In our 2019 impact report, we wrote about the increasing demand for natural ingredients in both food and household products, presenting analysis of antibiotic use in raising livestock and chemical use in household products. This year, we extend our natural ingredients theme to look at two important parts of human nutrition: sugar consumption and plant-based protein.
Food, beverage, and even pharmaceutical companies have added sugars to their products for decades to improve taste, lengthen shelf life, add texture and color, and fuel fermentation processes.15 16 In recent years, consumers (and regulators) have begun to question this practice, as the health consequences of added sugars have become more apparent.
Another shift in consumer focus can be seen in the increased popularity of plant-based proteins. The rise of consumption of plant-based proteins in the United States is fueled by multiple motivations, including health, ethical, and environmental reasons. This transition has been enabled by a meaningful increase in the number of plant-based product offerings.
These developments have important impacts on human health and the environment, and link to several of the UN Sustainable Development Goals, including #3 (Good Health & Well-Being), #13 (Climate Action), and #15 (Life on Land). Changing preferences also have important implications for food and beverage companies, as well as for investors. Several of the companies we own in our portfolios, like McCormick, Nomad Foods, and Simply Good Foods, address these shifts through their product offerings.
(As of March 31, 2020, McCormick & Co., Nomad Foods, and Simply Good Foods accounted for 2.68%, 1.94%, and 1.41%, respectively, of Putnam Sustainable Future Fund, and 0.90%, 0.00%, and 0.00%, of Putnam Sustainable Leaders Fund.)
Diet has meaningful implications for health in both the short and long term, and added sugar is a key area of consumer focus. Added sugars are just that, sugars that do not naturally occur in primary ingredients like fruit or milk.17 Though the CDC recommends that added sugars be no greater than 10% of daily calories, 71% of U.S. adults exceed this guideline.18 A diet high in added sugars can be a major contributing factor in weight gain and several chronic conditions, such as type 2 diabetes, hypertension, and obesity.19 20
The health impacts above are some of the reasons we do not own conventional soda manufacturers in our portfolios, since soft drinks contribute an estimated 33% to Americans’ added sugar intake.21 Less-obvious product categories contribute to sugar consumption as well: For example, one leading energy bar contains 19g of added sugars per serving, which is more than half of the AHA’s recommended daily levels for women, and not much less than the 27g in a typical candy bar.22, 23 Condiments are another common source of added sugars, with 3–10g per serving in products like ketchup, teriyaki sauce, and barbeque sauce.24 In the following section, we highlight two portfolio holdings that offer healthier alternatives.
Though interventions like taxes and regulation can be important influences on consumption, our portfolio holdings focus on a more straightforward form of impact: companies whose products offer lower sugar, higher protein alternatives to high sugar snacks and meals.
In response to shifting consumer preferences, food manufacturers are creating more low-sugar, high-protein food and snack options. Two companies that are creating solutions in this area are McCormick and Simply Good Foods. McCormick produces spices, flavors, and seasonings that are largely sugar-free. Simply Good Foods produces snack foods like low-sugar bars and shakes.
McCormick’s portfolio of spices and natural flavorings can be used as substitutes for sugar-heavy sauces and processed foods. Roughly half of the company’s sales are made up of these spice and seasoning products.25 McCormick’s products also encourage cooking at home, a practice that is associated with meaningful health benefits. Just over 60% of the business is consumer-facing, selling through grocery stores to customers who use spices and flavoring to cook at home. A Johns Hopkins study found that people who cook most of their meals at home consume fewer carbohydrates, less sugar, and less fat than those who cook less or not at all.26 Finally, some spices may also offer additional health benefits: For example, several studies have shown positive effects of cinnamon consumption on insulin sensitivity, cholesterol, and blood pressure.27 28 As one of the world’s leading suppliers of cinnamon and other spices, a number of McCormick’s products are linked to these types of potential positive impacts.
Another option for individuals who want to lower sugar intake is to replace some sugar and carbohydrate consumption with protein. Low-carbohydrate (low-sugar) diets have been shown to help reduce the risk of heart disease and diabetes.29 This approach has been popularized in many types of diet plans over time, including currently popular “keto” diets and the Atkins diet, which was developed in the 1970s and further popularized in the 1990s. Though specific diets can be fads (and are sometimes unwise), the overall positive health implications of lower sugar consumption are clear.
In its new form (and under new management), the Atkins brand is now a part of Simply Good Foods Co. The company is broadening its appeal beyond the programmatic Atkins diet and toward more flexible (but still low-sugar) eating habits by offering bars and shakes meant to supplement meals. Additionally, the company’s newly acquired Quest Nutrition expands the portfolio of nutritional snacking brands. When compared to other types of energy bars, Quest bars offer high protein with much less added sugar: An average Quest bar has under 1g of added sugar and 20g of protein.30 Similarly, Atkins branded meal-bars have 0g of added sugars and 16g of protein. 31
Given the associations noted above between a diet high in added sugars and chronic disease, several studies have suggested positive health implications from simply reducing sugar intake. For example, a study using data from the U.S. National Health Surveys found that a 50% reduction in sugar intake could lead to a decrease in the obesity prevalence rate by roughly 6 percentage points, the type 2 diabetes prevalence rate by a full percentage point, and the coronary artery disease prevalence rate by nearly 0.3 percentage points.32
When viewed in isolation, these predictions might be difficult to fully appreciate, and to be sure, broad-based improvements from consumption shifts tend to accrue over many years. However, the potential impact could be dramatic: Using the implications from the above study, if a 50% reduction in added sugar intake could produce the changes indicated, the U.S. population could have nearly 20 million fewer cases of obesity, over 3 million fewer cases of diabetes, and about 1 million fewer cases of coronary heart disease.
As consumers focus more on the health and environmental impacts of their food choices, there is increased attention on animal meat consumption and the livestock agriculture industry. These are resource-intensive industries: Raising animals for meat, aquaculture, eggs, and dairy uses 83% of global farmland and contributes about 57% of food’s greenhouse gas emissions, but only provides 37% of global protein and 18% of global calories.33 In contrast, protein that comes from plant-based sources is fairly resource efficient, as reflected in the chart below.34 In part due to this lower environmental intensity, there has been a quickly growing movement in the United States and the United Kingdom toward plant-based protein. Increased consumption of plant-based proteins can be seen across multiple demographics (not only vegetarians), suggesting the trend could have lasting duration and a large potential market.35
In addition to environmental concerns, many consumers are focused on the health benefits of a plant-based diet. Animal products contain more saturated fat and higher levels of cholesterol than plant-based sources of protein, and several studies have shown that high consumption of animal-based protein is associated with more chronic disease than a primarily plant-based diet.36 37
Source: World Resources Institute.
Inspired by the potential for environmental and health benefits, consumers are displaying a growing interest in plant-based foods, and particularly in plant-based protein. Producers are responding with new products, new brands, and even entirely new categories and companies. Recent Nielsen studies have suggested that 39% of Americans are actively trying to eat more plant-based foods to improve health and nutrition, and to contribute to a better environmental footprint.38 39
While certain plant-based foods are ancient, we are also seeing a burst of innovation in this area. For instance, in 2018, the plant-based yogurt category grew 31%, cheese alternatives grew 45%, and meat alternatives grew 30%, year over year.40 Some of this new category growth is due to increased marketing focus, but there is also true innovation in product offerings. As an example, though products like veggie burgers have been around for decades, products like Beyond Meat and Impossible Burger are meant to mimic the taste and texture of meat, aiming to appeal to the majority of the population that is not vegetarian or vegan. A wide range of restaurants, including fast-food companies like McDonald’s, Burger King, and Qdoba, have moved to include some of these newer plant-based meat offerings on their menus.
One company that has created a new plant-based food platform is Nomad Foods. Nomad is the largest frozen food company in Europe and sells frozen fish and vegetables under brands such as Birds Eye, Findus, and Iglo. The company has invested heavily behind their new “green cuisine” launch, which includes various plant-based meals. This push is based on consumer demand, as nearly one-third of evening meal occasions in the UK are now meat-free, and over 90% of plant-based meals are eaten by non-vegans.41 Nomad expects this trend to carry across Western Europe, and the company is offering new products like meat-free meatballs, sausages, burgers, and “veggie bowls.”42
There are three main sources of positive impact from products like Nomad’s “Green Cuisine”: the lower levels of environmental intensity in protein production, the food waste improvement potential of frozen food products, and the health benefits of plant-based diets.
Like other popular beef substitutes, Nomad’s “Green Cuisine” is made from pea protein. As one might expect, the environmental intensity of producing plant protein is meaningfully less than beef protein, one study showing that replacing meat with plant alternatives can be 35%–50% more efficient in use of cropland and fertilizer.43 Additionally, pulse crops like peas and some other legumes improve soil health by adding nitrogen to it naturally and are less water intensive to raise than grains or oilseed crops.44 45
In addition to Nomad’s new product offerings, there are some environmental benefits to frozen food as a category, including impact on food waste. A British Food Journal study found that participants wasted almost six times as much fresh food purchased as frozen food, totaling over 30kg of additional waste per household per year.46 This is important given the magnitude of food waste: About one-third of all food production is wasted annually. This waste contributes about 2% to CO2 emissions in the United States and costs $198 billion.47 A 50% reduction in global food waste would result in a nearly 5% reduction in GHGs.
In terms of health impact, all plant-based diets are not created equal. For example, a “healthful plant-based diet” emphasizing plant foods such as whole grains, fruits, vegetables, nuts, legumes, and healthy oils, has been associated with lower risk for heart disease.48 However, an “unhealthful plant-based diet” emphasizing fruit juices, pasta, French fries, and sugar-sweetened beverages has, unsurprisingly, been associated with a significantly higher risk of heart disease. High adherence to a healthful plant-based diet can reduce cardiovascular mortality risk by about 30%, according to a 2019 study.49 Following the implications of this study, if just 10% of the U.S. population were to switch to a plant-based diet, over the long term, deaths from cardiovascular disease could fall by nearly 26,000 annually.50
The examples above illustrate several important points: First, issues like human health and environmental impact are intertwined in many ways. Second, product developments and consumption patterns can impact both health and the environment. And third, our investment decisions can consider these same issues and use this analysis to identify potential solutions.