Latin America’s Weight Problem

January 18, 2015

What’s happened?

Latin America has got fat. The region has got the worst obesity problem among developing economies, while Mexico recently overtook the US as the most overweight major country in the world. Venezuela, Ecuador, Argentina and Chile are all following closely behind. As a result more Latin American people die of obesity-related problems than of hunger, while there has also been a jump in related diseases, such as diabetes, hypertension and cancer. The international community and health organisations have long focused their efforts on trying to solve Latin America’s ‘poverty-related diseases’ – such as dengue fever or Aids – but now obesity, often seen as a ‘rich-world disease’ is a far more serious problem in Latin America.

Why is this happening?

The increasing wealth of Latin America is definitely playing a part. As the graph shows, there is a direct correlation between the rising income and increased consumption of fat. Rising wages have also made the region a much more attractive market for multinational food corporations, who have been unleashing sophisticated marketing and distribution tactics to increase sales.

the true costs of obesity are undoubtedly much greater…

In a sense this is not new, for example Coca Cola has been in Mexico for almost a century, but what’s changed is that the rising purchasing power of the LatAm consumer has encouraged these firms to invest more in their operations there. Social factors have also contributed, as for many Latin American consumers the switch to packaged, processed foods was associated with modernity. Urbanisation is another important factor, as people tend to eat more processed foods and live more sedentary lifestyles when they move from the country to the city.

Why do I care?

It’s not just a health issue as it has massive economic consequences. Chile and Mexico, who incidentally are the only Latin American countries in the Oecd, consume more packaged food than anywhere else in the region. And, probably as a result, they are among the fattest. In both countries about 70% of adults and 33% of children are overweight – which is on a par with levels in the US. And now both Chile and Mexico are now facing the prospect huge medical bills.

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Waistlines are expanding across Latin America

In Mexico diabetes is responsible for the deaths of 70,000 people a year. It’s estimated that obesity related illnesses cost the public health service $6 billion in 2008 and will be more than twice that by 2017. The World Health Organisation (WHO) estimates that obesity accounts for 7% of the total health cost in affected countries, though it cautions that “the true costs are undoubtedly much greater as not all obesity-related conditions are included in the calculations.” The UN’s Food and Agriculture Organisation (FAO) believes that once you include the lost productivity of the labour force and the social costs the overall effect of obesity costs around 2% of global GDP, or $1.7trillion. That’s a world average so clearly for the countries most affected by obesity the cost will be higher.

How are governments responding?

With a wave of regulation. Latin America may be leading the world in terms of obesity but, to its credit, it is also at the forefront of the social policy response. Across the region there are a range of new measures being adopted to battle the bulge. One of the most eye-catching is the recent ‘vice tax’ proposed by Ecuadorian President, Rafael Correa, which lumps junk food alongside cigarettes and alcohol. The idea is to tax junk food from large international chains to encourage consumers to switch to local, healthier foods. Some pundits feel that this is part of Correa’s general drive to defend the country’s dollar reserves by discouraging consumer imports – for example foreign makeup is also subject to taxes – but he’s made the link between eating junk food and rising health costs clear. “If you want to make yourself sick, that is your problem. We are in a free country. But, at least, then pay a little extra so we can take care of you later.” Mexico is one step ahead, having already introduced an 8% tax on packaged snacks such as crisps and a peso per litre (that comes in at about 5p per litre) fizzy soft drink tax. In Peru, Uruguay and Costa Rica junk food has been banned from the menu of public schools. Meanwhile in Chile companies selling food that is high in sugar, fat or salt must add clear warnings to the packaging. Whether you agree with these taxes or not, the success of Latin American governments in implementing the measures is impressive. After all, similar problems exist in the UK and the US, but so far food companies have managed to prevent similar policy attempts. If Latin America’s policies lead to reduced obesity levels in the future then expect them to be copied around the world, in a similar fashion to the spread of anti smoking legislation following the State of California’s pioneering legislation in 1998.

Is there an investment angle?

Yes. Both the industries that cause, and fight, obesity are big business with plenty of listed names. If you’re sceptical that government legislation can really interrupt the powerful social and economic forces driving obesity in Latin America then firms such as Arcos Dorados (NYSE:ARCO), Latin America’s biggest operator of McDonald’s restaurants, or local fizzy drink bottling companies, like Chile’s Embotelladora Andina (ANDINAB:CL) may prove a good bet. Moreover some of these companies have also demonstrated a willingness to adapt to avoid regulatory punishment. For example, Arcos Dorados has introduced healthier eating options, fresh fruit, water and milk. On the other side of the coin there are plenty of diabetes medicine manufacturers and weight loss organisations, though these tend to be global rather than Latin America-specific organisations. Another option is to pick likely winners and losers among LatAm-focused food companies affected by the new legislation.