Has Owning Coca-Cola Shares Become Indefensible?

U.S. stocks are lower on China's surprise devaluation of its currency, the renminbi. The Dow Jones Industrial Average (^DJI 0.69%) and the broader S&P 500 (^GSPC 1.20%) are down 1.43% and 1.26%, respectively, at 1:15 EDT. The Nasdaq Composite was down 1.47%.

If you're old enough, you may remember that in April 1994 -- barely more than two decades ago -- the top executives of the seven largest tobacco companies in the U.S. testified one after the other before Congress that they believed nicotine was not addictive. 

For decades, the tobacco industry had, through its funding, co-opted much of the research on the health effects of cigarettes in order to suppress or manipulate adverse findings. It appears we're now witnessing a similar process regarding the Coca-Cola Company and the link between sweetened beverages and obesity.

On Sunday, The New York Times published an excellent article that highlights how Coca-Cola is funding research in order to try to convince public authorities and consumers that they should focus on increasing physical activity ("calories out") rather than altering eating habits ("calories in") in trying to combat obesity. 

The company is funding a group called the Global Energy Balance Network (energy balance = calories in vs. calories out) with a stated mission "to connect and engage multi-disciplinary scientists and other experts around the globe dedicated to applying and advancing the science of energy balance to achieve healthier living." 

Energy balance is a science in the same way that "intelligent design" is, and it serves the same purpose: To raise doubts among the public concerning genuine scientific results and conclusions that are inimical to the promoter's interests.

Let me give you an example of misuse and misrepresentation of data at the highest level of Coca-Cola. In Oct. 2009, CEO Muhtar Kent wrote an opinion piece in The Wall Street Journal ("Coke Didn't Make America Fat"), in which he stated:                                    

Our industry has become an easy target in this debate [on obesity]. Sugar-sweetened beverages have been singled out in spite of the fact that soft drinks, energy drinks, sports drinks and sweetened bottled water combined contribute 5.5% of the calories in the average American diet, according to the National Cancer Institute. It's difficult to understand why the beverages we and others provide are being targeted as the primary cause of weight gain when 94.5% of caloric intake comes from other foods and beverages.

There are so many things wrong with the framing of that argument that one hardly knows where to begin.

The fallacy of the mean
First, the average caloric contribution of sweetened beverages is an extremely misleading statistic in this context. As Nassim Taleb warns: "Never cross a river because it is on average four feet deep." In Mr. Kent's example, it is essential to understand the variability of sweetened beverages' caloric contribution across different groups. For example, it might be useful to know the contribution for people who are overweight or obese.

Data from the National Health and Nutrition Information Survey covering the period between 1999-2010 suggest that overweight adults who drink sugar-sweetened beverages get 17% of their calories from those beverages. Among obese adults who drink them, it's 18%. Here's another worrying statistic: According to the same survey data for 2005-2006, sugary drinks are the No. 1 source of calories in teens' diets (226 calories per day). 

The calorie equivalency fallacy
When you reason purely on caloric contribution, the underlying assumption is that all calories are equal in terms of nutritional value, or are metabolized the same way. We know that isn't true: Coca-Cola has no nutritional value whatsoever. Furthermore, instead of simply looking at the caloric contribution, it would be more interesting to ask what proportion of the added sugar intake comes from sweetened beverages.

The "gateway" sugar source
Research suggests that the consumption of sweetened beverages encourages sugar craving and dependence. As such, it's not difficult to understand why sugary beverages are being targeted as a primary cause of weight gain, contrary to Mr. Kent's assertion.

When a company like Coca-Cola finances and misuses research, it is making it more difficult -- not easier, as it claims -- for consumers to make healthy choices in regard to their eating habits.