It is not fat we should worry about; it is sugar. Our increased sugar consumption has led to an obesity epidemic, which is increasing the prevalence in diabetes, heart attacks and choked arteries. We expect the food and beverages industry to be faced with volume declines of their sugary products as consumers start looking for healthier alternatives.
For a long time, our diet consisted of dairy, meat, seasonal fruits and vegetables, nuts, seeds and grains. This changed towards the end of the 18th century when potatoes were added to the poor man’s diet and sugar and white flour products became widely available due to new inventions. All three - potatoes, sugar and white flour products - are rich in sugar and poor in other nutrients.
In the 20th century food industrialization made previously manmade products, such as cheese, jams and butter, available at reasonable prices. The increasing consumption of industrialized carbohydrates and sugar speeded up after the Second World with the invention of fast food and the advance of packaged foods like prefab soups and sauces.
Following the heart attack of US president Eisenhower in 1955, Ancel Keys, an American nutritionist, recommended to stop smoking and cut down on fat and cholesterol, as eating cholesterol would increase the cholesterol levels in the blood, causing heart attacks and coronary thrombosis. The idea that eating fat makes you fat was programmed into the American mindset.
The Brit John Yudkin, however, stated that cholesterol is produced in the liver and made from sugar in the blood. Eating fat does not make you fat. Your body breaks down the fat you eat into sugar. In his book Pure, White and Deadly, Yudkin describes that humans have always been carnivores. We only started eating carbohydrates like bread 10,000 years ago and pure sugar 300 years ago. This is too short for evolution to adjust our digestion. Keys won the public debate by claiming that Yudkin was writing propaganda for the meat and dairy industries.
Based on the work of Keys, the US updated their Dietary Guidelines in 1980: consumers should cut back on saturated fats and cholesterol. The packaged food industry had to list the ingredients on each food item according to seven new food groups. Unlike fat, sugar was not one of them, so companies were not obliged to list the amount of sugar. This was the start of the low-fat revolution. Almost all packaged food items got a light version, in which fat was mostly replaced by more sugar.
US consumers massively replaced steaks with pasta, butter with margarine and milk with orange juice. The effect on their health was devastating. Other Western countries followed suit.
Sugar or glucose is one of the key fuels for our body. Consuming it therefore feels like adding fuel to the fire. However, our human body is very well equipped to extract glucose out of almost anything we eat.
The quick fix for our energy levels are carbohydrates: they contain large amounts of sugar and are mostly easy to digest as they do not contain large amounts of fibers for which we need the help from our intestinal flora. Proteins like meat and dairy products take more time to increase our blood sugar level. Fat is by far the slowest ingredient for our body to transform into glucose.
If your blood sugar level becomes too high or too low, the insulin hormone triggers the body to take sugar out of the blood stream and the liver starts to produce fat out of the surplus of glucose. It is the overload of sugar in your blood that makes you fat, not necessarily the amount of fat you eat.
Eating too many calories combined with eating the wrong ones has led to an epidemic outbreak of obesity in the US, triggering a spur of chronic diseases. So far no court in the world has ruled that the food industry has any responsibility. It is therefore up to the consumers themselves to lower their sugar intake. Although it is hard to find data it seems that in the Western markets our sugar intake has peaked.
The more sugar’s potential harm gets known by the general public, the more the food and beverages industry can be named and shamed. This might lead to slower or even negative volume growth and will most definitely lead to lower stock multiples.
The food and beverages industry’s situation is quite comparable to the tobacco industry in 2000. Science already knew for a long time that smoking caused serious health problems; but it took until 2000 for a jury verdict in Florida to grant a class action by roughly 100,000 smokers the huge amount of USD 145 billion.
This was a major wake-up call. Ever since, selling tobacco products has been highly restricted, heavily taxed and marketing cigarettes has almost entirely been banned. The number of smokers has dropped from over 40% in the 1970s to 18% today. Nevertheless, stocks of tobacco companies have been performing very well. Since 2000, the tobacco sector has gained 750%, or 13.4% per year, versus 85% for the world index, or 3.7% per year. The sector massively consolidated, cut costs and was able to increase prices along with ever increasing taxes.
Until the food and beverages industry gets a similar wake-up call , we expect volume declines in their sugary products as consumers will be seeking for healthier alternatives. The industry is aware of this and has been buying up companies that provide healthy alternatives. The recent bid of Danone on Whitewave is just the beginning.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US citizens and residents.
*We would like to inform you that your details will not be made available to third parties. All requests will be reviewed. Please note that this publication is intended only for (potential) professional clients of Robeco.
By completing this form you agree that Robeco will keep you updated on Low-Volatility Investing.