Summary
Nestle’s decision to switch to beet sugar will have a greater impact on the UK market for ACP cane sugar than the companies sugar reduction efforts since 2015. The decision of Nestle will compound the wider structural trend in the UK and elsewhere in Europe towards a reduction of human consumption of ‘hidden’ sugars. While to date, as part of its latest anti-obesity campaign launched in the face of the devastating link uncovered between obesity and serious Covid-19 infections and deaths, the UK government has resisted pressured to extent the SDIL to high sugar content food products, pressure for regulatory measures to reduce the use of ‘hidden’ sugar in a wide range of food products is only likely to increase in the coming years. The long-term structural trends towards reduced consumption of sugar and greater local sourcing, is something ACP cane sugar exporters will need to adjust to, as they look towards their future marketing options. The ability of different ACP exporters to adjust to these new market realities varies greatly and will need to be assessed country by countries and even company by company.
Having informed cocoa farmers in May 2020 that it would no longer be sourcing Fairtrade cocoa for its UK KitKat range, in June 2020 it was revealed all of Nestle’s UK&I future purchases of sugar would be from ‘European sugar beet producers’. This means cane sugar farmers will not only lose the Fairtrade Premium, but will also lose the market for sugar purchases by Nestle UK&I (1).
Nestlé representatives maintained the decision to source ‘almost all of its…sugar from UK sugar producers’ was ‘in line with its continued focus on increasing local agricultural sourcing where possible’. This announcement was made despite the awareness of Nestle UK&I that ‘sugar producers, particularly in [Africa, the Caribbean and Pacific] …face an uncertain future’ (2).
The shift away from cane sugar to UK beet sugar by Nestlé will only compound the wider trends towards a reduction in sugar usage for human consumption, which driven by the health concerns has targeted the reduction of consumption of ‘hidden’ sugars in food and drink products.
Between 2015 and 2018 Nestlé UK&I reduced its sugar usage in its confectionary range by 7.4% or ‘the equivalent of more than 2.6 billion teaspoons’ of sugar according to Nestlé representatives (3). Given ongoing sugar reduction efforts it is estimated Nestle UK&I currently utilises around 100,000 tonnes of sugar per annum.
However, Nestle’s sugar reduction efforts have not been without their setbacks. It was announced in March 2020 that Nestle would halt production of its low sugar Milkybar Wowsomes, in the face of a disappointing customer response. Nestle’s Chief Technology Officer said, ‘the sales of the chocolate bars in the UK were underwhelming’ as opposed to the creamy full-sugar chocolate’ (4).
These efforts at product reformulation by Nestlé form part of wider efforts by UK food manufacturers to reduce sugar usage, so as to avoid the kind of regulatory measures adopted in the soft drinks sector, namely the Soft Drinks Industry Levy (SIDL). Between 2015 and 2018 the introduction of the SDIL saw daily per capita sugar consumption in soft drinks in the UK decline by 30% (see companion epamonitoring.net article, ‘More Evidence Sugar Levies Work in Stimulating Product Reformulation’, 4 April 2020).
The success of the SDIL stands in distinct contrast to the experience of voluntary codes of conduct aimed at reducing the use of ‘hidden’ sugars, with Public Health England (PHE) reporting ‘a disappointing lack of progress with the voluntary sugar reduction programme’. These voluntary measures and public exhortation have failed to reverse the trend in the increased use of sugar in chocolate confectionary which has been underway since 1992. Analysis from Queens University London revealed that between 1992 and 2017 the sugar content in chocolate bars surveyed (from Mars, Nestle and Mondelez International) had dramatically increased 23% from 46.6 g per 100 g to 54.7g per 100 (see companion epamonitoring.net article, ‘Evidence Suggests Extending Sugar Content Tax to Snacks Would be More Effective in Combatting Obesity’, 25 November 2020). In this context, even a 10% reduction in the current sugar usage would hardly dent the growth in sugar usage which has occurred since 1992.
The Campaign Director of Action on Sugar described as ‘shameful’ the lack of progress in food products beyond the sugary yoghurts and cereals segment. In contrast it was forcefully argued that evidence from the soft drinks sector ‘demonstrated that when properly motivated, the food industry can give us healthier options’ (5).
While in 2019 Prime Minister Johnson was reportedly considering revoking the Soft Drinks Industry Levy, on freedom of choice grounds, recent evidence of the role obesity plays in the severity of the impact of Covid-19 infections has led the UK government to launch a new obesity strategy (6). While this does not include an extension of the SDIL to high sugar content food products (7), pressure for such regulatory action is likely to remain, given the evidence of the effectiveness of such sugar content taxes in driving corporate product reformulation efforts. This needs to be seen in a context where well over 70% of UK sugar consumption is in the form of processed food and drinks.
Overall EC analysis suggests that across the EU28 human consumption of sugar in the EU is projected to decline some 0.8% per annum up to 2030 (see companion epamonitoring.net article ‘EU Sugar Sector Restructuring Seeing Stabilisation of EU Production Import and Export Trends Which Pose Challenges for Some ACP Sugar Exporters’, 3 February 2020)
There is thus a long-term structural trend towards reduced consumption of sugar, not only in the UK but also across Europe.
| Comment and Analysis The long-term structural trend towards reduced consumption of sugar alongside the Covid-19 induced trend towards greater local sourcing, is something which ACP cane sugar exporters will need to adjust to, as they look towards their future marketing options.Some ACP sugar exporters are already making these adjustments. The decision by the Mauritian sugar industry to move over to exclusively exporting refined sugar to the European market can be seen as a prelude to a pivot in their marketing efforts towards more rapidly growing sugar markets in Asia.Similarly, the variable levels of exports to Europe from Zambia and Malawi can be seen as part of a growing focus on higher growth markets for sugar in Africa. This market reorientation is being driven by the largely European corporate players which have invested in African sugar sectors in recent years, who are making such decisions on the basis of their global sugar market corporate strategies. Traditional Caribbean ACP sugar exporters can be seen as facing a far more difficult future, given their regional market is squeezed between two sugar giants: Brazil and the USA. While to date preferential access has helped preserve these Caribbean sugar sectors, the value of this preferential access has been rapidly declining. This process is likely to be exacerbated by both recent UK sugar trade policy pronouncements, notably, the establishment of a 260,000 tonne duty free autonomous tariff quota (ATQ) for sugar (which has no equivalent measures within the EU sugar regime of which the UK has been a part for decades) and the growing prospect of no-deal UK departure from the EU customs union. This latter development could throw between 400,000 and 500,000 tonnes of EU27 sugar back onto the EU27 market, at a time when the Covid-19 pandemic has shifted the global sugar market balance from a 9 million tonne deficit to a 2 million tonne surplus (see companion epamonitoring.net article, ‘EU Sugar Market Still Attractive but Brexit Related Complications Likely in 2021’, 30 July 2020). This does not bode well for price developments for ACP sugar exports to the UK and EU27 market. In these circumstances only the commercially best placed Caribbean sugar exporters are likely to be able to find a place on the UK and EU markets. Of these Caribbean sugar exporters Belize Sugar Industries appears the best placed, given its close corporate ties to Tate & Lyle Sugars operations in both the UK and EU27. Given its high cost structure the Guyanese sugar industry looks perilously placed to maintain its position on the UK or EU market, unless, despite the Covid-19 impact on the oil sector, the projected oil windfall materialises and further revenues become available to subsidise continued Guyanese sugar exports to the EU and UK markets. |
Sources:
(1) Confectionerynews.com, ‘Shock decision by Nestlé UK&I to stop using Fairtrade cocoa means farmers will lose Premium’, 23 June 2020
https://www.confectionerynews.com/Article/2020/06/23/Shock-decision-by-Nestle-UK-I-to-stop-using-Fairtrade-cocoa-means-farmers-will-lose-Premium
(2) Business-humanrights.org , ‘Nestlé’s KitKat drops Fairtrade amid criticism that thousands of small-scale cocoa farmers are being put at risk’, 24 June 2020
https://www.business-humanrights.org/en/nestl%C3%A9s-kitkat-drops-fairtrade-commitment-set-to-impact-27000-cocoa-sugar-farmers-in-ivory-coast-fiji-malawi
(3) alfa-editores.com.mx , ‘Sugar Reformulation Nestlé Strips Out Billions of Calories Over Three Years in UK & Ireland’ 3 July 2018
https://www.alfa-editores.com.mx/sugar-reformulation-nestle-strips-out-billions-of-calories-over-three-years-in-uk-ireland/
(4) theleadersglobe.com, ‘Nestle Stops Production of Low Sugar Chocolate, Milkybar Wowsomes’, 27 March 2020
https://www.theleadersglobe.com/life-interest/food/uk-nestle-stops-production/
(5) Foodnavigator.com, ‘Sugar content in soft drinks cut by nearly a third as voluntary efforts fall way off target’ 20 September 2019
https://www.foodnavigator.com/Article/2019/09/20/Sugar-content-in-soft-drinks-cut-by-nearly-a-third-as-voluntary-efforts-fall-way-off-target
(6) gov.uk, ‘New obesity strategy unveiled as country urged to lose weight to beat coronavirus (COVID-19) and protect the NHS’, 27 July 2020
https://www.gov.uk/government/news/new-obesity-strategy-unveiled-as-country-urged-to-lose-weight-to-beat-coronavirus-covid-19-and-protect-the-nhs
(7) Foodnavigator.com, ‘A missed opportunity UK food industry hits back as government anti-obesity plan unveiled’, 27 July 2020
https://www.foodnavigator.com/Article/2020/07/27/A-missed-opportunity-UK-food-industry-hits-back-as-government-anti-obesity-plan-unveiled