Food producers need to learn lessons from Big Tobacco

I’ve given speeches around this topic, I’ve written before about it.

Sugar is now being demonised like tobacco, and the same tactics are being used against producers as those used against Big Tobacco.

Two years ago at a food conference I told the packed room that they were next in the health battle. Food manufacturers giggled as I explained how they were next in the firing line. The only people in the room who weren’t giggling were the tobacco companies.

It turns out that I was right and they were wrong. They are now in a fight for the life of their business.

If sugar is the new smoking, then the makers of fizzy drinks and fattening cakes need to learn some lessons from big tobacco.

Big food companies have achieved pariah status, with sugar taxes already implemented in Mexico and France and a levy planned for the U.K. in two years’ time. Last week, sugar producer Associated British Foods accused the government of trying to demonize the product and questioned whether that strategy would help reduce obesity rates.

But it is just that outsider status that has helped lift tobacco companies’ performance. Over the past five years, big tobacco has handed investors a 101 percent total return, according to Bloomberg Intelligence’s Global Tobacco Product Manufacturing index, well ahead of the MSCI World Index’s 42 percent. That is a phenomenal performance for a class of securities shunned by some investors on ethical grounds.

Slapping taxes on cigarettes has hurt the volume of sales. But it also made it easier for tobacco companies to slip through price increases. Food companies need to use emerging sugar taxes to take control of pricing. Big tobacco has traditionally been reluctant to engage in price wars. Not so the food sector, which often gets dragged into supermarket price skirmishes.

And while the initial going will be tough for food companies, the inevitable industry turmoil that will arise from tough regulation will pick off weaker players and make for a stronger group of survivors. That has worked for big tobacco.

The push from health troughers, ably assisted by crusading but stupid journalists and media organisations, will have unintended consequences but it won’t halt obesity.

Global uncertainty has prompted a flight to safety, and while that tends to give a lift to household goods, tobacco is also benefiting. Packaged foods haven’t done as well.

Big tobacco companies have also been investing in alternative products such as e-cigarettes, where there could be substantial growth. This market has grown from just $US50 million in 2005 to an estimated $US7.5 billion in 2015, and could see another 20 per cent compound annual growth rate by the end of the decade, according to Euromonitor. Meanwhile, legalising marijuana in the US creates another potential pot of gold. The analogy for sugar isn’t as clear.

And the decline in cigarette volumes is showing signs of stabilizing – volumes excluding China is estimated to have fallen by about 2 per cent in 2015, a much slower deterioration than what was seen over the past few years, according to Euromonitor. The end is also in sight of the 25-year, $US200 billion industry settlement arranged with 46 US states in 1998.

Cigarette makers have had years to adjust to a more malign regulatory environment. For food and drink producers, the pain is only just beginning.

But to better survive the dislocation, big food should behave less like big supermarkets – prone to embark on pernicious price wars at any time – and more like big tobacco.

Yes, the pain has only just begun, and the food companies are fighting state-funded health troughers with a missionary zeal. Their ex-journo bimbos in marketing and PR aren’t going to help them when it comes to a war and if they are as meek and mild as tobacco companies are at combating opposition then they are going to get rolled, and a lot faster than tobacco ever caved in.

 

– Bloomberg

 


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  • Terry

    I still want to know exactly how, or at what stage between production and over-the-counter a “sugar” tax can be made to work. I’m not up to date these days with the Food & Drug Regulations (or whatever they’re now called), but there were many food and drink products where they controlled the situation by mandating the maximum levels of ingredients.

    • It’s unworkable.

      But that doesn’t mean some government won’t make a list based purely on ideology.

      We saw it before the last election when Labour’s policy was to introduce a Sugar Tax that would exempt lollies, but include sweetened yoghurt.

      The logic was that a sugary treat wasn’t food, but sweetened food wasn’t a treat.

  • Tiger

    Whilst these so called obesity “experts” are pushing for a sugar tax to reduce consumption, they will inadvertently hurt third world production. For New Zealand as a First world economy, and having a climate unsuited to sugar cane, a sugar tax will not hurt production here (Chelsea sugar refinery is not our only source of refined sugar).
    But in many poor countries it will. These “experts” will be responsible for massive unemployment of the farm workers (generally feeding a family) and not to mention the many by-products produced by sugar mills, eg ethanol, bagasse and molasses to name a few (http://www.business-standard.com/article/markets/byproducts-to-rescue-sugar-mills-113052701148_1.html).
    In many rural settings, the sugar mill not only provides jobs, but power too as the burning of bagasse drives turbines generating electricity. The demand for sugar may be the reason to have a mill in a particular area, but the exogenous benefits of the farms and mills benefit poor rural people in third world countries in particular. I am sure the “luvvy dovey do gooder” obesity “experts” are not that callous to suggest that reducing demand in their country is not going to affect production in a poor country which benefits from said demand.

  • Andrewj

    better to just put limits on sugar in food and drinks. The new sales for the industry are in the growth regions of Asia.

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