Protecting policy space for public health nutrition

Summary of research¹

Location: Global

What we know:  There is growing consensus that strong government regulation of food, beverage and tobacco sectors is needed to protect public health nutrition.

What this article adds:  National policy space for public health nutrition is not well protected. Processed ‘fast’ food dominates foreign direct investment (FDI) interest in the food sector, yet their reduced use is needed to prevent diet-related non-communicable diseases. FDI has economic advantages but gives a company greater power over food supply and vested interest in limiting regulation. Legal protection for investors is common and can limit regulatory power. Additional research on balancing state interests and legal approaches is needed.

A recently published paper addresses important questions about domestic regulatory autonomy and explores the implications of investment law for public health nutrition policies designed to prevent diet-related non-communicable diseases (NCDs) and curb their enormous social and economic costs. It highlights the neglected role of public health policy-makers in national decisions pertaining to investment and investor protection and examines ways to protect policy space for public health nutrition. 

A growing global consensus is forming around the need for governments to implement public health nutrition regulation in the form of food taxes and subsidies, informative regulation in the form of food taxes and subsidies, informative product labelling, marketing restrictions and urban planning initiatives targeting processed and pre-prepared (e.g. ‘fast’) foods high in salt, sugar, saturated fats and trans fats. These interventions apply to the end products of complex food supply chains, any stage of which is usually open to investment by international companies. Foreign direct investment (FDI) in the food, beverage and tobacco sectors of developed and developing countries increased 11-fold and four-fold respectively between 1990 and 2009 and is projected to continue to rise. 

FDI in the food sector has occurred primarily in the processed food and beverage industries and in retail outlets, such as supermarkets and convenience food stores, selling products associated with the nutrition transition, i.e. products low in cereal and fibre and high in sugars, salt, saturated and trans fats. Seven of the top 100 transnational corporations – with combined foreign sales in excess of 400 billion USD in 2010 – are involved in the production and retail sale of processed foods. Of the world’s top 15 franchises, seven have strong interests in highly processed and ‘fast’ foods. Thus the key targets of public health nutrition interventions are the objects of extensive and growing investment activity. 

Concerns have also been raised that the substantial recent growth in FDI in agriculture, with direct foreign ownership of agricultural land being a common feature, could limit government influence over the modes of production of healthy foods. In 2011, the High Level Panel of Experts on Food Security and Nutrition reported that international investors had leased or purchased an estimated 50 to 80 million hectares of land in middle and low income countries, about two thirds of them in sub-Saharan Africa. In some cases, a single company invests at multiple points in the food supply chain. In Brazil, for example, Coca Cola has invested in the refinement of cane sugar, the production of beverage concentrates, the bottling of sugar-sweetened beverages and refrigeration. This type of vertical investment in the food supply creates efficiencies from an economic point of view but it also gives a company greater power within a country’s food supply. It thus increases both the cumulative effect of policy interventions on a given investor’s interests and the investor’s motivation and capacity to contest regulation. 

Governments actively encourage and compete for FDI as these can create employment, facilitate technology transfer, promote competition in the domestic input market, as well as contribute to the host country’s corporate tax revenues. Governments offer a range of incentives to attract FDIs, including tax holidays, land grants and other forms of subsidies, and legal protections beyond those offered to domestic investors. Governments encourage investment in the food sector not just in competing for FDI but also to improve food security, since FDI is perceived as conducive to improved food production and processing technologies and more efficient and reliable food supply chains. Governments promote investment in agricultural production through various types of subsidies which can lower the cost of producing the products that are of greatest concern in a public health nutrition context. The subsidisation of corn production in the US provides a classic example. Production subsidies were originally justified partly on food security grounds but today, a substantial proportion of this subsidised corn production goes into making high fructose corn syrup and other caloric sweeteners. 

Public health nutrition measures may aim to reduce product sales and limit retail expansion so that there is an implicit tension between government action to promote food security and economic growth by encouraging investment, and government action to reduce the consumption of highly processed foods to prevent diet-related NCDs. These tensions will be compounded by growing FDI in the processed and ‘fast’ food industry.

Various legal instruments provide protection for foreign investors. Importantly, how a government incentivises investment can have legal implications for subsequent regulation. In other words, a government runs the risk of tying its own hands with respect to public health nutrition regulation in the process of seeking to attract investment. This risk is more evident in the context of contracts and International Investment Agreements (IIAs).  

Contracts between a government and a foreign investor are often seen in cases in which an investor purchases state-owned assets or in which a government has offered inducements to investment. Contracts are also commonly used to limit the regulatory changes that can affect an investment through what is known as a stabilisation clause. Like contracts, IIAs grant foreign investors, including large multinationals, legal rights above and beyond those of domestic investors. IIAs are usually bilateral agreements that protect the assets of nationals of one contracting party while such assets are invested in the territory of the other contracting party. 

Typically, IIAs protect investors from expropriation (direct taking of title or seizure of land/goods property). These agreements oblige the contracting parties to pay compensation for expropriation of an investment ) or for other measures having an equivalent effect (e.g. destroying economic value of an investment or keeping the owner from being able to manage, use or control the property in a meaningful way). Usually, IIAs also provide a guarantee of fair and equitable treatment and of protection against discrimination based on the origin of the investor or investment. Relatively few claims in connection with the food-chain have been filed under IIAs. Examples include ‘mad cows disease’, prohibitions against the use of certain pesticides to protect human health, the redistribution of private farm lands, modifications to agricultural subsidy regimes and a discriminatory tax on high fructose corn syrup. These examples are not intended to suggest that public health nutrition measures ordinarily violate IIAs. They show instead, that although IIAs are usually interpreted in a manner that favours state autonomy, in implementing measures to protect healthy practices, some actions to induce investment can tie the hands of regulators by exposing a country to the risk of legal liability.

It is important for policy-makers, particularly in countries in the early stages of the nutrition transition, to ensure that FDI is managed in a way that minimises the health risks potentially arising from lowered production costs. Risk management should take place within the framework of existing IIAs and governments must avoid entering into future investment agreements that overly constrain their regulatory autonomy with respect to public health nutrition. It is important that policy-makers protect their policy space in future IIAs. In contemporary treaty practice, states have adopted several approaches to address the scope of their powers to regulate in the public interest. These approaches include: general exceptions; language clarifying the meaning of indirect expropriation and of fair and equitable treatment; clauses carving out specific areas of investment; and clauses permitting contracting parties to refuse to establish investments on specified grounds.  

The authors conclude that there is need for additional research on the intersection of investment and public health nutrition policy, especially descriptive studies on how states are balancing the interests discussed in the paper and how different policies affect investment and public health nutrition regulation. There is also a need for legal studies on the implications of different legal instruments and the most appropriate legal approaches to implementing different policy options.

¹ Thow. A and McGrady. B (2014). Protecting policy space for public health nutrition in an era of international investment agreements. Bulletin World Health Organisation 2014/92:139-145 | doi: http//dx.doi.org/10.2471/BLT.13.120543