By Evie Liu
Packaged food companies are already struggling with headwinds this year, including weaker consumer spending and the popularity of appetite-suppressing drugs. The possibility that Robert F. Kennedy Jr. might lead the nation's food and health policies adds another layer of uncertainty to these stocks.
President-elect Donald Trump last week nominated Kennedy as the head of the Department of Health and Human Services. It's uncertain whether the Senate will approve the appointment, given his controversial views on various public-health issues such as vaccines and fluoridated water.
Kennedy has laid out his plan to "Make America Healthy Again," which centers around the idea that corporations are to blame for the nation's health problems and the government should intervene more. The food industry, which has historically viewed the Republican Party as an ally, is alarmed.
Many food stocks stumbled following Kennedy's nomination last Thursday. As of Tuesday's close, shares in beverage and snack giant PepsiCo tumbled 5.1%, chocolate maker Hershey lost 4.9%, while packaged-food conglomerates Kraft Heinz, Conagra Brands, and General Mills fell by 3.8%, 3.5%, and 3%. respectively.
But the group has bounced back since then as investors question whether Kennedy's plans could come to fruition. He faces many hurdles from the food industry, Congress, the science community, and even consumers themselves.
The MAHA campaign aims to combat the chronic disease epidemic in the nation, improve food supply through regenerative agriculture, preserve natural habitats, eliminate corporate influence from government health agencies, and remove harmful chemicals and toxins from America's food system and environment.
On social media and in interviews, Kennedy has accused food companies of "mass poisoning" the American public. He wants to limit public access to sugary drinks and ultraprocessed food, considered by many nutritionists as unhealthy. One idea is to stop allowing those on public welfare to buy what he calls "junk" food with food stamps.
This could hurt many packaged-food and beverage companies whose sales to food-stamp users are an important source of revenue, including PepsiCo, Conagra, Kraft Heinz, Coca-Cola, J.M. Smucker, and WK Kellogg. Kennedy also wants to strip soda and processed food out of school cafeterias, another potential problem for companies.
"This type of negative market speculation is the last thing the beleaguered packaged food group needs," wrote J.P. Morgan analyst Ken Goldman in a Monday note.
Kennedy has proposed reducing the use of additives and chemicals, including artificial flavors and colors, in food products. Many states are already doing this. Last year, California banned a group of chemicals, including food coloring Red No. 3, used in foods and candy. New York and Pennsylvania are considering similar bans.
The FDA has lagged behind other countries when it comes to food additives regulations. If his appointment is confirmed, Kennedy could accelerate the process through a personnel shake-up. He has already vowed to purge the agency, which he said has been doing the bidding of Big Pharma and Big Food.
More restrictions on additives should have limited impact on food producers' bottom line, says Scott Faber, senior vice president of government affairs at nonprofit environmental group EWG. Many chemicals are already prohibited in Europe, and other international markets, and food companies have been using alternative ingredients to comply with local laws. Adopting the same recipes for the domestic market won't add much extra costs, he said.
Consumers usually don't notice the removal or change in food additives. There have been cases where sales slumped after food dyes were taken out, but that's because a single company made the change, J.P. Morgan's Goldman wrote in a recent note. If all companies adjust to new regulations, there likely won't be major shifts in consumer preference, he wrote.
Kennedy might also require companies to label highly processed or harmful ingredients more prominently on food packages to alert consumers to unhealthy products -- an initiative the FDA has been working on for years with limited progress.
The agency is expected to propose a regulation in the coming months for companies to place key nutrient details on the front of packages in addition to the label on the back. Advocates believe this could help consumers make healthier eating decisions and push food manufacturers to reformulate their recipes.
Kennedy isn't only targeting food manufacturers, but also the ingredients that go into their products. He wants to cut the subsidies for mass-produced crops like corn, soybeans, and wheat, which, he argues, has made them artificially cheap. As a result, those crops end up in many food products in processed forms like soybean oil and high-fructose corn syrup. A reduction in crop subsidies could boost food producers' costs and cut into their margins.
While many MAHA initiatives resonate with scientists and voters across the political spectrum, Kennedy faces a tall order.
The former environmental lawyer has a history of questioning scientific consensus and advocating controversial claims. He has said that vaccines cause autism, Wi-Fi could lead to cancer, and antidepressants contribute to mass shootings. Those remarks have put a big question mark on how well he can execute plans that need the backing of science.
What's more, Kennedy's proposals would put more shackles on corporations, which run counter to Trump's goal to deregulate the economy, and is a sharp turn from Trump's food policies in his first term, such as rolling back pesticide restrictions and loosening nutrition rules for school lunches.
For now, Trump seems on board with Kennedy. But if the opposing voices in the Republican-controlled, regulation-unfriendly Congress are too strong, it's questionable whether Kennedy could get appointed, and -- even if he does -- how realistic it is to push through his agenda.
Kennedy will also certainly face strong opposition from the food and beverage industry like previous administrations. Already, as the FDA was researching front-of-package labels, trade groups have made clear that they oppose any "interpretive" designs with shapes or colors that indicate whether a product is healthy.
Another challenge for Kennedy: money. The FDA's food and nutrition program has historically operated on a tight budget. While the agency's drug division sustains itself largely through user fees paid by pharmaceutical companies when applying for drug approval, its food division relies more heavily on federal funding -- and there isn't a lot.
In fiscal 2024, the FDA's human drug division had a total budget of $2.4 billion, including $1.6 billion from user fees alone. The food division, in comparison, only had a $1.4 billion annual budget. The agency had cited a lack of funding as one of the challenges for it to conduct a comprehensive evaluation of ultraprocessed food.
Many of Kennedy's initiatives could further raise the cost of food at a time when many Americans are struggling to pay their bills. While ultraprocessed food with harmful additives could lead to chronic disease in the long term, for many low-income households on food stamps, it's the only affordable option.
Without addressing the affordability of healthier food like fruit and vegetables first, Kennedy could face pushback if he tries to limit access to packaged food.
Write to Evie Liu at evie.liu@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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November 22, 2024 04:00 ET (09:00 GMT)
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