Why Pop May Become the New Tobacco

06/23/2014 12:32 EDT | Updated 08/23/2014 05:59 EDT

Pop is fizzling. Declining sales, the stumbling of Coke's latest campaign suggesting exercise is the key to indulgence, and the push to tax soda to suppress consumption are big warning signs for the industry.

Let's talk taxes. Taxation has many uses as a tool of policy making. They can be employed to provide incentives for and to impose disincentives upon a myriad of activities: investing in certain equities, saving for retirement, supporting the rearing of children, and so forth. Excise taxes are especially relevant in regulating consumption. Generally speaking these taxes are imposed upon specific goods and services (as opposed to, say, retail sales taxes that apply generally). Excise taxes can have several objectives: one is to discourage consumption. Because of their targeted nature, these taxes can be levied on almost anything where it has determined there should be less consumption (think alcohol and tobacco).

Enter the junk food tax. Proponents, rightly, focus on several propositions. First, excise taxes on junk foods, if set at appropriate levels, will decrease consumption. Second, revenue generated from such taxes can be used to subsidize the cost of healthy food and drinks, such as fresh fruit and vegetables. Third, such revenues can also be used to underwrite the cost of encouraging physical activity, such as building bike paths and community recreational centers.

Fourth, such underwriting goes a long way to meet arguments that excise taxes on junk foods are regressive: they are much more of a burden on the poor than they are on the affluent. Yet the funds generated by taxes can be used to make nutritious foods more accessible, especially for those of limited means. Fifth, such subsidies should not be defeated by arguments against government intrusion and manipulation. Governments have been subsidizing the production of corn and soy for decades. These subsidies have contributed to the availability of food and drink of dubious nutritional value at lower cost.

For a number of reasons -- high sugar content, association with weight gain, and intense marketing to children -- soft drinks are a particular target for proponents of junk food taxes. Advocates talk of a "penny per ounce" levy. But soft drink taxes come with complications.

First, is the political feasibility of a penny-per-ounce tax. A tax of 1 cent per ounce could raise the cost of a 20-ounce pop by 15-20 per cent. Such a hike is bound to be strongly opposed by the beverage industry and its confederates. But consumers may also not be supportive either. How likely is it that that level of increase will be supported by individuals even if they could be confident that tax revenues would be used for prevention programs? In these financially strapped times, how sure could consumers be that such increases would, in fact, be used for prevention and other health purposes during a period of relentless demands for resources to respond to the straightened circumstances of many governments?

Second, most estimates of calorie reduction coming from decreased consumption of pop assume no substitution of other calorically dense food/drinks instead of soda. There are a few studies suggesting that consumers will substitute healthier beverages for soda. But experts have acknowledged that we don't have reliable estimates of the extent of possible substitution and the net impact on caloric/nutritional intake.

Third, taxes on soft drinks are a simplistic solution to a complex problem. They cannot achieve significant change on their own. At the least they must be combined with other interventions in a "regulatory mix" ; for example, incentives to promote consumption of healthy foods such as fruits and vegetables.

Back to where we started: declining sales and stumbling marketing campaigns. If consumer demand continues to fall and the industry has other promotional mishaps the handwriting may be on the wall. Pop may become the new tobacco: still consumed by the few (and should be fewer) but spurned by the many. We'll need to watch and wait. Meanwhile advocates (including myself) might do better to focus more time and energy on other regulatory interventions to promote health. Expending a lot of effort on soft drink taxes and their complications may just not be necessary. The industry may be its own undoing.


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