Corn Fakes: The social and economic costs of the removal of micronutrients from Kellogg’s cereals

November 2019 Report
Corn Fakes: Graphic of man handing child cereal

Executive summary

Poor-quality diets not only contribute to the rise in obesity and non-communicable diseases, such as cancer and diabetes, but also lead to micronutrient deficiencies – a lack of vitamins and minerals that can exacerbate, or even cause, health problems – from rickets, anaemia and mental health problems to hip fracture and cardiovascular disease. Food fortification – the addition of vitamins and minerals to commonly consumed foods – is an important tool in the fight against micronutrient malnutrition, which affects one-third of the world’s population. Fortification is widely seen as an effective way to introduce important nutrients into people’s diets. Breakfast cereals are one of the most commonly fortified foods, which has played a role in boosting populations’ micronutrient intake.

This paper builds on a previous Changing Markets investigation, Cereal Offender: is Kellogg’s breaking its breakfast promises?, which analysed Kellogg’s breakfast cereal products sold in Mexico and exposed the cereal giant for reducing or removing two-thirds of essential micronutrients from their most popular cereal brands since 2013.

Our findings in Cereal Offender called Kellogg’s public commitments to tackling undernutrition and micronutrient deficiencies into question. The removal of nutrients makes little sense, given that iron and other mineral deficiencies remain a public health problem in Mexico. In response to our report, Kellogg’s stated that its decisions are led by data and science; however, the company provided no details of the specific data related to the removal of micronutrients in its breakfast cereals in Mexico, and we have been unable to find any such evidence on its website or in its promotional materials.

The global breakfast cereal market is highly profitable. Kellogg’s occupies nearly 30% of the total market share, and dominates the market in Mexico. While sales of breakfast cereal have fallen steadily in recent years in developed markets like the US and Europe as people seek healthier options or eat breakfast on the go, cereal sales worldwide are on the rise as a result of growing demand in emerging and developing markets. However, with a nearly 30% drop in share price over the past three years, Kellogg’s has been under mounting pressure to put the company back on a path to growth. It is widely reported that the company considers developing markets as key to restoring its share price.

Building on our last report, this paper goes further to explore the economic implications of reducing the micronutrient content of breakfast cereals, focusing on what Kellogg’s may have saved through this practice – and at what cost to the Mexican economy. The economic analysis in this report, including calculations of the costs to society and the benefits to Kellogg’s, was carried out by Just Economics. The analysis focuses on five popular brands of Kellogg’s cereal sold in Mexico, and has been scoped to focus on three important micronutrients: iron, calcium and folic acid. For each micronutrient, the research takes some of the most significant potential negative impacts and costs them for Kellogg’s consumers, based on the risk of them developing health or cognitive problems as a result of poor nutrition. This is not an experimental study that directly measures the impacts of micronutrient removal; rather, it draws on findings from other studies to model where the costs are likely to arise, and for which consumers. The findings are therefore illustrative of the cost implications that might arise from Kellogg’s activities. The aim is to highlight the value and importance of food fortification, and the risks to society of apparent cost-saving measures by companies such as Kellogg’s.

Although the researchers encountered significant data gaps, these were circumvented by adopting a very narrow scope: the number of micronutrients considered and the costs included. This means we can be reasonably confident that the findings presented here are in the right order of magnitude, and that the savings Kellogg’s makes from removing micronutrients is dwarfed by the cost of this practice to Mexican society.

Our research reveals that Kellogg’s has made an estimated cost-saving of $85 million over five years from cutting back on three key micronutrients in its most popular breakfast cereals. In contrast, the costs to society far outweigh any short-term benefits to Kellogg’s. While Kellogg’s has saved money, the minimum cumulative social cost to Mexico of the removal of iron, calcium and folic acid from popular brands of Kellogg’s cereals is over $250 million over five years. This means for every dollar Kellogg’s saves by defortifying cereals it destroys at least $3 in value to Mexican society.

While Kellogg’s is often criticised for price inflation, when the long-term consequences are taken into consideration, the price at the till pales in comparison to the real cost of eating their poorly fortified products daily. These savings are also tiny compared with its annual spend on advertising: $752 million in 2018. Moreover, although Kellogg’s behaviour may align with its drive to increase growth, it appears to be unsuccessful. While recent results came in ahead of analysts’ expectations, over the long-term Kellogg’s revenues and earnings per share have declined year on year; suggesting that one-off cost savings to improve profit margins is a misguided strategy.

These findings demand answers, and clearly show that Kellogg’s approach is not working in the interests of its investors, consumers or wider society. Is the decision to reduce the micronutrient content a push for short-run cost savings? Is Kellogg’s putting profit over the long-term health of the Mexican population? Although the costs of malnutrition are not reflected on a company’s balance sheet, as a flawed long-term strategy Kellogg’s may be undermining its growth potential by damaging the health and productivity of its consumers. The findings presented in this report suggest not only a strong social, economic and moral case for changing course but also a business one. It is time for Kellogg’s to show its commitment to people over profit and stop breaking its breakfast promises.

You might also like...