Malaysia sugar tax: F&N looks to reformulate 70% of its products and considers price hikes

27-May-2019 - Last updated on 27-May-2019 at 01:48 GMT

Beverage giant F&N Malaysia will be reformulating some 70% of its products to mitigate the effect of the country’s sugar tax, which is due to be implemented on July 1. ©F&N Malaysia

Related tags Malaysia sugar tax F&N reformulation

Beverage giant F&N Malaysia will be reformulating some 70% of its products to mitigate the effect of the country’s sugar tax, which is due to be implemented on July 1.

Speaking after the company’s 2018/2019 first-half financial results briefing, F&N CEO Lim Yew Hoe said that: “About 70% of F&N products will be reformulated, we have done sufficient research to ensure the same great flavour without compromising taste.”

“We are quite fortunate that we already hedged all of our requirements of sugar for our products in the current financial year.”

That said, Lim added that product prices may need to be increased in order to cover costs, though this would only be ‘a last resort’.

“When reformulation occurs, there are additional costs we need to cover. It may result in a price increase, but not to the extent of the sugar tax.”

Some 90% of the company’s product portfolio will be affected by the upcoming sugar tax, which applies to non-alcoholic beverages containing added sugars of more than 5gm per 100ml drink; and for fruit or vegetable juice containing added sugars of more than 12gm per 100ml drink.

In November last year, Lim had already mentioned the possibility of F&N increasing the prices of 90% of its products in response to the sugar tax. The expected increase at the time was between RM0.10 and RM0.60 based on existing retail prices (RM1.20 for 250ml drinks, RM3.40 for 1.5L drinks).

Reformulation aside, Lim added that F&N also intended to produce original full-sugar recipes in smaller pack sizes, reduce sugar recipes, transform its overall portfolio to produce more healthy product categories and speed up innovation.

“We are investing RM30 million in our plant in Shah Alam to enable multiple new products to be produced from October this year,” he said.

Previously, Lim had also described reformulation efforts as ‘difficult’ in terms of meeting consumer taste and price needs.

“There are alternatives in the market such as the plant-based stevia, artificial substitute aspartame and natural sugar, but it would be very difficult to achieve the same sweetness, texture and customer acceptance to the taste, with the same economic value as the current recipe,” he said last year.

Malaysia sugar tax delay

The country’s sugar tax was originally set for an April 1 implementation date, but was delayed by three months to July 1 to ‘give the local food and beverage industry as well as the Customs Department more time to make preparations and ready itself for the sugar tax’.

“[This will also] allow the Royal Malaysian Customs Department to carry out roadshows and issue licences to sweetened beverage manufacturers,” said Customs Department Director-General Dato’ Seri T. Subromaniam in a statement.

During the 2018-2019 half-year financial results briefing, Lim expressed appreciation for this move.

“We are grateful for the Government’s decision which will provide us with more time to execute our mitigation plan,” he said.

“We will continue to leverage on innovation and reinvention to offer healthier, affordable and delicious products that are easily accessible to all.”

F&N revealed that the company’s overall group revenue rose 3.8% to RM2.03bn (US$486mn) in the first half of its financial year ending March 31 2019, whereas its profit before tax rose 33.3% year-on-year to RM288mn (US$69mn).