Taxing soft drinks for health

SAN FRANCISCO – Two soft drinks tax proposals were presented to voters during the last November election. One was in Berkeley where the voters approved it. The other was in San Francisco that got a majority vote but short of what was needed to carry it.

More than three quarters of the voters in Berkeley approved the proposition for a one cent an ounce tax on soft drinks. But the proposal for a similar tax in San Francisco for a two-cent per ounce tax failed to get the two thirds majority.

The price of a can of soda in Berkeley will rise by 12 cents and 68 cents for a two liter bottle.

The proposition in both cities was premised on a need to curb the consumption of sodas, energy drinks and sweetened teas. Medical science has found that sugary drinks contribute to an epidemic of obesity and Type 2 diabetes. At the very least, the proposals intend to make those who consume sugary drinks to contribute to the cost of health care they will eventually need.

In the US, obesity is supposedly entailing a “staggering” financial cost, according to the Center for Disease Control or CDC. Everything from treatments for diabetes, to lost work by obese employees, cost Americans about $147 billion in 2008, according to one estimate cited by the agency.

A study published in the Journal of Public Economics led by a public health expert from Yale University found that “there is emerging evidence that small net changes in caloric consumption can lead to substantial changes in the prevalence of obesity over time.”

According to the study, reducing energy intake by even only 100 calories per day, which is less than one can of soda per day, could prevent weight gain in over 90 percent of the population. “Thus, it may be possible to effectively reduce weight by targeting a single food item.”

American consumption of sugar sweetened beverages or SSBs rose by 200 percent in 1977 to 2004, as did its obesity rates, diabetes and health care costs. The soda manufacturers know they have to do something. They have agreed to among others, stop selling soda drinks in schools.  

Nationwide, support for a soda tax is mixed. Support however increases if the proceeds of such a tax are earmarked for health services. According to the Center for Science in the Public Interest, at least 39 states and the cities of Chicago and Washington DC have small, special taxes on sugary drinks sold in grocery stores and/or vending machines.

Around $1 billion has supposedly raised by the states on these taxes. Unfortunately, according to the Center, existing state taxes are too small to significantly reduce consumption, and almost none of the revenues are earmarked for health promotion.

A massive lobby by the soft drink manufacturers to oppose such a tax was seen in the recent referendum in Berkeley and San Francisco. The soft drink lobby was supposed to have spent as much as $100 million to defeat the soda tax propositions.

Some years ago, there were mixed reactions when then mayor Michael Bloomberg banned the sale of sodas larger than 16 ounces in New York. Bloomberg was accused of creating a nanny state that diminishes the individual’s right to choose.

In the recent California battle for the soda tax, Bloomberg was said to be the biggest supporter of the measure. Other supporters include the American Heart Association and the American Academy of Pediatrics.

Back home, a similar proposal had been filed in the House of Representatives. Several legislators want a 10-percent ad valorem tax on soft drinks and other sweetened beverages. Leading the group is Rep. Estrella Suansing of Nueva Ecija who filed House Bill 3365.

Expected to raise at least P10 billion, the tax on soft drinks is also aimed at reducing consumption in an effort to address the rise in the number of diabetes cases. The local soft drink manufacturers understandably oppose the measure. They argue that taxation is the wrong way of addressing obesity and diabetes.

In addition to the workers in the soft drinks industry, their dealers and sari sari store owners, the soft drink manufacturers warned that the measure would also adversely affect our local sugar industry.

But Oxford experts also think “a tax on unhealthy foods would act as an incentive to encourage manufacturers to change what goes into their products and make them healthier.”

The tax on soft drinks seemed inevitable and even the soda manufacturers have seen that years ago. Even as they fight a valiant last stand opposing soda taxes, industry giants like Coke and Pepsi have long started to come up with non sugary drinks.

It isn’t just the imposition of taxes that worry the industry. Indeed, there are those who think such taxes are not enough to stop a consumer addicted to Coke or Pepsi to dump the product. More worrisome to the soda manufacturers are lifestyle changes in a more health conscious market.

That explains this recent increase in demand for buko juice or coconut water. Coke and Pepsi have also been pushing other more healthy drinks or even just simple bottled water. I understand that over time, they expect their sales of non-sugary drinks to overtake that of their traditional soft drinks.

Rather than buck the trend, Pepsi CEO Indra Nooyi decided to refocus Pepsi. “Lifestyles have changed,” she notes, “And we have to modify our products.” In that spirit, she’s focusing the company more on water, juices, teas and sports drinks.

As I wrote in a column for abs-cbnnews.com on Oct. 21, 2012, a paper by Edgardo Donovan compared how Coke and Pepsi managed their product mix. Donovan noted, “The sharp 35-percent rise in profits owed little to the company’s four core brands: Coke, Diet Coke, Sprite, and Fanta. Instead, Coke got a jolt from the non-carbonated brands that were once treated as orphans by its colacentric management.

“It’s the first good news Coke has had for some time in its battle to make up precious ground against PepsiCo Inc in the beverage industry’s most competitive rivalry. Getting the noncarb business right will be a top priority… Coke was long reluctant to diversify into any beverages that it feared couldn’t match the lucrative margins of soft drinks.”

It is clear that the beverage companies have alternatives to sugary drinks that may be more profitable in a future world of health conscious consumers. We may be doing them a favor now by forcing them to rethink their product line-up.

While the health concerns of developed countries like the US over soda consumption seem urgent, it is even more so for countries like ours. Imagine the barefoot boy in a barrio out in a rural area sipping soft drink from a plastic bag. All those empty calories can only aggravate an already serious malnutrition problem.

But here in the Bay Area as it is back home, the fight over the soda tax is looking like a fight between the poor and the rich. The proposition didn’t do well in poorer neighborhoods and explained why it failed in San Francisco. The proposition won overwhelmingly in the economically better off communities that are also more health conscious.

Back home, I recall the soft drinks manufacturers arguing that the poor have little affordable amenities, and drinking a Coke or a Pepsi is one of their few luxuries. Why deprive them of that?

The health argument is, however, compelling. As in the case of tobacco, an outright ban is not possible, but consumers of the products should be made aware of the dangers. Additionally, they should contribute to the public health costs of the diseases they get from product consumption.

The current bill filed in the House is wrong to state that the first purpose for the tax was to raise funds for calamity victims like those who suffered the most with Typhoon Yolanda. It should not be seen as a mere revenue-raising bill.

Indeed, whatever revenues raised should be specially set aside to enable the Department of Health to more adequately respond to increases in cases of diabetes and other related diseases. Too many cases of untreated diabetes have had horrible consequences including terminal kidney disease and limb amputations.

A good information program under the auspices of the DOH is also called for. People are just not well informed about the dangers of diabetes and how to avoid or mitigate its consequences.

I am glad that Congress is finally coming around to see the point. It is a matter of time. More and more countries will impose the soft drinks tax simply because it is the right thing to do.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanc