06/19/2015 07:52 EDT | Updated 06/19/2016 05:59 EDT

Is Mexico's Sugary Beverage Tax Effective Against Reducing Obesity?

Brent Hofacker

Can taxes on sugar-sweetened beverages (SSBs) improve the health of Mexicans? They can, says a study released June 16 by the Mexican National Institute of Public Health and The Carolina Population Center at the University of North Carolina.

They found that purchases were down six per cent in 2014 when the taxes were imposed. The findings shouldn't be too surprising since both organizations have been pushing for higher taxes on SSBs.

Before assessing the veracity of these numbers, let's take a look at the chief architect behind the program, Professor Barry Popkin.

Professor Popkin, a scholar on nutrition and diet at the University of North Carolina, has worked closely with the Mexican government to pass a 10 per cent tax on all SSBs. After convincing the Nieto Government, he's now trying to persuade other low and medium income countries in South America and Asia to follow Mexico's example.

His analysis shows that in just a few decades, many of these countries have gone from consuming minimally-processed to highly-processed packaged foods, while consumption of fruits and vegetables has decreased. This has led to a fatter world with all the chronic health problems that implies. And Professor Popkin believes taxation " the most effective way to change behaviour".

But is the Mexican tax working?

Let's start with the fact that increasing the price of any product leads to lower demand. Assuming sales did drop six per cent in 2014, that's lower than the 10 per cent drop Popkin's team estimated for the first quarter of the year. However, that's not the only factor involved in declining sales.

Just as soda sales are declining in the U.S. and Canada, similar changes are taking place in Mexico. Although Mexicans are still the biggest soda drinkers in the world, sales have been flat since 2007. From beverage marketing data, Mexicans now drink 60 per cent more bottled water per capita than soda.

Then there's weak economic growth over the past couple of years that has slowed demand for practically everything. Another factor to consider is hoarding. That's what happened in Denmark with their "fat tax" in 2011 -- a tax they abandoned a year later. Sales of taxed goods went up before the tax and fell sharply after.

What we do know is that people substitute other calories when soda prices go up. And as obesity and tax expert Jason Fletcher states, " the evidence demonstrates that large increases in soda taxes are unlikely to reduce caloric intake". Even Professor Popkin's colleague and occasional co-author, Dr. Eric Finkelstein, a health economist at Duke, is opposed to taxes on sugary drinks because they don't have much of an impact on weight.

Even if consumers are consuming a few less calories each day because of the tax, as claimed by Mexico's Health Secretary, that doesn't' necessarily translate into lower weight. Losing weight isn't a matter of a straight linear function. Taking off the pounds is a complicated business -- as anyone on a diet will tell you.

It has always been a mystery to me why some believe that the state can make us thinner by adding a few cents to a can of soda while many of us are spending hundreds, if not thousands, on diets and gym fees only to regain that weight.

But even on economic grounds, soda taxes don't make much sense. Here economists are pretty much in agreement. They either don't like fat taxes because they are unjustified under the criteria of market failure, or they add a burden on the economy by distorting markets.

Pro-tax advocates believe that raising taxes is a plus when in fact it's a cost equal to the amount of tax pulled out of the economy each and every year. And even though surveys show people are occasionally in favour of taxes when they are told those funds will be used to fight a worthy cause, that enthusiasm dissipates over time.

One thing this tax has done is to raise more money for the government just when oil revenues were declining. The tax was estimated to bring in about $850 million U.S. dollars for 2014. It brought in $1.2 billion U.S. instead; a boon to the treasury department and the health advocacy groups looking to grow their bureaucracies. As Christopher Snowdon at the Institute of Economic Affairs wrote, "taxing food and drink is unlikely to make the poor slim, but it will certainly ensure they stay poor".

Now that Professor Popkin has taken to convincing other governments to follow Mexico's lead by raising taxes -- and the revenues they can generate -- I can see them being tempted by more than the welfare of their citizens.


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