Innovation Sweet Spots: Food innovation, obesity and food environments

There is a significant opportunity to harness recent food tech innovation to positively improve food environments, health, and obesity in the UK. Our expert panel highlighted reformulation as the innovation most likely to have a positive impact when compared to a suite of others.

Another report recently published by Nesta has focused on food reformulation more closely, and set out a range of policy recommendations to specifically boost this area of innovation. These recommendations included: specific food categories that could be the most impactful targets for reformulation; industry ensuring accessibility of lower-calorie options for all consumers; setting up calorie reduction targets and mandatory reporting of data by the private sector relating to health and reformulation; and the establishment of a dedicated body to design and set the targets.

Some of these policy recommendations would benefit the broader food tech innovation landscape. In the following section, we build on these recommendations, extending them to innovations beyond reformulation and introducing new recommendations to help steer food innovation towards creating healthier food environments and reducing obesity. They fall into two main groups: Fiscal incentives and Consumers.

Fiscal incentives

New fiscal incentives should be introduced and existing measures refined to better support innovation to make food healthier

Calorie reduction and return on investment
While some of the following measures do represent a cost to the UK taxpayer, there has been significant research indicating a very positive return on investment from measures which cut calories. Modelling by the Department of Health and Social Care (DHSC) indicates that a population-wide decrease of just 20 kcal per day, equivalent to around 1% of the average recommended daily calorie intake, would result in the following benefits over a 25 year period: 10,500 fewer deaths, a £2.52bn reduction in health and social care costs, and £191m gained in increased economic output. The model also calculated a financial value associated with the reduced mortality and morbidity totalling £7.98bn, bringing total financial benefits of £10.7bn.

Our findings

Our research highlighted a number of barriers and risks to the different types of food tech that could be addressed using fiscal measures:

• Our expert panel pointed out that ageing and inflexible food production machinery make it difficult to deploy the process innovations (eg, steaming instead of frying), which have the potential to reduce obesity. Replacing or updating existing food production equipment can be prohibitively expensive for manufacturers, and therefore acts as a barrier to process innovation. We should find ways to reduce these costs and therefore enable process innovation to reduce calories.
• Our quantitative analysis showed significant innovation around ingredient reformulation, but our expert panel pointed to the risks and difficulties associated with these innovations. For example, reformulation is highly complex and often not simply a case of replacing one ingredient with another. Often multiple new ingredients are required, some of which may be more expensive, adding to the overall product cost. Another risk is that consumers may not like the new healthier product due to a slight difference in taste. It is therefore a challenging and risky activity for companies, especially for smaller companies lacking large R&D budgets.
• Our panel highlighted rapid grocery deliveries and takeaway delivery apps as the two technologies posing the biggest risk of increasing obesity, alongside the enabling technologies of dark kitchens and automation including robots. Data analysis also identified these technologies as receiving the highest levels of venture capital funding. We must therefore incentivise the manufacturers, retailers, and caterers who produce the food which is prepared and delivered by these two new technologies to provide and encourage the purchasing of healthier food. 
• Specifically regarding takeaway delivery apps, our panel pointed out that it is not the technology itself which is bad for obesity but the unhealthy food options being delivered. In low-income residential areas, there is often a high density of businesses selling high-calorie fast food, which then become the default options available on delivery apps. Our panel therefore suggested that by bringing more healthy eating options to areas where they are currently lacking, takeaway delivery apps could have a more positive impact on access to healthy foods. 
• Certain areas of food tech may hold promise for reducing obesity but are not necessarily attractive to investors, so may struggle to get the funding they need to develop and scale. For example, more traditional food tech such as novel ingredient development, as opposed to software-based businesses, tend to involve high capital expenditure but relatively low margins, while ventures developing certain food additives may face regulatory barriers which can also make them less attractive to investors.
• Some sectors also appear to be dominated by a small number of large organisations. This suggests that providing greater access to capital for early stage but promising food tech ventures could help drive food innovation.

Recommendation 1: Corporate tax relief of retrofitting food production plants to reformulate products for health.

HM Revenue and Customs (HMRC) should introduce a new scheme enabling food manufacturing businesses and restaurants to reduce the costs of new equipment if they can demonstrate that the new equipment will enable a reduction in calories. We have identified several existing mechanisms which could be adapted to achieve this.

For expenditure over £1m we have identified two possible options which could be used individually or together:

• Enhanced capital allowances (a type of first year allowances) enables companies to deduct the total costs of certain low- or zero-carbon technologies against their profits before tax. A similar scheme could be implemented for qualifying food manufacturing or preparation equipment, which enables a reduction in calories as opposed to carbon.
• The Government’s temporary post-Covid super-deduction scheme provides tax relief at 130% on qualifying equipment, but will end on 31st March 2023. After March 31st, a similar scheme could be implemented solely for food manufacturing or preparation equipment which reduces calories.

For expenditure under £1m:

• Smaller purchases already receive 100% relief from the Annual Investment Allowance. This could be extended to 130% for qualifying food manufacturing or preparation equipment which reduce calories. 

As a first step to enacting any of these, HMRC, potentially in conjunction with academia and industry representatives, would need to carry out a study to identify what types of manufacturing or preparation equipment should qualify for the reliefs. This would involve weighing equipment cost against factors such as the potential calorie reduction it could provide. 

Recommendation 2: Tax credits and business rates reduction to incentivise and enable innovations that improve the health of foods and food environments

As noted, the UK Government has put in place tax credit schemes, such as the enhanced capital allowances (a type of first year allowances) to incentivise industry to change behaviour and adopt lower carbon technologies.

We suggest using a similar mission oriented innovation policy to incentivise and de-risk the development and distribution of healthy food and food environments, especially for those on low incomes, we have two separate recommendations which are outlined below. 

Recommendation 2A. We recommend that within R&D tax credits, the Government creates a second rate of relief higher than the existing base rate, that is applicable to research into healthier food products. The precise value of this rate should be determined by economic modelling, which is outside the scope of this work. This would specifically incentivise R&D investment towards health innovation.

As a secondary measure, the Government may wish to consider expanding the range of food related projects which qualify for R&D tax credits. They might, for example, waive the stipulation that the project must “aim to create an advance in the overall field, not just for your business”. Lowering this bar might further incentivise companies to innovate and create new healthier products. 

Recommendation 2B. We recommend that businesses that can demonstrate that they are producing and selling predominantly healthy meals should be given an 80% business rate relief, as is provided to charities, should they locate themselves in areas with no or limited healthy food options, high obesity, and poor health outcomes. The rate relief would be funded by central government and would encourage takeaway delivery platforms serving the area to promote and provide healthier meals to the local population, therefore enabling this fast growing technology to have a more positive impact on obesity.

The positive impact of this could be further enhanced by additional measures governing how delivery apps, and other channels, promote healthy options. To validate appropriate areas for the scheme, the Valuation Office Agency, which sets business rates in the UK, could work with researchers such as the Cambridge University-based team behind the Food Environment Assessment Tool (FEAT), who have carried out mapping exercises to identify areas where the population struggles to access nutritious healthy food. 

A first step in the implementation of this would be for the Office for Health Improvement and Disparities to develop standards and guidelines to which participating food providers would need to conform. These could build upon existing schemes, such as the eat out eat well award, and include maximum calorie per meal levels of 600 kcal or less. This could be run as an initial five year pilot project in order to understand factors such as the length of time for which businesses should receive the rate relief, and how many companies should receive the rate relief, to effectively improve the food options available to consumers.

Recommendation 3: Explore a Health Innovation Levy whereby large organisations contribute funds into a central pot managed by the UK Government, that could then be drawn down on by all companies innovating for health and obesity in the food industry.

To further boost innovation for healthier food and food environments, retailers and manufacturers should make a contribution to a central funding pot which could be a percentage of sales derived from food categories targeted for calorie reduction as set out by Nesta's earlier reformulation report. As with the UK Government’s existing Apprenticeships scheme, each company's levy would be held within a fund and would be overseen by a government department, potentially jointly by the DHSC and the Department for Business, Energy and Industrial Strategy (BEIS). SMEs will not have to pay the levy, but will be able to access funding from it.

Funds must be used to support innovation that makes food healthier. Manufacturers, for example, could invest in product reformulation while companies operating in the delivery sector could invest in providing or altering consumer choice towards healthier options. It could also be used to encourage businesses to expand into geographic areas that historically have had limited access to healthier outlets. As a first step, a pilot study could be jointly carried out by DHSC and BEIS to understand which foods should be subject to the levy and the viability of calculating the levy using existing or new data sources.

Our initial modelling indicates that tens to hundreds of millions of pounds could be raised. This is significant especially taken in the context of the £2.5 million UK Government research funding for reformulation identified in this study. Taking, for example, total sales of the ten grocery food categories identified by Nesta’s reformulation work as most promising for calorie reduction, applying a 0.5% levy would generate £71m for reformulation. Applying the same 0.5% levy to out-of-home eating, specifically takeaway pizza, could generate £17m.

While there would need to be exemptions for lower calorie reformulated products and SMEs, the figures demonstrate that substantial sums could be generated. It should be noted that 0.5% is a lower levy than was applied by the UK’s Soft Drinks Industry Levy, although soft drink reformulation is technically less challenging than for other foods. Other countries have applied higher taxes to food categories: Mexico, in 2014, applied an 8% tax on some highly energy dense foods. 

Even if the total costs of a levy were passed on to consumers by retailers, we anticipate that the cost impact would be limited. This is due to the fact that not all items within a typical basket of goods would be covered by such a levy, and secondly, that an increase in a particular product or category would encourage consumers to purchase from other categories not subject to the levy.

Recommendation 4: The UK Government, potentially through the British Business Bank (BBB), should support innovation to reduce obesity by co-investing with private sector capital in innovative food tech companies whose products or services will have a positive impact on obesity through instruments like the Future Fund: Breakthrough

The BBB is a development bank owned by the UK Government. Its remit is to increase the supply of credit to specific sectors and businesses.

We recommend that the BBB co-invest with the private sector in food tech firms working on promising, but R&D-intensive, intellectual property that can be credibly shown to create or improve access to healthy foods. This could potentially fit with an existing BBB fund, the Future Fund: Breakthrough (FFB), which provides up to 30% of an investment round. Sectors important for health, such as food tech firms, could be added to their remit. Alternatively, a food tech specific extension of the BBB’s Enable scheme, which guarantees a proportion of loans made to higher risk businesses, could be explored.

Funding within the £375m FFB could be increased by 10%, (£38m) to enable the inclusion of food tech investments. This is a meaningful amount, as with match private sector funding it would result in an extra £120m.

Consumers: Research addressing consumer concerns and issues around adoption of new food tech innovations

Our findings

Our expert panel highlighted reformulation to reduce calories or increase satiety as the innovation most likely to have a positive impact on obesity in the UK. Our analysis demonstrated that there is encouraging growth of patents related to reformulation, as well as emerging venture funding for start-ups specialising in reformulation and innovative food. 

Reformulation by stealth where, for example, a manufacturer might reduce the sugar content of a product without informing consumers, can be an effective way of reducing calorie density. However, in some instances where a new or novel ingredient is utilised or even a new technology, reformulation by stealth is not possible. Therefore, the success or failure of some emerging food tech innovations depends on consumer acceptance. 

Our expert panel highlighted consumer acceptability as a significant risk that might prevent wider adoption. Although research shows that people appear to think positively about innovation in reformulation, this acceptance of products does not always translate to actual purchasing choices, cost and taste being some of the main barriers. Given their novelty, consumers might also have issues around other new technologies in the food tech space, like fermented proteins or robotics, which add another level of complexity that would benefit from further investigation.

The recent announcements of Innovate UK’s £20 million funding competition and a new innovation hub focused on acceptance of healthy food, as part of a broader £15 million Diet and Health Open Innovation Research Club (OIRC) by UKRI, alongside biofortification and physiology, is a welcome development in tackling these issues. It is, however, unclear as of yet how this funding will be distributed across different food innovations, and to what extent reformulated foods are part of these research programmes. 

Recommendation 5: Funding for research and experimentation on addressing consumer concerns and issues to purchase reformulated products or other healthy food tech innovations

The existing and future funding from UKRI or NIHR should be directed to behavioural research and experimentation, including participatory futures public engagement, as well as product development to address barriers for customer acceptability of reformulated products and other healthy food tech innovations. The funding could also support food producers and retailers in research and experimentation on consumer acceptance. The work could help create a virtuous circle by increasing customer demand for healthy reformulated products which encourages further development by industry. 

Insights from these projects could feed back into product development and provide insights on how best to communicate with consumers, therefore giving a voice to consumers in the development of the foods they will eat and technology they may one day use. The research projects funded could span a broad range of areas: for example understanding how to overcome barriers to the adoption of new technologies, potential consumer safety or disgust concerns surrounding alternative proteins, or investigating the biological mechanisms which determine the sensory experience of eating to help manufacturers create healthier products which do not taste or feel different to higher calorie versions.

To this end, we recommend that UKRI and NIHR apportion at least £1.25 million in additional, sustained yearly research funding across the next five years – £6.25 million in total. The primary focus for this additional funding should be on addressing consumer concerns and issues of reformulated products, as this technology category was seen by our expert panel as most likely to have a positive impact on obesity in the UK. 

The specific additional amount of £1.25 million would correspond to around 50% of our estimated average yearly funding awarded to research projects linked to reformulation in 2017-2021. Additional support for the food reformulation innovation category is particularly pertinent when considering that our analysis shows new project funding linked specifically to reformulation has decreased by around 33% in 2017-2021. 

For comparison, since 2020, funding for reformulation has been overtaken by research on another innovation area, alternative proteins, which we estimated to have grown by 175% but whose long-term consequences to health are as of yet unclear (as pointed out by a report produced by the University of Cambridge).

If burgeoning food tech innovations can be steered and harnessed to improve our food environments, we will only reap the benefits if the public are happy to embrace and adopt them. Therefore this final recommendation is of special significance. 

Conclusion

The past decade has seen a boom in food tech innovation. Global food tech venture capital investment has increased 40 times from £670 million in 2011 to £26.9 billion in 2021. This has been facilitated by easily accessible investment capital and the development of a huge range of enabling technologies, from high-speed internet to rapid, low-cost DNA sequencing. 

Despite the 2022 investment downturn, a dynamic food tech sector and some of the technologies it has developed, such as personalised nutrition and low calorie reformulated products, have the potential to greatly improve health and obesity in the UK. However, some food tech innovations also have the capacity, if not carefully directed, to negatively impact health and obesity, for example by providing easier access to less healthy food. 

There is now an opportunity for the UK Government to help take our food and food environment in a direction which improves health and obesity. This will require public institutions to engage deeply with the food industry. Government will also need to push ahead with regulatory targets for industry, as well as tax incentives and additional research funding to support industry in providing healthier food. While there will be challenges ahead, interventions to guide food tech in beneficial ways have the capacity to save thousands of lives and billions of pounds. 

If you are interested in discussing our research and recommendations, please get in touch.