Nutrition: why we're heading for an investment bubble
The concept of a carbon bubble is very firmly on the radar. We'd have to have our heads buried in the sand to deny that there are carbon-based assets sitting on company balance sheets that might not fulfill their financial potential. These assets are valued on the assumption that they'll be burned. Panicked policy responses from politicians, who are faced with the increasingly traumatic consequences of climate change, could be the pin that bursts the carbon bubble. And this could ultimately leave oil, gas and coal assets completely stranded, wiping trillions of dollars off market value.
But food's a safe bet, right? People always need food, and with the global population heading towards 9 billion, what better investment opportunity?
Here at Forum, we’re on a mission to create a Big Shift in the food system - to make it fair, sustainable and fit to provide our growing population with nutrition. And we know the finances need to stack up to make this possible. So we've been looking at how investor behaviour influences food companies, and how investors can reap rewards from doing the right thing. Public knowledge about the negative health impacts of products laden with fat, salt and sugar is growing and phrases like ‘the obesity time bomb' are all over the media. Nutrition was an obvious place to focus.
We think there’s a growing 'nutrition bubble' and it’s a threat to the value of food industry investments. The value of company assets that come mainly from products of limited nutritional value – ‘empty calories’ – is huge. Many brands derive their identity from offering large amounts of fat, sugar or salt e.g. sausages, ice-cream, biscuits, and sugary or salty snacks. Their assets are valued assuming that they can continue to produce such products indefinitely.
Yet there are real threats that could burst this bubble. Consumer understanding of nutrition is improving all the time. In the UK, prime-time TV programs coach overweight families with dietary science to outsmart their 'fat genes'. It's the same science behind lines like M&S's 'Fuller for Longer,’ which is a response to consumer demand for healthier products.
Government action is also a major potential factor. The cost of treating 'lifestyle' diseases linked to eating too much fat, salt and sugar is straining healthcare systems. In the UK, spending on diabetes care is forecast to reach 17% of total National Health Service spending by 2035. The number of Chinese diabetics is expected to double by 2025.
In response, governments around the world are gently flexing their muscles. Attempts to get food labelling right in the UK continue; Denmark is attempting to introduce the world’s first 'fat tax'; New York City's pioneering trans-fat ban inspired 12 other states to follow suit; and there’s been a tax on sugary drinks in France since 2012. How long before governments start seriously throwing their weight around as they face pressure over declining health and spiralling costs?
A wave of consumer and government action could quickly leave a range of assets in food manufacturing stranded. This would impact on brands that can't adapt, equipment that can't be re-purposed to produce healthier products, and products for which the expense of reformulation and related quality decline is just not economically viable. Despite this, most food companies and investors aren't having the right conversations. The right conversations can help avoid the risk of stranded assets and enable them to harness the massive opportunity presented by providing nutrition to growing global population.
Our new report, Stranded Assets in Food Manufacturing, is designed to:
- Outline the questions that investors need to ask, starting with the simplest: ‘How much of company profits depend on empty calories?’
- Outline a few key things investors can look for as evidence that companies are preparing to keep their assets from being stranded
- Help companies prepare for greater scrutiny of their nutritional offering starting with some simple prompts to find ways to cut the worst, improve the rest and do more of the best.
In practice, this means food companies extending their healthy ranges of food, reducing fat, salt and sugar across all mainstream product ranges and phasing out unhealthy options – without compromising on quality. It also means careful strategising to maintain revenues and market position throughout the transition, particularly if unhealthy options provide the biggest profits. These are definitely not small tasks, but are critical in order to create a food system and business models that survive in the future.
We're keen to help investors and companies have the right conversations and ask the right questions. We want to help ensure food industry investments stack up for all concerned, including for the billions of people looking forward to their next meal!
Download the report here.