Thursday 24 May 2018

Sugar tax on soft drinks won't defuse the obesity time bomb but it just might help

Sugar tax could hit drinks industry
Sugar tax could hit drinks industry
Richard Curran

Richard Curran

The Government's plan to introduce a levy or tax on sugary drinks is seriously exercising the soft drinks industry. In a pre-budget submission published this week the Irish Beverage Council (IBC), which represents a number of soft drinks companies, made some pretty severe, and at times near hysterical, warnings about the implications of a sugar tax of this kind.

Basically, it warned that a 10 cent per can levy would cost Irish soft drink companies €60m in sales per year, not through people cutting down in sugary drinks, but on cross-border shopping.

When the submission added in the lost revenue from the likely smuggling of soft drinks from Northern Ireland, the loss of revenue to companies down South would be around €100m.

The submission to Michael Noonan even included a picture of a guy wearing a balaclava, next to a warning of "illicit trade and smuggling."

The warnings didn't stop there either. The loss in tax to the State, caused largely by people heading to Newry to load up on cans of Coke, and balaclava-laden subversives driving to Dundalk with van loads of Orangina, could be €35m per year, according to the IBC.

In a way the council has to ramp up the hypothetical losses from cross-border shopping and smuggling because it also wants to argue that the tax will not work in reducing people's consumption of these drinks.

By arguing that people will still drink the same amount of sugar drinks even with the tax in place, the IBC couldn't argue there would be an economic loss. By wanting to argue it will cost jobs and tax income, while insisting consumption levels will remain, logic dictates that it must identify how the economic loss of jobs and tax revenue will come from somewhere else - namely cross-border shopping and smuggling.

The submission also goes to great lengths to highlight the multi-billion euro value of Ireland's food and drink export sector. But, how much in soft drinks do we export per year?

Well, the answer is hardly any at all. The IBC's membership is listed as: Coca-Cola; Innocent Drinks (owned by Coca-Cola); Pepsi; Britvic Ireland (owned by international Britvic group); Clada Group - a West of Ireland family firm engaged mainly in distribution and wholesale; Lucozade Ribena Suntory - a major international group; Irish-owned Richmond Marketing which manages a wide range of international drinks brands and Donegal-based P Mulrine and Sons - a genuinely Irish drinks exporter, whose products would not actually be affected by this tax.

The primary argument put forward by the IBC in its submission is that these taxes don't work and international experience shows this.

It cites Denmark, which introduced a tax on fatty foods, only to scrap it a year later in 2013 because of consumers crossing the border to Germany and Sweden to shop. It also claims it had no measurable impact on public health.

However, in Denmark they introduced a fat tax on a wide range of products including, cheese, margarine and cooking oils. Bakers worried about the fat content of cupcakes. The tax covered meat and a range of other household goods whose prices all rose with the tax.

So the Danes had a wide-ranging incentive to shop across the border. It wasn't about making the trip just for soft drinks, but for a lot more besides. Hence, the impact of cross-border shopping was significant.

Sales of these products fell initially, but critics argued that it wasn't due to healthier eating, but due to people hoarding product before the new tax came in, and shopping over the border.

The IBC cites Mexico, the largest consumers of soda drinks in the world. They introduced a 10pc levy on sugary drinks. Sales fell in the first year as it appeared to be working. The state has raked in $2bn since January 2014 - a third more than it had planned.

However, as the IBC points out, citing a 'Wall Street Journal' article, sales have started to grow again. Two Coca-Cola bottlers in Mexico reported soda volumes surging by 11pc and 5.5pc in the first quarter of this year. The turnaround actually began in 2015 with a modest 0.5pc rise in soda sales, after a 1.9pc fall in 2014.

Defenders of the tax in Mexico say the levy isn't high enough to act as a deterrent and warm weather and economic performance are behind the improved sales.

The same 'Wall Street Journal' article quotes a shoe shine guy in Mexico City who allocates 6pc of his daily wages to soda. He said he would change if water was cheaper. His 600ml bottle of fruit-punch flavoured Jarritos costs him 6.50 pesos. A bottle of water the same size costs 8 pesos.

The soft drinks industry in Ireland is worried that in ten years' time it could be the new tobacco. They don't want to become whipping boys and see the proposed sugar tax as just the beginning.

They can rightly point to the sugar content of sauces, breakfast cereals, yoghurts, etc. Where is the tax on them? They argue that their product accounts for just 3pc of people's calorie intake per day.

They have a point on the unhealthy quantities of sugar in many other things, but figures can be deceptive in this debate. People need to take in a couple of thousand calories per day, as part of their dietary requirements. The 3pc in sugar drinks might be seen as well, just the fat on the top, as it were.

The industry says that even their critics claim the tax would only reduce the average calorie intake per person in Ireland by just 2.8 calories per day.

But averages are not what this is about. Many people take hardly any soft drinks at all. Sharply reducing the intake of those whose consumption habits make them more vulnerable to obesity could see their calorie number fall dramatically, while translating it into the national average figure, makes it look a lot smaller.

The industry can rightly point out that reformulating ingredients has already sharply reduced sugar content and a lot more could be done in that field. They would prefer to see a cut-off point below which the tax does not kick in, instead of setting the cut-off at zero.

You could also argue that your average person who drinks a lot of Coke, when facing a sharp price increase, might simply switch to a cheaper own brand cola to save money and not reduce volume intake at all.

The problem is we simply don't know for sure. Personal choice and responsibility have a part to play. So too does education about health. But so too does the industry.

The obesity challenge is bringing economic and financial interests right up in the face of the interests of public health.

Soft drinks makers will argue they now spend most of their marketing budget plugging the low fat or "zero" options of their products.

Big business sees the sugar tax as just the beginning of a much deeper shift in governments' attitudes and policies towards the food industry. They see the soft drinks tax as the thin end of the wedge. And they may be right.

However, a sugar tax on soft drinks will either cut consumption or it won't. If it does, it has worked. If it doesn't, it will have heightened awareness but at a higher cost to many ordinary families who can afford it the least.

The sugar drinks tax will not solve the obesity crisis in Ireland. I am not totally sure it will help. But it just might.

If it fails, it can easily be reversed. That would be a U-turn but surely a better policy response than not to try anything at all.

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business