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FactCheck: Do taxes on sugary drinks actually work?

FactCheck delves into an on-air dispute over a major issue lurking on the horizon for Ireland.

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THE IRISH BEVERAGE Council this week called on the government not to go ahead with its plan to bring in a new tax on sugar-sweetened drinks in the upcoming Budget.

In a paper on the subject, the group wrote:

International evidence shows that additional taxation on sugar-sweetened drinks does not achieve the public health objectives of reducing incidence of obesity, overweight and related illnesses.

And on Monday’s the Last Word, the Council’s director Kevin McPartlan claimed:

It’s been proven not to reduce consumption of soft drinks, and therefore not to reduce consumption of sugar.

On the same show, the Irish Heart Foundation’s Cliona Loughnane claimed research had shown that the tax has cut consumption of sugary drinks in Mexico and France.

Welcome to one of the most hotly-contested debates in public health and fiscal policy around. With the sugar tax due to be announced here in October, we’ve decided to take a stab at answering the question: has it worked elsewhere?

(Remember, if you hear a big debate you’d like settled, email factcheck@thejournal.ie or tweet @TJ_FactCheck and we’ll do our best).

Claim: Taxes on sugary drinks have not achieved their public health aims
Verdict: Mostly TRUE

  • There is some evidence that the tax precedes a moderate decrease in consumption, but also that this effect tends to fade quite quickly
  • There is no significant evidence that sugar taxes cut body mass index (BMI), or rates of obesity, diabetes or heart disease, but there is evidence that they have not achieved such desired and promised public health gains
  • However, most sugary drinks taxes were implemented quite recently, and subsequent research may yield different results as the effects of the taxes develop.

The Facts

Mexico Soda Tax Fight Source: Associated Press

For this FactCheck, we’re focusing on the public health rationale behind a tax on sugary drinks, and setting aside the revenue-raising component.

The public health logic of a tax on sugary drinks is simple: raising taxes lifts prices which lowers consumption and therefore the intake of calories, which positively impacts on obesity, diabetes and other public health problems.

We’ve gathered as much evidence as possible about some of the main experiments with the taxes, and attempted to answer two questions:

Have they lowered consumption? And have they had a positive impact on obesity and other health problems?

Have they lowered consumption?

The short answer is yes, probably, but not by very much, and not for long.

Mexico

  • 10% tax on sugar-added soft drinks came into effect in January 2014

According to figures from the Mexican government’s National Institute for Public Health, sales of beverages affected by the tax actually increased, in comparison with the six-year period before it was introduced.

In 2014, sales increased by 6.4%, and in 2015, by 7%.

However, after adjusting for population growth, the relative increase in sales was 1.6% in 2014, and 1.1% in 2015.

And adding adjustments for seasonal trends (differences in weather from year to year), economic growth, and so on, the Institute claimed that in real terms, sales of the fizzy drinks actually fell by 6% in 2014, and 8% in 2015.

This echoes research, cited by the Irish Heart Foundation’s Cliona Loughnane, and published in the British Medical Journal in January.

It found, in short, that in the 12 months after the introduction of the tax, consumption of drinks affected by it went down by an average of 6%, compared to what could have been expected if the tax were not implemented, and after adjusting for factors such as weather, economic growth, changes in population structure, and so on.

PepsiCo Fat Tax A woman drinks a Coke in Mexico City. Source: Associated Press

Research conducted by the market research firm Canadean and shared with FactCheck showed that sales of soft drinks fell by 2.3% in 2014, the first year of the tax, compared to 2013.

Last year, sales were up 0.8% on 2014, but still down 1.5% compared to 2013, the last year before the tax was introduced.

Data cited by the Irish Beverage Council’s Kevin McPartlan, in response to FactCheck, indicates that sales of carbonated soft drinks in Mexico dropped in 2014, but bounced back in 2015, to the extent that they were just 0.39% lower than in 2013, the year before the tax came in.

In response to our queries, Howard Telford, Senior Beverages Analyst at the market research firm Euromonitor, said:

The tax did bring about a deceleration in the soft drinks industry, causing it to grow by just 1% in total volume terms in 2014. However, the industry recovered in 2015, experiencing a 5% increase in total current value terms and 2% in volume terms.

France

  • A €0.72/litre tax on soft drinks sweetened with sugar and artificial sweeteners, came into force in January 2012

In response to our request, the Irish Heart Foundation cited two documents as evidence for Loughnane’s claim that the sugar tax in France had causes a 3.3% reduction in consumption: this report by the UK’s National Heart Forum, and this one by the World Health Organisation.

Both cite research by the international market research firm IRI, which found that sales of soft drinks fell in France by 3.3%, in the first five months after the introduction of the tax.

However, the WHO report cited by the Irish Heart Foundation, which referred to the figure of 3.3%, also cautioned, “The impact of the tax is yet to be fully evaluated” and said “the reasons for this decrease [in soft drink consumption] cannot be ascertained…”

It’s also important to note that five months is quite a short time period on which to judge the effectiveness of a tax measure.

Sugar tax Source: PA WIRE

Canadean shared data with FactCheck which showed that while there was a 0.17% fall in soft drink consumption in the first year of the tax, there have been small increases in sales year-on-year, for the last three years.

In 2015, soft drink consumption in France was 4.2% higher than it was in 2011, the year before the tax.

report by the research firm Ecorys for the EU Commission found that in 2012 and 2013, there was a combined fall in demand of 6.7% for regular cola, and 6.1% for low-calorie cola, after a period of increased demand, suggesting a strong correlation between the new tax and the fall in consumption.

Denmark

  • Had a soft drinks tax since the 1930s, in 2010 sugar-sweetened drinks were taxed at a higher rate
  • Abolished the soft drinks tax in 2013

Data shared by Canadean shows that consumption of soft drinks had been declining slightly in 2008 and 2009, but increased very slightly in 2010.

There was a 3% increase in sales in 2011, and a 2.3% reduction in 2012, followed by a 3.1% boost in consumption in 2013, a year when the tax was reduced before being abolished entirely in 2014.

That year saw a significant, 6.8% rise in consumption, which would seem to be an effect of removing the additional tax on sugar-sweetened soft drinks. However, Howard Telford from Euromonitor cautions that “this is likely just consumption reclaimed from volumes sold in Germany”.

In the period leading up to the decision to abolish the tax, a significant number of Danish consumers shopped across the German border to avoid the tax on soft drinks and saturated fat.

Hungary

  • 2011 tax on sugar-sweetened drinks, confectionery (sweets and chocolate), energy drinks, alcopops, salty snacks and others

The Ecorys report found that demand for drinks affected by the tax (which was more wide-ranging than in other countries) fell significantly, but in most cases demand was already falling significantly in the years leading up to the tax.

For example, sales of carbonated soft drinks fell by 15.1% from 2011-2013, but had already been falling by 13.5% from 2007-2011.

United States

Philadelphia Soda Tax Opponents of a newly-announced soda tax protest outside City Hall in Philadelphia, earlier this summer. Source: Matt Rourke/PA Images

  • Various sugar-sweetened drink taxes at various rates in several states and cities

A 2009 paper in the Journal of Public Economics focused on the effects of fizzy drink taxes among children and teenagers. It found:

A one percentage point increase in the soft drink tax rate reduces the amount of calories consumed by soda by nearly 6 calories, which is about 5% of the average calories from soda.

It added that “soft drink taxation, as currently practiced in the United States, leads to a moderate reduction in soft drink consumption by children and adolescents…”

Why taxes don’t always lower consumption the way they “should”

A fundamental principle of economics is the law of demand: the more expensive a product gets, the less demand there is for it (setting aside diamonds and Bentleys for now).

Related to this is the principle of “price elasticity of demand” – the ratio between a change in price and a change in demand. So if a 10% increase in the price of a product leads to a 10% decrease in demand, the price elasticity of that product is -1.

The price elasticity of fizzy drinks varies from place to place and across socioeconomic groups, but is generally estimated to be around -0.7 or -0.8, so a price increase of 10% should, in theory, lead to a 7-8% fall in consumption.

So why doesn’t this always happen?

Sara Petersson, a Nutrition Analyst at Euromonitor, summarises much of the research with this breakdown, which we’ve paraphrased here:

  • Companies can decide to absorb the tax increase at source themselves, and leave the price of their product untouched
  • Consumers can find cheaper substitutes to the taxed product to “satisfy their sweet tooth”
  • The taste of sugar is naturally addictive, so those habits are hard to break, and consumers may simply adjust to paying more for it
  • Consumers can just choose cheaper brands of the same product, meaning their intake of calories remains the same as before the tax.

Mike Gibney, Professor of Food and Health at UCD made this point to FactCheck, saying:

It doesn’t matter what the balance of calories is, it’s the amount of calories that counts.

Which brings us to the second question:

Have they had a positive impact on obesity and other health problems?

Sugary Drinks Tax Celebrity chef Jamie Oliver, a leading supporter of the UK's soft drink tax, addressed a House of Commons committee. Source: PA WIRE

The short answer to this is no, but that might change in time.

FactCheck’s analysis of data from the NCDRisC project shows that in four countries which have had a sugary drinks tax in recent years (Mexico, France, Denmark and Hungary), average BMI (body mass index) and obesity prevalence increased or remained static, year-on-year, from 2008 to 2014.

You can download a spreadsheet of that data here.

It suggests that, while it is possible the introduction of sugar taxes may have slowed those increases, the taxes certainly did not cause a single decrease in average BMI or obesity prevalence in 96 opportunities for that to happen (four countries, six years, two measures, two gender categories).

In the case of Denmark, which cut their tax in 2013 and abolished it in 2014, any-year-on-year increases in BMI and obesity in those years were of the same magnitude as increases in the preceding years.

The British Medical Journal study published in January and cited by the Irish Heart Foundation (and many others) as evidence for the success of the tax in Mexico, found that consumption of soft drinks effectively fell by 6% in the first year after the tax.

Setting aside for a moment that that figure is disputed, the paper itself states that this decrease equates to 12 fewer millilitres of soft drinks per person per day.

That’s a decrease of around two teaspoons (roughly one healthy sip) of a fizzy drink (or 0.4% of a standard 330 ml can) per day.

A draft study by researchers at the Instituto Tecnológico Autónomo de México compared body mass index (BMI) among 8,000 households in 2013 (the year before the tax) and 2015 (the second year into the tax) and found the tax had a “very small” effect on calories consumed.

…If anything the tendency has continued to rise, albeit by a small quantity. It seems that so far the existing tax has not had a detectable decrease in BMI.

The Ecorys report for the EU Commission found that in France, the tax had led to a fall in soft drink consumption of 3 to 3.5 litres per year, per person.

That equates to 8.2 to 9.6 fewer millilitres a day – about one sip of a fizzy drink.

It should be noted that several studies can be found which project a likely or possible reduction in BMI and obesity, but this research is generally based on predictive models, rather than data gathered in the context of a tax having already been implemented.

By contrast, a 2013 study of the impact of already-implemented taxes in the US found:

The…results indicate that taxes have a small negative effect on BMI, however it is not statistically significant.

And concluded:

Our research does not support the theory that soda taxes have a negative effect on body-mass index.

Another, published in the Journal of Adolescent Health, found:

…Existing taxes on soda, which are typically not much higher than 4 percent in grocery stores, do not substantially affect overall levels of soda consumption or obesity rates.

However, it noted that certain sub-groups of children (those who are already overweight or come from a low-income family) may be more sensitive to tax increases.

Mars to snap up chewing gum group Source: PA WIRE

And, in an illustration of the “substitution” effects described by Sara Petersson from Euromonitor, the 2009 study in the Journal of Public Economics which found taxes lead to a “moderate reduction in soft drink consumption” concluded:

…This reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks.

Part of the reason for this lack of impact on BMI is the proportion of calories composed of sugars, and particularly sugary drinks, which varies widely from place to place.

In Ireland, a 2011 study found that between 6.4% and 11.5% of the calories we take in every day come from added sugar, and only some of those come from soft drinks (the rest come from table sugar, cakes, confectionery, jam, and so on).

That’s compared to fat, for example, which makes up between 25.7% and 35.4% of our caloric intake.

However, some of the studies mentioned above also pointed to the relatively low level of tax on soft drinks, and suggested that a significantly higher levy might potentially begin to have concrete effects on BMI, obesity levels, and public health.

And finally, the current gap in evidence of an observed (rather than predicted) reduction in BMI, obesity, diabetes, and so on, may in future be filled, as the effects of relatively recently-introduced taxes develop.

As Sara Petersson, Nutrition Analyst at Euromonitor notes:

The majority of existing food and drink taxes have only been implemented in the last decade.
This is too little time to truly appreciate the effects of these legislations on consumer behaviours and most importantly health.

Send your FactCheck requests to factcheck@thejournal.ie

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About the author:

Dan MacGuill

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