Bar Humbug!

Rob Harrison looks at cereal bars, fruit bars and flapjacks and asks why our big food companies are being sucked into the shadowy world of private equity and tax avoidance. Additional research for this report by: Katy Brown, Leonie Nimmo, Jo Southall, Jane Turner and Dan Welch.

Long lasting, light to carry and not melting in the sun, these bars were originally sold as ‘ideal for the rucksack’ and could deliver a much-needed calorie boost up in the mountains. Nowadays, the UK market has grown to include the time-poor 42% of working adults who breakfast on the move each day, and parents looking to put something slightly more healthy in their children’s lunch boxes.(1) We look at the issues around the high fat and sugar content of some of these bars in a table below.

Private equity and tax havens

During 2010, much public debate has been focussed on the huge debts of European countries and the urgent need for spending cuts and increased tax revenue. So it is therefore somewhat chastening that, of the ten biggest companies on the table, most have subsidiaries in tax havens and therefore apparently active ‘tax management strategies’.

United Biscuits – owners of Go Ahead, the second-biggest selling cereal bar brand, is an excellent case in point. It is jointly owned by two investment companies – Blackstone Group and PAI Partners. Blackstone is a massive private equity firm which owns stakes in more than 40 companies including Center Parcs, Café Rouge, Hilton Hotels, Nielsen media services and Madame Tussauds. It also manages hedge funds and other funds, and provides mergers and acquisitions and restructuring advice to corporate clients. Blackstone has some $90 billion in assets under management.

One of its investments is in Osum Oil Sands, a company involved in tar sands in Canada. Due to this investment alone it receives marks for climate change, habitat destruction, pollution & toxics and human rights on our main table.
Key United Biscuits companies are now registered in Luxembourg and the Cayman Islands – two well known tax havens. The Blackstone group itself has its own subsidiaries in the Cayman Islands too.(3)

The reason private equity companies have favoured buying food companies is the strong cash flow they tend to generate. They commonly use this to borrow heavily against future earnings, pay increased dividends from the borrowings to themselves for a short period, then hopefully sell out after a few years at a profit having cut costs and squeezed resources.(4) This, surprisingly legal, business model may be familiar to those following the fortunes of Manchester United and Liverpool football clubs.

When Ethical Consumer looked at private equity groups in a feature article in 2007, we did not find evidence of even a passing interest in social responsibility within these organisations.

And where is all this ‘private equity’ money coming from to buy such big companies? Pension funds – under pressure to generate even higher returns for their members.(5)

Clearly, as consumers, it makes sense for us to avoid this kind of casino capitalism where possible. As citizens, it offers a useful lesson in what happens when we take our eyes off the ball with our pension funds, and when our political parties support a ‘hands off’ approach to industrial and investment policy and regulation.
And finally, it is no surprise that the very biggest transnational food companies – such as Kellogg and Kraft – are also on the list of those wishing to ‘manage’ their tax contributions to the countries in which they operate.

Company profiles

Eat Natural was set up in 1997 by childhood friends Preet Grewal and Praveen Vijh. Vegetable oil appears on its ingredients lists and it did not reply to our requests for policy information on this and other issues.

Fruitus is owned by a Finnish company which also makes “highly-processed feed mixes for cattle, pigs and poultry and special feeds for fish”. Because these are essential supplies to the meat industry, the company receives a mark in the Animal Rights column.

Jordans has become well known for taking environmental issues relatively seriously with their ‘Conservation Grade’ cereals scheme. Although not addressing pesticide use like the organic label, conservation grade rules stipulate “committing at least 10% of the farmed area to a range of managed wildlife habitats.” Unfortunately for ethical consumers, Jordans was acquired by Associated British Foods in 2008 (owners of Primark amongst others) which somewhat muddies the ethical waters. Competition from private-equity backed Dorset Cereals was apparently one of the reasons Jordans needed a big partner to survive.

Gillian McKeith voluntarily dropped ‘Dr’ from her promotions in 2007 prior to an adjudication from the Advertising Standards Authority that the ‘the claim Dr was likely to mislead’ since she was not a medical doctor.7 However, widespread criticisms around marketing practices mean the company, though scoring highly, is not listed as a Best Buy.

Readers may be surprised to see a Traidcraft product attracting criticisms on our rating table. This is because Traidcraft’s Geobars are licensed to be made by Northumbrian Fine Foods. For license arrangements we score 50% of the brand owner and 50% of the licensee – hence the lower mark for Geobars.
Northumbrian Fine Foods is owned by Burton’s Foods which is, in turn, owned by three big companies with complex and often controversial interests. For example, the Canadian Imperial Bank of Commerce, which owns 40% of Burton’s, was named in the report ‘Worldwide Investments in Cluster Munitions’,(8) for investment in the company Alliant Techsystems. However this is too tenuous to appear as a mark on the table.

Village Bakery is an excellent small organic bakery which picks up an Animal Rights mark for serving meat in its restaurant.

What’s healthy and what’s not

Although it is perhaps unfair to target food products designed to provide condensed calories during high energy activities (such as Kendal Mint Cake), it is clear that, nowadays, the majority of consumers of cereal bars are just looking to keep up sugar levels on the go in the city.(1)

So, despite their healthy image, much recent media scrutiny has focussed on the high sugar and fat content of the big mainstream cereal bar brands. In 2005 the Advertising Standards Authority prevented United Biscuits from selling the go ahead! bar as a healthier low-fat option because its sugar content was so high.(2) And in 2006 the School Food Trust guidelines, which classify cereal bars as confectionery, advised that they were not to be served in schools or recommended for lunch boxes.(1)

Perhaps unsurprisingly, no manufacturer in this report has chosen to voluntarily label their products using the government’s traffic lights scheme for fat, sugar and salt. To help out the manufacturers (!) the table below shows what the traffic lights would say for a selection of bars in this report.

Cereal bar ingredients and prices (ranked by ethiscore)

All the bars on the table are suitable for vegetarians.

Scoring palm oil involvment

Regular readers of Ethical Consumer will have noticed how the climate change, habitat loss and human rights impacts of palm oil production have grown to become one the dominant concerns of environmental campaigners recently. When a cereal bar ingredients list states that it contains ‘vegetable oil’ or ‘vegetable fat’, this is highly likely to be palm oil. We therefore asked all the companies in this report for their policies on palm oil supply. If a company has told us that it uses wholly organic or RSPO certified palm oil in all its products, it will not receive negative marks for palm oil use. However, if a company has not replied, or its policy is less strict than this, and its products are labelled as containing ‘vegetable oil’ we have assumed that it is using uncertified palm oil in its supply chain. With our current rating system this will lead to half marks on the table in the climate change, habitats & resources and human rights columns.

References

1 Mintel Cereal Bars February 2010
2 Food magazine April 2005
3 www.hoovers.com viewed in May 2010 and Blackstone SEC form
4 Times 26/10/06 Private equity hungers for food cashflow
5 Bloomberg Business Week Nov 7th 2006 The Money Behind the Private Equity Boom
6 www.business-humanrights.org Students and Scholars Against Corporate Misbehaviour (SACOM) 10 Sept 2006
7 Guardian 12/2/07 Ben Goldacre - A menace to science
8 Worldwide investments in Cluster Munitions, Pax Christi and Netwerk, October 2009
9 Ethical Consumer issue 109 Nov 2007. Data for the ingredients and price table taken from goodnessdirect.co.uk and mysupermarket.co.uk 25/5/10.