Sugar Addiction
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SUGAR ADDICTION BREAKING THE CYCLE DESIGNED AND PRODUCED BY: 3C Creative Agency, 3c.com.au WRITTEN BY: Constance Zhang, Platinum ILLUSTRATED BY: Andreas Samuelsson, Agent Molly & Co © 2015 Platinum Capital Limited WE ALL HAVE AN ADDICTION TO SWEET-TASTING DOPAMINE-PRODUCING SUGARY TREATS. BUT THE TREND OF INCREASING SUGAR CONSUMPTION IS RENDERED UNSUSTAINABLE BY THE ALARMING RISING RATES OF “DIABESITY”. IN THIS REPORT, WE’LL EXPLORE THE BITTERSWEET MIX OF OPPORTUNITIES. II Platinum Capital Limited Annual Report 2015 PREFACE At the first International Conference on Among the chief culprits for the so-called Nutrition held in 1992, world leaders global obesity epidemic and the sharp collectively pledged “to act in solidarity to increase in the prevalence of diabetes, ensure that freedom from hunger becomes sugar was at last recognised for what it a reality”. was, though it had been a suspect since the 1960s. At the second International Conference on Nutrition 22 years later, the It is a truth almost universally commitment changed noticeably – “to acknowledged that sugar-sweetened eradicate hunger and prevent all forms beverages are the easiest means of adding of malnutrition worldwide, particularly empty calories and gaining weight. But undernourishment, stunting, wasting, one does not need to be sipping Coca-Cola underweight and overweight in children or chewing on a favourite marzipan bar to … as well as reverse the rising trends in fall prey to sugar. From fibre-rich cereal overweight and obesity and reduce the to fat-free yogurt, from old-fashioned burden of diet-related non-communicable ketchup to exotic teriyaki sauce, one diseases in all age groups”. finds added sugar in 80% of the foods in our supermarkets, including many As progress is made on the reduction of the perceived “healthy” varieties. of poverty and incomes in developing countries rise steadily, malnutrition as But change will occur, even if slowly. a result of excessive consumption of fat, Nationwide education campaigns about salt and sugar has now become a global the health dangers of excessive sugar issue no less challenging than the threat consumption, more transparent food of famine. labelling requirements, and a cautious but visibly increased use of various forms TODAY, AN ESTIMATED ONE-THIRD OF of sugar taxes are beginning to alter THE WORLD’S POPULATION, SOME consumers’ psychology and affect 2.1 BILLION PEOPLE, ARE EITHER their behaviour. OVERWEIGHT OR OBESE, WHILE THE NUMBER OF PEOPLE SUFFERING So, one of the curious minds at Platinum, CHRONICALLY FROM HUNGER IS Constance Zhang, decided to explore AN ESTIMATED 805 MILLION. some of the opportunities presented by these new trends and put together a sugar- coated note entitled “Who Wants to Play Candy Crush”. Platinum Capital Limited Annual Report 2015 III The interesting thing we have observed is that while there is an increased offering of “sugar-free” and “low calorie” foods and drinks, they are not “non-sweet-tasting”. PEOPLE ARE NOT ABANDONING THEIR SWEET TOOTH (IF IT WERE ONLY SO EASY TO GIVE UP AN ADDICTION!), BUT ARE INSTEAD LOOKING FOR ALTERNATIVES THAT HAVE A REDUCED IMPACT ON THEIR LIVERS AND WAISTLINES. There is ample room for product innovation and natural sugar substitutes like stevia appear to be fast overtaking the synthetic incumbents. I believe Constance has pulled together a fascinating study of an investment theme. It will give you a sense of how a theme can sprout various leads that one can follow to develop investment ideas. Note how multi-faceted this single idea becomes as one teases out whole groups of companies that are affected by the prevalence of this natural craving by consumers. I hope this provides you with some interesting ideas for your portfolio or at least has value in relation to one’s behaviour – investing and lifestyle! KERR NEILSON Managing Director August 2015 IV Platinum Capital Limited Annual Report 2015 WHO WANTS TO PLAY TOTAL SUGAR INTAKE VS. OBESITY PREVALENCE (1700 TO 2000) CANDY 80 60 50 OBESITY PREVALENCE 60 40 (kg/individual) CRUSH? 40 30 % THERE ARE FEW FOOD ADDITIVES AS 20 UNIVERSALLY ADDICTIVE AS SUGAR. 20 10 THE EXPANSIVE CANE PLANTATIONS CONSUMPTION SUGAR IN BRAZIL AND ON THE CARIBBEAN 0 0 ISLANDS ARE NO LONGER TOILED BY 1700 1750 1800 1850 1900 1950 2000 SLAVES IN SHACKLES, BUT YOU AND YEAR I AND JUST ABOUT EVERY OTHER Source: Johnson et al, The American Journal of Clinical Nutrition 2007; CONSUMER IN THE WORLD APPEAR TO Bank of America Merrill Lynch HAVE BECOME ENSLAVED BY SUGAR. Leaders in the confectionery and The average Englishman in 1700 beverages space such as Mondelˉez consumed just 1.4 kg of the precious International (formerly Kraft Foods), spice. By 1800 it had risen to 10 kg1 and Hershey and Coca-Cola have amassed by 1900 annual consumption of sugar fortunes from a variety of sweet-tasting was as much as 45 kg per head.2 dopamine-producing treats. On a world-wide basis, sugar consumption However, with growing public awareness averaged 5 kg per person per year at the of the health dangers that come with beginning of the 20th century. excessive sugar consumption, in particular, the steep rise in obesity and Today, 24 kg of sugar (including high diabetes prevalence, will this trend last, intensity sweeteners) are consumed and at what socio-economic cost? per person per year,3 with average consumption in some developed countries WILL CONSUMERS EVENTUALLY exceeding 60 kg!4 EMBRACE A REDUCED-SUGAR DIET AS THEY HAVE GRADUALLY COME Our growing sweet tooth has given TO SHUN CIGARETTE SMOKING? birth to many corporate giants in the If so, how will industry adapt to past two centuries. consumers’ shifting relationship with sugar and other sweeteners, and what opportunities does it present? Platinum Capital Limited Annual Report 2015 V VI Platinum Capital Limited Annual Report 2015 WHERE DOES become commercialised until the British blockaded sugar imports to continental Europe from the Caribbean during the SUGAR Napoleonic wars. Industrial processes to extract sugar from COME FROM? beets were developed and by 1880 beet had replaced cane as the main source of Sugars are types of carbohydrates. sugar on the European Continent. They include monosaccharides which The strategic importance of this temperate are the simplest sugar compounds crop was well appreciated by the French, (glucose, fructose and galactose) and Germans and Russians alike and disaccharides which are formed when protectionist policies for the beet industry two monosaccharides are joined together have continued in Europe ever since. (sucrose, lactose and maltose). Sucrose or table sugar, for example, is essentially The EU today produces around 50% of half glucose and half fructose. the world’s beet sugar8 while Russia and US each produces around 1/8.9 Beet sugar Sugar molecules are present in many accounts for around 78% of the total sugar plants, with canes and beet roots being and isoglucosei market in Europe, with the two great sources of sucrose. cane sugar accounting for around 17%, OF THE 180 MILLION TONNES OF almost the reverse of the cane/beet SUGAR PRODUCED WORLDWIDE A YEAR, AROUND 80% COMES FROM – 80/20% split on a world total basis. CANES WHILE BEET SUGAR ACCOUNTS The status quo may soon be shifting for 5 FOR THE REMAINING 20%. European cane refineries (e.g. Tate & Canes thrive in tropical and sub- Lyle) as EU beet producers (e.g. Tereos, tropical climates and sugar was the Südzucker, Nordzucker) start to enjoy first commodity, other than precious loosened beet quotas and pricing policies metals, shipped to Europe in commercial from 2017.10 quantities from the colonies in Central In the US, beets account for around 55% and South Americas.6 of the total sugar produced while canes Today, Brazil produces more than 20% account for 45%. of the world’s sugar, with India being HOWEVER, IF HIGH the second largest producer at 15%.7 FRUCTOSE CORN SYRUP (HFCS) IS The first challenge to sugar canes’ BEET ADDED TO THE dominance came from beet roots. HFCS EQUATION, THE BEET/ The extraction of sucrose from beet CANE CANE/HFCS SPLIT roots was discovered by German chemist WOULD BE AROUND Andreas Marggraf in 1747, but it did not 28/22/50%. i: “Isoglucose”, also known as glucose-fructose syrup, accounts for the remaining 5%. The most common type of isoglucose is high fructose corn syrup or “HFCS”. Platinum Capital Limited Annual Report 2015 VII VIII Platinum Capital Limited Annual Report 2015 WORLD VS. US SUGAR PRICES (1960 – 2011) 60 US raw sugar price, duty free 50 paid, New York, monthly 40 World raw sugar price, monthly 30 20 CENTS PER POUND 10 0 JUL-76 JUL-70 JUL-79 JUL-97 JUL-91 JUL-73 JUL-61 JUL-94 JUL-85 JUL-67 JUL-82 JUL-03 JUL-88 JUL-09 JUL-64 JUL-06 JUL-00 JAN-11 JAN-75 JAN-78 JAN-72 JAN-93 JAN-81 JAN-87 JAN-99 JAN-96 JAN-90 JAN-05 JAN-63 JAN-69 JAN-02 JAN-84 JAN-66 JAN-60 JAN-08 Source: USDA; SugarCane.org. Like many other countries, the US has with corn starch, ethanol, etc.) derived long used quotas and tariffs on the from the wet milling of corn. Corn starch production, importation and marketing is first converted to a syrup that is nearly of sugar to support domestic prices. all dextrose. Enzymes are then used to Its policies also included extending isomerise the dextrose to produce a syrup favourable loans to sugar growers with 42% fructose and 53% glucose and processors. (HFCS-42). AS A RESULT, US SUGAR PRICES Further processing produces a 55% HAVE TYPICALLY BEEN WELL ABOVE fructose syrup (HFCS-55) which has WORLD PRICES.