Lessons from Mexico: ‘Our sugar tax hasn’t worked’, says beverage association

Taxes in the UK, Ireland and South Africa are putting renewed focus on sugar in soft drinks. In Mexico, four years after the introduction of its landmark sugar tax, health professionals are touting the impact that the Special Tax on Products and Services (STPS) – levied against unhealthy foods and alcoholic beverages, as well as soda – has had.

But how profound is that impact, and how has the tax affected ordinary Mexican consumers? FoodBev caught up with ANPRAC – the Mexican association of soft drink and carbonated water producers – to examine the fallout from the tax four years on.

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The figures certainly suggest that Mexico’s sugar tax is lowering consumption, but what is the feeling in Mexico? Does it feel like the tax is working?

The special tax applied to soft drinks in Mexico has been ineffective in reducing obesity, but effective in increasing product prices and tax collection.

Four years after its implementation and based on official sources such as the Monthly Survey of the Manufacturing Industry (EMIM) of the National Institute of Statistics and Geography (INEGI), we can say that consumers reacted to the change in prices in the short term, but their usual consumption has resumed over time. The impact in long-term consumption was minimal. The strongest impact was in 2014, and it did not show in all categories of soft drinks, being much lower than the estimates of those who promoted the measure.

Evidence has shown that it does not reduce obesity, since the tax did not significantly diminish the calories coming from soft drinks, and it just represented a reduction of 6.6 calories per person in four years (out of the more than 3,000 daily calories that Mexicans consume on average).

The Special Tax on Products and Services (STPS) that has been applied to soft drinks has been proven ineffective in reducing consumption, however it has been very effective in collection terms – after four years of implementation, the amount collected is more than MXN 100 billion ($5.5 billion): MXN 86.2 billion from the STPS and 13.8 billion from VAT.

How has Mexico’s soft drinks tax affected poorer consumers?

It has been regressive. According to studies carried out by the the Autonomous Technological Institute of Mexico (ITAM), the Autonomous University of Nuevo Leon (UANL) and the Colegio de México (COLMEX), the STPS affected the poorest households in the country, since they allocate a higher percentage of their income to the consumption of soft drinks. Low-income people were the most affected, as the STPS on soft drinks accounted for 66% of the loss of their ability to buy food and beverages in 2014.

62% of the amount collected by STPS comes from the lowest income households in the country (according to the National Council for the Evaluation of Social Development Policy (CONEVAL), INEGI and the National Household Income and Expenditure Survey (ENIGH)).

According to Nielsen and Kantar, the average Mexican household had virtually the same income in 2014 than in 2013, so they were forced to reallocate their spending differently in order to survive in this context. Although the official inflation data in the country was close to 4% in 2014, reality shows that Mexican households had to face a price increase of 13.5%, causing them to readjust their expenses and resulting in substituting other taxed and non-taxed categories. That is, Mexicans stopped spending on categories of personal and household care in order to finance other taxed categories, such as soft drinks.

How has the Mexican beverage industry adapted?

We are part of the solution: we are committed to the health of Mexicans, providing solutions to the problem of obesity. That is why, as an industry, we promote and carry out social responsibility programmes focused on physical activity, wellbeing and education.

For more than 20 years we have held sports tournaments like soccer, basketball, and others, where more than 1.5 million young people have participated – that’s the equivalent to the population of Philadelphia, Phoenix or San Antonio. We have installed 80 parks in 28 states of the country, benefiting 440,000 Mexicans who perform physical activity. We have provided training for 3,500 people in nutrition education throughout the country, benefiting 60,000 children. We have also performed food workshops for 1,250 parents.

In addition to these efforts, the Mexican soft drink industry has worked on diversification and reformulation of our portfolio: today 50% of the product portfolio is comprised of low- or no-calorie products. In the last six years, the calorie content of the products has been reduced by 7%. As a result of our reformulation efforts, there are products with up to 50% reduction in caloric content.

What has been the impact on Mexican beverage companies?

According to the Small Traders Alliance (ANPEC), in 2014, 30,000 small stores were closed as a result of the implementation of the STPS. However, the main [party] affected has been the consumer, who pays the tax and has absorbed the strong price increase from the first year. It should be noted that, four years after the implementation of the STPS, the increase in soft drink prices is twice the annual inflation of the country.

What do you make of sugar taxes in general? Do you think they work as a means of controlling consumer behaviour, and do they help to reduce levels of obesity?

According to the study Caloric Taxation in Mexico, carried out by ITAM, as a result of the application of the special tax, people stopped consuming 6–10kcal per day, which – when compared with the 3,072 that Mexicans consume daily – turns out to be an almost imperceptible quantity.

This study shows another conclusion – the implementation of the tax generated a substitution effect, in which consumers migrated to lower-priced products or with similar caloric content, which explains why there have not been significant changes in the consumption of total energy per household.

In the study Effects produced on the wellbeing of society by the policy of taxing foods and high-calorie beverages: expenses and demand for soft drinks per household, 2012-2014, conducted by COLMEX, it is mentioned that there is no conclusive evidence of the effectiveness of the tax as an instrument of change in consumption patterns of goods related to health. It also states that the pattern of consumption of the lowest strata has not changed significantly after the implementation of the special tax on soft drinks and flavoured drinks; however, their economic wellbeing has been affected.

On the other hand, the study Non-alcoholic beverage industry in Mexico, carried out by UANL, mentions that consumers did not stop buying the product despite the increase in prices (inelastic demand); it also states that the special tax on soft drinks in 2014 achieved a minimum decrease in consumption, since Mexicans stopped consuming on average 12–15ml per day per person.

The Mexican soft drink industry considers that obesity is a disease that has its origin in multiple factors, which cannot be linked exclusively to a single product. It is a complex problem of public interest that needs to be addressed in a comprehensive manner by private initiative, government, authorities and interested organisations. A single element, such as taxes, will not be enough to solve such a complex problem.

In this sense, the industry believes that nutritional education and the promotion of physical activity are key elements, which is why [our] social responsibility programmes are focused on these issues.

What would you say to politicians in a country that was thinking of introducing a sugar tax?

The problem of obesity is a problem which concerns us all. It is important to remember that it is due to multiple factors, so the solutions must go in that same direction.

We are a social actor committed to the wellbeing of Mexicans, providing solutions to combat obesity, focusing efforts on influencing the behaviour and habits of the population, with education programmes, prevention and promotion of healthy lifestyles, additionally to the diversification and reformulation of our portfolio.

Today 50% of the product portfolio is comprised of low- or no-calorie products. In the last six years, the caloric content of the products has been reduced by 7%. As a result of our reformulation efforts, there are products with up to 50% reduction in caloric content.