SUGAR TAXES & NUTRITION – AN INVESTMENT PERSPECTIVE Nutrition is a key investment theme The UK Sugar tax, announced in March, is not unprecedented in a global context Investors should look to shifting market dynamics, as well as short-term share price impacts Rose Beale Responsible Investment Analyst Interest in nutrition as an investment theme is increasing. The issue is increasingly prominent on a global stage: around a third of people are suffering malnutrition, which includes obesity as 1 well as micronutrient deficiency. Other factors catalysing investment interest include the counter-balancing trends towards ‘healthier’ food and beverages, and enhanced government scrutiny on the issue. In light of the sugar levy announced in the UK budget, we review similar French and Mexican measures, drawing on the work of researchers and national health bodies. Drawing on our wider work on the theme, we also explore some of the possible implications, and potential opportunities, that it provokes. The UK: The sugar tax will be levied on producers and importers of soft drinks that contain added sugar. It will be implemented in 2018, leaving time for companies to adjust their product mix. There will be two bands: one for total sugar content above 5 grams per 100 millilitres, and 2 a higher band for drinks with more than 8 grams per 100 millilitres. The Office for Budget Responsibility thus predicts material price rises on high-sugar products: as much as 80% on a two-litre bottle of own-brand cola. France: The UK tax is not unprecedented in a European context. As early as January 2012, France imposed a tax on drinks with added sugar and sweeteners (€7.16 per hl). It is levied on French manufacturers, importers and outlets serving prepared drinks with added sugar or 3 sweeteners. Following the introduction of the tax carbonate volumes immediately began to 4 decline, falling c.2% in 2012, 2013 and 2014, having grown by c.2% the previous 3 years. Other high sugar categories, juice and concentrates, continued growing at roughly the same 5 rate as that prior to 2012, but declined in 2014 due to consumer trends. Mexico: Similarly, Mexico imposed an excise duty in 2014 on sweetened beverages of MXN$1.00 per Litre, which fell on carbonates, juices and energy drinks containing sugar, but 1
International Food Policy Research Institute, Global Nutrition Report 2015. HM Treasury, Budget 2016, March 2016. 3 World Health Organization,. Using Price Policies to Promote Healthier Diets, 2015. 4 Bank of America Merrill Lynch, Thematic Investing, 18 March 2016. 5 Bank of America Merrill Lynch, Thematic Investing, 18 March 2016. 2
1
Monthly Global Perspectives – April 2016
not on artificially sweetened carbonates. The Mexican National Institute of Public Health has stated that the sale of soft drinks subject to the tax increase declined by 6% in 2014, whereas 6 sales of soft drinks not affected increased by 4%. A 2014 consumer survey of 1,500 Mexicans reported that more than half of the sample reduced the consumption of sugary drinks since the 7 tax was introduced.
Investment implications Drawing out some of the investment implications, we see potential opportunities, as well as risks. In the immediate aftermath of the UK announcement, there was a share price impact on a number of exposed stocks (including AG Barr and Britvic). However, the two-year window for the implementation gives producers time to reformulate. More widely, this measure may be seen as a facilitator of current trends, both in terms of policy efforts such as sugar taxes and in overall market dynamics. For instance, growth in sales of carbonated drinks has significantly 8 underperformed other soft drinks, particularly for higher sugar products.
Figure 1: Average growth in 2008-2013 (volumes), Ready to Drink
Source: Morgan Stanley/Euromonitor
Seen in this broader context, the tax may provide an additional boost to the robust growth in ‘healthier’ consumer categories, paralleled in the food segment by the fast-growing sales of ‘natural’ and ‘organic’ products. Ultimately we expect an array of investment opportunities to emerge, not only from the UK announcement – which may benefit companies producing sugar alternatives, including Tate & Lyle – but also on the global stage, as nutritional challenges, policies and innovation continue to play out.
This tax measure may be seen as a facilitator of current trends, both in terms of policy efforts such as sugar taxes and in overall market dynamics: for instance, growth in sales of carbonated drinks has significantly underperformed other soft drinks, particularly for higher sugar products.
6 7 8
Mexican National Institute of Public Health, 2014. The Wall Street Journal, Survey Shows Mexicans Drinking Less Soda After Tax, 13 October 2014. Morgan Stanley, Sustainable Economics: Not So Sweet, 17 March 2016. Figure from Exhibit 1.
To find out more v COLUMBIATHREADNEEDLE.CO or call 0800 953 01 *Please note we record calls for your protection and to improve our sta
To find out more visit COLUMBIATHREADNEEDLE.COM
Important information: For investment professionals only, not to be relied upon by private investors. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This material includes forward-looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guarantee or other assurance that any of these forward looking statements will prove to be accurate. Issued by Threadneedle Asset Management Limited (TAML). Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. TAML has a cross-border licence from the Korean Financial Services Commission for Discretionary Investment Management Business. Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058. Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), Registration number: 201101559W which differ from Australian laws. Issued by Threadneedle Asset Management Malaysia Sdn Bhd, Unit 14-1 Level 14, Wisma UOA Damansara II, No 6 Changkat Semantan, Damansara Heights 50490 Kuala Lumpur, Malaysia regulated in Malaysia by Securities Commission Malaysia. Registration number: 1041082-W. This document is distributed by Columbia Threadneedle Investments (ME) Limited which is regulated by the Dubai Financial Services Authority (DFSA). The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client under the DFSA Rules. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com
Issued 04.16 | Valid to 06.16 | J25069