/ 27 February 2020

Pepsi’s Pioneer acquisition is not healthy

Delivery Operations With Pepsico.
(Paul Taggart/Bloomberg via Getty Images)


Earlier this month, the Competition Commission approved Pepsi’s R25.6-billion acquisition of South Africa’s Pioneer Foods. The move has been hailed as a “massive boost” to the South African economy. 

This acquisition is one in a slew of mergers that have seen multinationals such as Massmart and Coca-Cola begin to, in their own words, “take over” the African region.  

But although the Pepsi acquisition and other mergers may be good for local economies in the short term, these deals can have a devastating effect on local business and, most significantly, the health of the continent in the long term.

When Massmart was acquired by Walmart in 2011 and Coca-Cola Africa was formed in 2014, those mergers were delayed for months to ensure smaller businesses were protected and no jobs were lost. The Pepsi merger went through a similar process but, ultimately, was given the green light to proceed. However, regulators did not take into account the merger’s effect on processed foods and missed an opportunity to use the law to protect the health of the region.

The Pepsi merger is a huge shift in the food market. It means that one of our major food manufacturers is no longer South African. Instead of South African companies exporting their products to the rest of Africa, these global players, such as Pepsi, can now use South Africa as a “foothold” to expand into Africa. 

Multinational food and beverage conglomerates have been experiencing slower growth in high-income countries due, in part, to higher competition, increased regulation and greater consumer awareness about the unhealthiness of some products. For these companies, Africa represents a growth market.

But for these potential corporate profits, the health of the continent is being put at risk. With these expansions, companies are aiming to drive revenue by promoting more processed foods, which yield higher profit but can also cause significant health problems to consumers.

Attempts to regulate unhealthy foods can also be undermined by multinationals having much deeper pockets than the countries trying to regulate them. For example, Coca-Cola generated $37.3-billion in revenue last year; by comparison the entire gross domestic product of Namibia is $14.5-billion.

Africa is undergoing a nutrition transition. This is a global phenomenon, particularly in low- and middle-income countries where people are switching from more traditional, healthy diets to highly processed foods. These foods, which are high in salt, sugar and fat, then lead to increasing rates of obesity and soaring epidemics of noncommunicable diseases such as diabetes and hypertension.  

The poor people in these countries will be the worst affected. The intersection of poverty with these chronic diseases means that inequalities are exacerbated. Typically, across the world, and particularly in South Africa, it is the poorest populations who consume the unhealthiest food because it is affordable, but they are left with the cost of managing chronic diseases and ensuing disabilities that leave them unable to work.

Some analysts may argue that the economic benefit of mergers such as these make them worthwhile. However, the cost of managing and treating noncommunicable diseases can quickly outpace those economic benefits. At present, treating diabetes in South Africa costs the public sector R2.8-billion. 

If all South African patients who needed treatment received it, it would cost R21.8-billion a year — that is, 12% of the national health budget. Worse, these costs are set to increase based on the current trajectory of the epidemic. Less wealthy African countries would be even harder hit and the effect would be devastating.

Individual African governments could avert this epidemic by taking action to reduce the availability of unhealthy foods and protect existing healthy food systems. However, this is difficult when multinationals are entering new markets and seeking higher profits. Most African countries are an easy target for the food industry because of a lack of existing regulations.

Attempts to regulate unhealthy foods can also be undermined by multinationals having much deeper pockets than the countries trying to regulate them. For example, Coca-Cola generated $37.3-billion in revenue last year; by comparison the entire gross domestic product of Namibia is $14.5-billion. In other words, Coca-Cola could outspend the Namibian economy two times over in lobbying and lawsuits in courts and international trade tribunals and still have some change left. 

It is for this reason that many countries in Africa are at a disadvantage, in the courtroom and out of it, when fighting a large multinational. Taking on a company such as Pepsi, which would distribute unhealthy and processed food, would be no different. 

South Africa could help prevent this. As a gateway to the region, South Africa is particularly well positioned to protect both its own people and those throughout the region through laws and policies. Whereas other African countries have faced challenges, South Africa has successfully adopted laws to limit the amount of trans-fat and salt in food manufactured in the country. 

These South African companies, such as Pioneer, export to the rest of the region, meaning this has knock-on health benefits for countries that buy South African goods. However, if manufacturing does not stay in South Africa but moves to a country with fewer regulations, the laws will benefit only South Africans.

Beyond this limitation, these regulations target only a few key ingredients — salt and trans-fats. Measures that improve access to and the availability of healthy options are needed. For this reason, the Competition Commission can also help by intervening in the food industry. Last year, it released a report finding that dominant players in the grocery and food retail market — Woolworths, Pick n Pay, Shoprite and Checkers — had behaved in a way that prevented smaller businesses from entering the market. This will likely result in reforms that will change how we buy groceries — hopefully improving our options thanks to competition from new grocery stores.

Like the grocery market, the food manufacturing market is similarly composed of four major companies — including the recently acquired Pioneer Foods — which collectively control about 80% of the market. The Pepsi merger will likely lead to further dominance by existing companies and leave little room for new entrants. The need for the Competition Commission to conduct an inquiry into food manufacturers similar to that of grocery chains is urgent. Perhaps then, South Africa can stop these companies from subsidising their profits with the health of Africans.

Safura Abdool Karim is a senior researcher and health lawyer at the South African Medical Research Council’s Centre for Health Economics and Decision Science.