
"If the industry is willing to follow through on this, there is a chance that investors will support these companies rather than holding them accountable for our health problems.
"The response to the sugar levy is a good sign – drinks manufacturers have cut sugar levels to such an extent that it is relevant to only a handful of products. But there is plenty of work to do: Public Health England’s target is for a 20 per cent cut in the sugar levels of many foods by 2020, but the industry missed its target of 5 per cent last year by some distance; it will have to do better."
No, it’s not true
Gavin Partington. Director general, British Soft Drinks Association
"The soft drinks sector was the first food and drink category to recognise that it has a role to play in helping to tackle obesity, which is why we have led the way in calorie and sugar reduction.
"In fact, according to Public Health England’s Sugar Reduction Progress Report – published in May – sugar intake from soft drinks decreased by almost five times as much as other categories.
"Consumers have been looking for healthier, lower-calorie options for a number of years now and our industry has been responding. Of all drinks sold, 64 per cent are now low and no calorie – this speaks volumes for industry’s efforts to meet consumers’ expectations and its commitment towards calorie reduction. By providing an ever-wider range of products the soft drinks industry plays a positive role in helping consumers reduce their calorie intake.
"It’s fair to say that the soft drinks industry levy prompted some companies into reformulating their products but most of the sector had moved in this direction for several years already.
"Recent government figures show a significant decline in sugar intake from our products. We hope our actions on sugar reduction, portion size and promotion of low and no calorie products set an example for the wider food sector."
No sugaring the pill
Charles Somers, equities portfolio manager and global sector specialist in consumer staples at Schroders.
"Sugar represents a potential vulnerability for food companies. We have already seen this in the cereal sector where the major players have seen their share prices slide in recent years.
"As consumers have become more health-conscious, the growth prospects for cereal products have diminished and the market has downgraded its expectations accordingly – in some cases, valuations are now on a par with the tobacco sector.
"When it comes to sugar, much of the attention has been on indulgence products such as chocolate. But consider other products. Some probiotic yoghurts have as high a sugar concentration as cola. Over time, as consumer understanding improves, sales of these goods should suffer in the same way as they have for cereals.
"The good news is that companies are responding: some are investing in reformulating their products; others are diversifying into healthier foods.
"Another route is to raise prices on high-sugar goods or to launch premium products. This fails to address the social issue but is more rational behaviour to defend profitability.
"Sugar is likely to remain an important issue for your investment portfolio. Our role as investment managers is to continue to engage the industry and to protect your interests while looking for opportunities created by changing habits."
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