How investors can ride the Mexican wave of obesity legislation

Why the obesity crisis is a topic ripe for investor engagement

In September, public health advocates worldwide celebrated the adoption of strict nutritional labelling requirements by Mexican legislators.

“The overweight and obesity epidemic needs a strong and urgent response from the authorities, not lukewarm measures”. These were the words of Christian Skoog, the representative of the United Nations Children’s Fund (UNICEF) in Mexico, a month earlier at a joint press conference with other UN agencies supporting the reform.

“We will be reporting to investors on the performance of some of the largest food and drink retailers and manufacturers”

The new measures, better-known as ‘etiquetado claro’ (‘clear labelling’ in Spanish), should be noted by food and drink companies worldwide and their investors. They are as strong as they can be when it comes to labelling.

Food and drink manufacturers will be required to display octagonal black labels, resembling STOP traffic signs, on the front of the pack of products that are high in sugar, saturated fat, salt and calories.

Also included in the law reform is the addition of tobacco-like health warnings on products deemed unhealthy. This applies to all soft-drinks, of which Mexicans are the largest consumers in the world drinking 150 litres per person each year.

A solid case for government intervention worldwide

Mexico often hits news headlines as one of the nations worst hit by the obesity epidemic. As such, food companies and their investors may be tempted to regard some of the recent measures as “too drastic” or “out-of-context” for other countries.

The findings of the most recent report from the OECD should make them think otherwise. Being overweight or obese is now the “new normal” in the majority of the 36 OECD countries.

For example, in the UK, 69% of men and 59% of women are overweight or obese, and particularly worrying, 31% of all children. The stats for Mexico are not dissimilar – 64% of men, 66% of women and 35% of children.

In 2014, Mexico was one of the first countries to adopt a tax on sugary food and drinks. It was dismissed by many as extreme, experimental and unlikely to be replicated elsewhere.

This couldn’t be further from the truth. Sugar taxes have proven to be effective in increasing public awareness and incentivising companies to create healthier product ranges. In the UK alone, soft drink manufacturers have reduced sugar content by a staggering 29% since its introduction in 2018.

With such a good track record, it is not surprising that sugar taxes have spread rapidly in less than five years. In February this year, Schroders reported that 42 jurisdictions across the world now apply them. This means that more people globally are now covered by a sugar than a carbon tax.Stricter labelling requirements, the new regulatory frontier?

The anticipated rise in overweight and obesity rates only make further public intervention more likely. The mounting burden of chronic diseases such as diabetes, cardiovascular diseases and cancer are predicted to translate into medical costs of 8.4% of annual health budgets in OECD countries and reduce life expectancy by 3 years by 2050.

Not only will health be hit but also our pockets, as lower educational outcomes and workforce productivity are predicted to reduce GDP of OECD countries by an average of 3.3% within the same period. The stakes are just too high for inaction.

Although the jury is still out on the popularity of stricter labelling requirements among regulators, its progress so far makes it a highly possible candidate. Since Chile first introduced these measures in 2016, Uruguay, Peru, Israel and now Mexico have followed suit, and Canada and Brazil are considering their introduction.

A topic ripe for investor engagement

Investors and food companies should note that there has been a clear shift in the focus of obesity-related regulation. Not so long ago, public health authorities’ actions were almost exclusively centred on improving education. However, there is a growing body of evidence pointing towards the importance of market factors such as availability or price in shaping our eating habits. The Mexican wave of obesity regulation is showing no signs of breaking, and direct intervention on food manufacturers and retailers is now much more likely.

Given the variety of fiscal and regulatory measures on the table, investors in the food and drink sector have a real interest in understanding how well these companies are monitoring possible sudden and drastic challenges. While at the same time, pushing them towards future-proof business models by putting healthier foods at the core. The example of Chile, where additional measures to protect children from marketing of unhealthy foods have led to the banning of entire product ranges and practices such as Kinder Eggs and McDonalds’ Happy Meals, should be a reminder to investors on the failure to pre-empt possible regulatory changes.  

Through ShareAction’s new Healthy Markets campaign supported by Guy’s and St Thomas’ Charity, we believe that investors have a real opportunity to play a positive role in supporting dietary improvements and tackling obesity levels. This is why, in partnership with the Access to Nutrition Initiative, we will be reporting to investors on the performance of some of the largest food and drink retailers and manufacturers operating in the UK in this space. To date, almost 20 different investors have expressed their interest in working in coalition with us and more are expected to join by the time this is formally launched next year, which signals an appetite for awareness and action in this space.

Ignacio Vázquez is Company Engagement & Research Manager at ShareAction.