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Would a sugar tax drive innovation?

The notion of a sugar tax is extremely unpopular within the FMCG industry, but industry experts say a levy on sweetened drinks would drive beverages producers to innovate healthier alternatives.

University venture fund Uniseed, an investor in ready-to-drink probiotic PERKii, has backed a push for a 20% tax on high-sugar beverages, with CEO Dr Peter Devine suggesting there would be a range of positive outcomes from such a move.

“By increasing the price point of high-sugar drinks, the proposed tax would not only heighten awareness among consumers of the critical need to prioritise their health, but also encourage food and beverage researchers to develop new technologies to meet the needs of this growing market of health-conscious consumers,” Dr Devine said.

“In turn, this market shift would spur investment in these smaller, research-backed food and beverage innovators, increasing the range of functional and healthy drinks available through retailers, as well as in vending machines and other targeted outlets such as schools and hospital canteens.

“We envisage the implementation of a sugar tax acting as a positive form of market disruption, opening the door to innovation and more ethical, science-backed industry players.”

CEO of PERKii, Matthew Kowal says small manufacturers are better positioned to drive NPD.

In a conversation with C&I Week, PERKii founder and CEO Matthew Kowal said small beverage manufacturers had a distinct advantage when it came to bringing NPD to market.

“By nature, the larger players are a little bit slower to take up innovation, or risk,” he said.

“When there’s something that disrupts the market, in whatever form, be it a tax or a restriction on distribution, it means that they need to look at how to move their business into such spaces.

“It’s easier to look at smaller players, whether that’s craft, boutique or startups, so they’ll shift some of their spend to invest in those guys, or even venture capitalists and seed funds, when they see these moves and trends, that opens the door to people to investigate those options.”

Mr Kowal thought that many large companies were aware of the need to change and evolve, but were often limited to reactive responses to market demands.

“On the flip side, a lot of the other majors have been proactive about creating incubation either within, or with smaller businesses, and being smart about their acquisitions,” he said.

“They seem to be avoiding the full consumption acquisition, taking over brands entirely for example, now preferring to enter a percentage investment and letting small manufacturers do what they do well, and provide the benefits that come with partnership with a large business.

“Some companies realise there’s a different way of doing things. Similarly, with Lion and their Unleashed program; they’ve identified there’s a need to support those that can be more agile, and they’ll get the benefits from that down the track. It’s the old story: it’s easier to turn a hatchback than it is to turn the Titanic, so investing in and supporting smaller businesses can drive innovation at ultimately a fraction of the cost, and present multiple new opportunities.”

Mr Kowal said that a sugar tax would help to raise understanding of how products that provide health benefits are promoted, compared to products that are low-cost and high in sugar.

“How such a tax would operate is a matter for economists and lawmakers, but anything that can help promote healthier options without dramatically disadvantaging the people who should benefit will be a positive step for the market,” he said.

A sugar tax is not necessarily about all or nothing. Low-sugar options and alternative sugar options are certainly viable.

“It goes back to education, and understanding what you’re putting into your body. For example, there are cold-pressed juices with the equivalent of 40-plus grams of sugar, which is equivalent to some soft drinks, so it’s about understanding the type of sugar you consume, and the amount.

“We need to understand the effects on the economy, the community, and also on the family unit. If we can help educate through formats that encourage healthier diet, it’s a positive outcome for [the national] budget. Obviously there is stress on our health industry, but it comes down to the individual as well.

“The big thing is that it’s not about restricting choice: it’s about encouraging and educating a better choice.”

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