Sugar could become the next tobacco in the eyes of regulators

This year’s Sugar Awareness Week has just come to an end. And as we listened to conversations between civil society, regulators and industry players, there was a common theme around the urgent need to do a lot more to improve people’s diets.

This is not surprising. Everyone has the right to live healthy lives, yet at present poor diets have a significant negative impact on the UK’s health and on society. Treating conditions linked to excess weight alone accounts for 8% of all healthcare expenditure. When combined with lost workforce productivity and reductions in life expectancy, the economic cost jumps to £74bn every year. Globally, obesity costs the world 2.8% of its GDP, equal to the cost of smoking.

Are unhealthy foods the new cigarettes? Certainly, they are being dealt with under the same regulatory playbook. Products high in sugar and calories are being taxed in 50 jurisdictions worldwide. Argentina was this month the latest Latin American country to follow Mexico, Chile, Peru and Uruguay in adopting warning labels on products high in calories, saturated and trans-fats, sodium, and sugar. In the UK, advertising and marketing restrictions are being introduced on the least healthy food and drink products from the autumn of 2022. The list goes on.

Consumers, too, are demanding healthier products and supporting increased regulatory action. Recent surveys show 68% of UK consumers try to eat healthily all or most of the time, while 76% support restrictions on the promotion of unhealthy products in supermarkets. Consumers are recognising what regulators have begun to understand – that health is shaped by our environment, including what food options are available to us, and that companies have an important role to play in determining these environments.

The question we should be asking is whether the food industry is embracing the health agenda or hoping such trends will reverse. In the era of Covid, betting on the latter scenario is a losing game. Obesity has been shown to be the leading preventable risk factor increasing the severity of symptoms, while nine out of 10 Covid-related deaths worldwide have occurred in countries with high obesity rates. Moreover, at a time when hospital occupancy determines whether the rest of society can be kept open, the chances of regulators being complacent on diet-related disease seem unlikely.

For those reasons, it is not just regulators but investors in the food sector that are becoming concerned at the pace at which companies are progressing. In the UK, the latest report from the Access to Nutrition Initiative showed only 29% of sales from the top 16 packaged food and drink manufacturers come from healthier products. Six manufacturers – Ferrero, Suntory, Mondelez, Unilever, Coca-Cola and Nestlé – continue to derive 80% or more of their UK sales from less healthy products.

Similar to companies with high carbon emissions, food businesses reliant on selling unhealthy food and drink products are becoming a risk to investors’ portfolios. This is why companies are increasingly facing investor challenges, as illustrated by the first-of-its-kind shareholder resolution filed at Tesco this year. Just like companies reliant on oil and gas, manufacturers reliant on less healthy products could become stranded assets.

Yet, just as energy companies are transitioning away from fossil fuels, it is possible for food manufacturers to sell healthier products that meet consumers’ expectations. Adaptation will require food manufacturers to reformulate and create new, healthier products, as well as shift their marketing and advertising efforts to ensure a majority of their sales are generated from these varieties.

By proactively transitioning towards healthier products and being more transparent on their actions, food manufacturers have an opportunity to demonstrate to customers, regulators and their investors that they can be trusted to support healthy diets and sustainable, future-proofed returns. It will be the ability of food manufacturers to transition that will determine whether Tony the Tiger becomes the new Marlboro Man.