This article forms part of CAER’s ‘Responsible Investment Agenda 2018 – A Work Plan for Australian and New Zealand Investors’ Report
Sugar will continue to be a key risk for investors in 2018. As more scientific research illustrates the correlation between sugar and chronic health diseases such as obesity, type-2 diabetes and heart disease, Australians and New Zealanders should look to cut sugar from their diet and their portfolios.
Sugar and Obesity
The most recent statistics from the Australian Bureau of Statistics (ABS) highlight the extent of the nation’s health problem. In 2015, over 63% of the population were overweight or obese[i], 5% suffered heart disease [ii] and 5.1% were type-2 diabetics[iii]. Despite numerous studies revealing how sugar is readily transformed into fat, Australians are consuming an average of 60 grams of free sugar per day[iv]. This is 8 teaspoons more than the World Health Organisation’s daily recommendation[v].
The problem is prevailing particularly due to the consumption of sugar-sweetened drinks that are causing obesity in children.[vi] The obesity epidemic, although it may provide a business to the healthcare sector, is annually costing Australians A$56.6 billion[vii] and New-Zealanders NZ$772 million by conservative estimates[viii]. Nevertheless, we are starting to see an overall shift towards health and wellbeing among Australian consumers, which increasingly puts pressure on companies who sell unhealthy products.
A large number of companies operating in the consumer staples sectors are producing and marketing products that have dangerously high sugar concentrations.[ix] Sugar-sweetened beverage manufacturers are obvious culprits, however other corporates who have extensive food and beverage product lines are exposed to sugar related risk factors too.
The biggest threat to these companies is the reputational risks associated with the provision of sugary products that are linked to long-term chronic health conditions. There an inherent financial risk that as consumers move away from these unhealthy products, sales revenues will decline. It appears that this is already the case at Coca-Cola Amatil in Australia, for example.[x] A report by Schroders anticipates that companies will face costly litigation over false and misleading food labelling in the wake of sugar’s definitive link to metabolic syndromes in the future[xi].
Calls for a Sugar Tax
There are now growing calls for a high-sugar tax in Australia and New Zealand which will make it harder for exposed companies to turn a profit. The idea was initially dismissed by the Australian Government after it was put forward by the Australian Medical Association in January this year. However a recent Essential Poll commissioned by The Guardian Australia, found 53% of Australians were in favour of a sugary drinks tax and only 38% opposed the idea.[xii]
Meanwhile in New Zealand, a poll by UMR Research and commissioned by the University of Auckland, found 67% of respondents either “strongly” or “somewhat” agreed to a tax of fizzy drinks. Calls for a sugar tax in New Zealand were reignited at the start of 2017 as research from the University of Waikato found drinks in New Zealand had 1.5 times more sugar than Canada, Australia and the United States.[xiii]
Sugar taxes on sweetened beverages have already been introduced in the United Kingdom and Mexico and early indicators suggest beverage sales are dropping in response.[xiv]
The Impact on Investment
Although a sugar tax hasn’t been legislated in Australia or New Zealand yet, consumer sentiments are changing regardless and investors should look towards opportunities such as the emergence of healthy food companies and companies who are leaders in nutritional profiling. Investors should also be identifying companies that are actively addressing their exposure to sugar by providing healthier alternatives, reducing portion sizes and reducing the sugar content of their products. There is no doubt that the potential for reputational, financial and litigation related risk factors will make investors wary of companies operating in this space.
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[i] Australian Bureau of Statistics, ‘National Health Survey Results: First Results, 2014-15 – Overweight and Obesity’ (08 December 2015): <http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.001~2014-15~Main%20Features~Overweight%20and%20obesity~22>
[ii] Australian Bureau of Statistics, ‘Profiles of Health, Australia 2011-13: Heart Disease’ (09 June 2013): <http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4338.0~2011-13~Main%20Features~Heart%20disease~10005>
[iii] Australian Bureau of Statistics, National Health Survey: First Results 2014-15 – Diabetes Mellitus (08 December 2015): <http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.001~2014-15~Main%20Features~Diabetes%20mellitus~12>
[iv] Australian Bureau of Statistics, ‘Australian Health Survey: Consumption of added sugars 2011-12 Key Findings (27 April 2016): <http://www.abs.gov.au/ausstats/abs@.nsf/mf/4364.0.55.011>
[v] World Health Organization, ‘Guideline Sugars intake for adults and children (2015): <http://apps.who.int/iris/bitstream/10665/149782/1/9789241549028_eng.pdf>
[vi] Dr David Ludwig, Karen Peterson & Steven Gortmaker, ‘Relation between consumption of sugar-sweetened drinks and childhood obesity: a prospective, observational analysis’, The Lancet (17 February 2001): <http://nepc.colorado.edu/files/lancet.pdf>
[vii] Australian Medical Association, ‘Obesity 2016’ (07 November 2016): <https://ama.com.au/position-statement/obesity-2016>
[viii] The University of Auckland, ‘The Cost of Obesity’ (11 December 2012): <https://www.auckland.ac.nz/en/about/news-events-and-notices/news/news-2012/2012/12/11/The-cost-of-obesity.html>
[ix] Graham MacGregor & Sonia Pombo, ‘The amount of hidden sugar in your diet might shock you’ The Conversation (09 January 2014): <https://theconversation.com/the-amount-of-hidden-sugar-in-your-diet-might-shock-you-21867>
[x] Madeleine Heffernan, ‘Coca-Cola Amatil suffers as soft drink sales fall for a decade in Australia’ The Sydney Morning Herald (24 April 2017): <http://www.smh.com.au/business/retail/cocacola-amatil-suffers-as-soft-drink-sales-fall-for-a-decade-in-australia-20170424-gvr79s.html>
[xi] Elly Irving, ‘Is sugar turning Big Food into the next Tobacco? An investors view on metabolic syndrome’, Schroders (April 2016): <http://www.schroders.com/en/sysglobalassets/digital/us/insights/pdfs/schroders-is-sugar-turning-big-food-into-the-next-big-tobacco-v2.pdf>
[xii] Paul Karp, ‘Most Australian want sugar tax on drinks – Guardian Essential Poll’, The Guardian (16 January 2018): <https://www.theguardian.com/australia-news/2018/jan/16/most-australians-want-sugar-tax-on-drinks-guardian-essential-poll>
[xiii] NZ Herald, ‘New calls for sugar tax research finds more sugar in NZ soft drinks’, New Zealand Herald (16 January 2018): <http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11976105>
[xiv] Lester Wan, Elaine Watson & Rachel Arthur, ‘Sugar Taxes: The Global Picture in 2017’, Beverage Daily (21 December 2017): <https://www.beveragedaily.com/Article/2017/12/20/Sugar-taxes-The-global-picture-in-2017>
Author: Alex Clark
ESG Research Assistant