Katherine Rich: FIZZ under scrutiny

1 November 2017

Claims that a tax on sugary drinks is likely to have “a number of benefits” for the population have been shot down by an analysis of available evidence.

The claims of benefits of a tax included: increased cost of sugary drinks, cheaper bottled water and zero sugar drinks by comparison and increased availability, industry reformulating to avoid the tax, new products with less sugar, enhanced public awareness of why sugary drinks are detrimental to health.

But analysis by the Food and Grocery Council from before and after sugar taxes were introduced in Mexico in 2014, and on-the-ground experience of the New Zealand industry, tells a different story.

Here is FGC's analysis, as reported by Katherine Rich in FMCG Business magazine:

A group of academics who are part of a global network of sugar-tax campaigners has published a paper supporting a tax on sugary drinks for New Zealand.

The important-sounding New Zealand Beverage Guidance Panel is part of a wider initiative called Fight Sugar in Soft Drinks, or FIZZ (which should really be FISS, but no one seems to mind).

In the paper, they claim the introduction of such a tax “is likely to have a number of benefits,” including:

• increased cost of sugary drinks

• bottled water and zero sugar alternatives becoming cheaper by comparison

• incentivising industry to reformulate their products reducing sugar content to avoid the tax

• increased likelihood that new products from the industry will have a lower sugar concentration

• increased availability of water and zero sugar beverages

• enhanced public awareness of why sugary drinks are detrimental to health.

So let’s look at these, using evidence from before and after the sugar taxes introduced in Mexico in 2014, and on-the-ground experience of the New Zealand industry:

“Increased cost of sugary drinks”

It’s true that in Mexico the cost of sugary drinks increased after the tax was introduced. But so did the price of diet and low-calorie offerings – and even bottled water. This was because, as an excise levied on companies, the tax was treated like any other cost of doing business and was spread over the whole product portfolio. Big companies with economies of scale can spread extra costs, but artisan/craft manufacturers, with smaller scale and limited ranges, have to take the full hit of any big cost increase.
As a final inconvenient truth, raising the costs of large-scale or artisan manufacturers in New Zealand does not necessarily mean higher prices for consumers. Retailers set prices, not manufacturers. Those supplying the supermarket duopoly will tell you how hard it is getting a price increase accepted with even the most legitimate case. The big companies have a better chance, but those without bargaining power would likely have to absorb additional tax. That means there is no price signal to consumers.   

“Bottled water and zero sugar alternatives becoming cheaper by comparison”

This didn’t happen in Mexico. Nielsen sales information shows that after the tax, as before it, sugar-sweetened beverages have been consistently cheaper than low-cal by a significant margin. The tax doesn’t send any price signal to consumers except by way of making all beverages – including water – more expensive.

“Incentivising industry to reformulate their products reducing sugar content to avoid the tax”

This has been happening for 30 years. The reformulation of sugar-sweetened sodas by the big companies has been massive, particularly in the past five years. There are more zero and low-sugar formulations available than ever, and they’re everywhere. That hasn’t happened because of any tax – it’s due to changing consumer demand and the industry acting accordingly.

“Increased likelihood that new products from the industry will have a lower sugar concentration”

This is already happening – nothing to do with tax.

“Increase availability of water and zero sugar beverages”

This argument was used in Mexico and other developing countries, but it’s not relevant to New Zealand, a developed nation. We have extensive retail and food supply networks, so both are freely available already. Plus we have readily available drinkable tap water.

“Enhanced public awareness of why sugary drinks are detrimental to health.”

Public discussion, media coverage, and nutrition campaigns have delivered the message that too much sugar is not good for our health. Full-sugar beverage sales have declined each year for some time, and sales of zero and low-sugar have increased, demonstrating that people are getting the message.

Basing claims on theory is all very well, but sometimes it pays to look at what’s happening out here in the real world.

Mexico’s tax has raised billions of pesos from the Mexican people: 23 billion in 2016, 21 billion in 2015 and 18 billion in 2014. Those who believe the tax has been a wild success in curbing consumption need to answer this: why is the money collected from sales increasing each year? 

(as published in FMCG Business magazine, October 2017)