Is it time for investors to quit sugar?
By Sujaya Desai, Investment Analyst
Stewart Investors
At this time, 31 countries have imposed a tax on sugar to tackle the worldwide epidemic of obesity – and investors need to start taking notice.
Australia has the third-highest obesity growth rate, just behind the US and Mexico. With 63 per cent of Australian adults either overweight or obese, and related health costs coming to $14.6 billion per year to treat diabetes alone, there are renewed calls from medical professionals and health lobby groups for the federal government to follow the lead of countries such as Mexico, where a new sugar tax has seen the consumption of sugar-laden drinks such as Coke fall.
Australians are becoming increasingly aware about making investment choices that align with their beliefs about sustainability.
For clients who have seen similar regulatory changes affect other industries (such as energy and tobacco), a question they might be asking advisers is whether companies with products that are high in sugar are sustainable investments.
Whether it is the introduction of a sugar tax or changing patterns of consumption, these changes pose serious sustainability headwinds for those companies over the long term.
On the other hand, companies that are contributing to and benefiting from sustainable development stand to make positive gains.
Lessons from Mexico
Mexico is a useful case study for the case against sugar. In January 2014, the Mexican government implemented a roughly 10 per cent nationwide tax on sugar-sweetened beverages. Since then, the sales of sugary drinks have fallen 5.5 per cent in 2014 and by 9.7 per cent in 2015.
As allocators of clients’ capital around the world, we regularly sit down with the management and investor relations teams of companies.
During a recent trip to Mexico, a meeting with the Mexican division of Walmart (Walmex) brought to the forefront the question of where the companies in our investible universe fit in the shifting nutritional landscape of Mexico – a question we came back to throughout the trip.
“Eighty per cent of Mexico’s population in the top cities is within three kilometres or ten minutes of a Walmex store,” the investor relations representative of Walmex told us. It was a stunning statistic, and summed up the sheer scale of Walmex’s dispersion across the country.
Mexico’s journey along the development trajectory has resulted in a radical change in patterns of food consumption, giving rise to the coexistence of hunger and obesity as two sides of the same coin.
This ‘double burden of malnutrition’ is prevalent in middle-income countries across the globe, influenced by income growth coupled with rapid urbanisation. Particularly in Mexico, the ramifications have been immense.
Roughly a third of the country’s population is now obese, with childhood obesity, in particular, tripling in a decade. The proportion of obese children in the country is now the highest in the world.
The scale of the challenge in Mexico is that of a public health crisis. Obesity, and connected diabetes, take a severe toll on those living with the condition and pose an increasing burden on the healthcare system.
According to the World Health Organization, diabetes is the leading cause of death in Mexico. This is particularly staggering in light of the ubiquitous consumption of carbonated beverages in the country.
In 2012, Coca-Cola reported sales of more than two units of Coke products to every man, woman and child in Mexico, every single day. Further, obesity and related Type 2 diabetes treatments cost the public health system in the country between US$4.3 billion and US$5.4 billion a year.