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Mexican soda tax analysis: The figures just don’t back the hype

Photo: iStock
Photo: iStock

Related tags New zealand Tax Soft drink

The success of the Mexican soda tax is fast becoming the stuff of public health myth and legend.

Public health lobbyists have been collectively willing it to succeed and many international politicians are smelling an opportunity to impose new taxes to bolster government bank accounts, all in the name of combating obesity. 

katherine linkedin
Katherine Rich, chief executive of the NZ Food and Grocery Council

South Africa, Colombia, the Philippines, Britain, Indonesia and India have all openly talked about implementing taxes on sugary drinks using the Mexico tax as so-called evidence of a successful obesity intervention. 

But if it’s actually about helping people make healthier choices and lose weight, then a soda tax is not the right way to go – because the Mexican tax has been a whopping great failure, and new data released today in FoodNavigator-Asia confirms it. 

As I said here in my last piece on this​, if a government’s aim is to raise large amounts of cash from taxing companies then the Mexican soda tax has been a roaring success. 

In short, Mexico City’s coffers grew by 18.3bn pesos from soda tax receipts in 2014, against a budgeted 12.5bn pesos. Last year, revenue increased to 21.4 billion pesos—much more than the 18.3bn pesos the government forecast.

Whether governments use such a tax to raise money from citizens is a decision for local parliamentarians, but to impose it under the pretence that it will make a difference to obesity is nothing more than wishful thinking. 

Food and beverage taxes, on the whole, remain one of the most regressive taxes a government can apply because they always affect the poor the most. 

It is time for those championing soda taxes as a magical solution for reducing obesity to accept that governments cannot simply tax people slim. It just won’t work.

The latest sales data from Mexico shows without any doubt that the tax on sugar-sweetened sodas has made almost no change to sales volumes in the two years since it was implemented in January 2014. 

The data was sourced by Nielsen for the New Zealand Food & Grocery Council. It’s the gold standard of compiled sales data and the most accurate proxy for volumes consumed in Mexico, covering 65% of all sales in the country. It is the next best thing to getting actual manufacturing and sales data from all the beverage manufacturers in Mexico. 

Having just an economics degree myself, I asked respected New Zealand economist Brent Wheeler to analyse the data further. In his report he confirmed my reading of the numbers: “The clustering of sales even measured on a monthly basis is clear. There is, for example, no consistent or even noticeable change following January 2014 upon the introduction of the tax​.”

He noted that “unit sales of low sugar grew 5% in 2014 then dropped 2% in 2015, while regular sugar sales dropped 3% in unit sales then gained 3%​”. This is precisely why tax revenues continue to surpass the Mexican government’s budget projections. 

In this Nielsen chart showing sales of sugar-sweetened soda in Mexican pesos (Figure 1​), it is easy to see why the amount of taxes collected has risen over time and why, for the past two years, the government has raised its budget expectations from the tax. 

Figure 1
Figure 1

Prices are now higher since the tax was imposed, while sales volumes have returned to pre-tax levels. 

Turning to the volume of sales of all sugar-sweetened sodas (Figure 2​), it can be seen from the next chart that there was a clear dip in 2014, but volumes bounced back in 2015. 

The drop of 43.66m litres from the 2013 level is an infinitesimal0.39%—certainly not sufficient to claim the tax was a success on any grounds. To put this decline in percentage terms into perspective, it’s a fraction of the nearly 5% decline in unit sales of carbonated drinks seen in the New Zealand market over the past 12 months—a fall that has occurred without any tax at all.

Figure 2
Figure 2

Looking at this chart, the difference between pre-tax and post-tax sales is so tiny that it’s negligible. The difference between years is accentuated by beginning the Y-axis at 10.7bn units rather than zero, otherwise I doubt the difference between 2013 and 2015 would be noticeable at all!

And on the graph showing sales of all sodas (Figure 3​), once again the gap is highlighted by the Y-axis not beginning at zero, otherwise it would be difficult to see a gap at all. 

Those clinging to the pipe dream that the Mexico tax is what success looks like as a public health intervention need to realise it has been a very expensive one for the Mexican people. The tiny reduction in litres for the extra 20bn pesos extracted from the tax on sugar-sweetened soda amounts to not even one sip per person. 

Figure 3
Figure 3

With global trends as they are, the decline is probably what would have been expected from people opting to make other beverage choices without imposing the tax—as in New Zealand’s case. 

When reviewing the data overall, Dr Wheeler concludes that the “net change in regular [sugar-sweetened sodas] was not material​”, particularly when Mexico’s economic performance over the period and consumer spending generally are factored in. From consumer spending and retail sales data (Figure 4​), it’s clear that consumers stopped spending on a lot of things and retailers stopped making the sales of all goods not just sodas as a single item. 

Many challenging things happened at the time for consumers and the Mexican economy, and claiming that sales dipped just because of a single tax on one item overlooks that. 

Figure 4
Figure 4

As Dr Wheeler pointed out to me: “Each of these indicators shows the general (and very short-lived) decline. It would not be possible to separate any change in low [sugar] versus regular trends given the overriding and much more pervasive influence of general economic conditions.​” 

The lack of any noticeable change or trend because of the tax is particularly apparent when the sales are reviewed on a monthly basis (Figure 5​). As expected with products like beverages which have seasonal trends, i.e. greater sales in summer months, sales go up and down with regularity. The figures for March 2013 and March 2015 show that this month is regularly a lower sales month, which rather puts paid to those claiming as early as March 2014 that the tax had been a success. 

One aspect that did surprise me when I reviewed the average cost of sugar-sweetened sodas versus low-sugar ones was that the tax did not introduce any real kind of price signal to consumers. 

Figure 5
Figure 5

Remember that the theory behind the 1 peso-per-litre tax was to send a signal to consumers (through higher prices of sugar-sweetened drinks) to choose healthier, low-sugar options, but this did not occur at all. 

The average price of a sugar-sweetened soda in December 2015 was 11.4 pesos and the average price of a low-sugar option was 15.05 pesos, so how has the tax sent any signal at all to consumers to act differently? The tax is now not noticeable to consumers, which is why probably sales have returned to pre-tax volumes after all media stories and public commentary about the tax had died down. 

It is clear that comments by pro-tax academic Barry Popkin that the Mexican tax experience provided “proof of concept​” and that “the tax works​” are more wishful thinking than based on reality. 

Like a lot of food-issue debates, it is important always to return to what the real sales data says. Here the data, and the effect of the tax, or lack of it, is in black and white. 

I don’t expect the pro-sugar tax lobby to change their message any time soon, because for many the belief in sugar (and other food) taxes has become a religion of sorts, and facts are just an inconvenience. 

To reduce obesity, governments, industry, communities, families and individuals all need to work together to encourage people to make healthier choices. But one thing is for sure: we can’t tax people into healthy eating without causing economic hardship. 

We all need to continue encouraging people to make better choices. Tax is not the magic solution.

  • Katherine Rich served as a member of the New Zealand House of Representatives for the National Party from 1999 to 2008. She has been chief executive of the New Zealand Food & Grocery Council, an industry lobby group, since 2009.

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