Can a soda tax discourage ‘go large’?

By Rachel Arthur contact

- Last updated on GMT

Pic:iStock/PPrat
Pic:iStock/PPrat
Discouraging the sale of ‘jumbo sized’ sugary drinks would have both economic and health benefits, according to a UK study led by the University of East Anglia. Policy interventions – such as soda taxes and portion cap rules – must be carefully designed to combat such drinks, it says. 

In a study published in the Journal of Business Research​, the researchers say that vendors encourage excessive consumption of sugary drinks by pricing jumbo-size portions to look like bargains, while making smaller portions appear overpriced.

Researchers say that effective soda taxes (such as the UK’s soft drinks industry levy, which is due to be implemented in 2018) must be set high enough to ensure vendors find it more profitable to sell regular sized drinks and not jumbo sized portions.

Extreme pricing

Sugary drinks attract the most extreme value size pricing, say the researchers.

“Bargain offers on large sizes can be irresistible to some consumers and require real determination and discipline for others to turn down alluring offers and stick to a smaller size.

"Resistance becomes harder the bigger is the discount, but equally the less healthy the product, then the greater might consumers try to resist, encouraging the vendor to be even more generous with the size discount.

“Accordingly, consumers might find the greatest size discounts on the least healthy kinds of foods and drinks.”

The two most high-profile methods contemplated for lowering sugary drink consumption are soda taxes and a ban on large size soda drinks (as per the unsuccessful attempt to introduce a portion cap rule in New York City in 2013, which would have limited cup sizes to a maximum of 16 fl oz).

Policy makers need to consider how venders would react to the implementation of either method, emphasise the authors.

For example, with the introduction of a portion cap rule (a ban on large sized drinks) would mean vendors would have to stop selling drinks in large sized cups. However, they could respond by selling regular sizes at a constant unit price, and allow customers to buy two units. Alternatively, they might sell the regular size with the offer of a free refill. A third option would be to offer an attractive offer on purchasing two drinks.

In the case of a soda tax, Paul Dobson, professor of business strategy and public policy at UAE’s Norwich Business School, said that the drinks industry would seek to make a levy as low as possible – but believes it needs to be high in order to change pricing behavior in a meaningful way.

Soda taxes around the world

  • US cities such as Philadelphia, Berkeley and San Francisco have passed legislation/introduced soda taxes.
  • Elsewhere, Mexico, France and Hungary are among countries with sugar taxes.
  • South Africa and the UK are due to introduce taxes on sugar-sweetened beverages in 2017 and 2018 respectively. 

    Read more about the global picture here.

“The current basis for intervention to restrict the excessive quantity of sugary drinks rests entirely on the premise that this will be good for the health of consumers and a cost saving to society from reduced healthcare costs. 

“However, there are good economic reasons as well as health reasons to have a sugary drinks tax as a means to curb excessive consumption of calorie-laden sugary drinks and encourage more efficient pricing. 

“A soft drinks industry levy needs to be set high enough to ensure that the retailers are discouraged from imposing a surcharge on smaller drinks sizes, which penalises moderating consumption in order to steer consumers towards consuming excessively through relative discounts and multi-buy offers on large drinks sizes.”

A complex feat

With either a soda tax or a portion cap rule, the issues are complex, concludes Dobson.

“Policy considerations necessarily require understanding the motives and strategic thinking of drinks vendors and the pricing and marketing tactics they can employ so that policy interventions can anticipate and take into account their responses.

“Vendors can counter measures in many ways, making effective policy interventions a complex feat.”

Industry responds

The British Soft Drinks Association points to the steps manufacturers have taken to reduce calorie content of drinks, such as increasing the availability of smaller pack sizes and promoting low and no calorie options. 

Responding to the University of East Anglia study, Gavin Partington, director general, BSDA, said: “There is no evidence worldwide that food taxes, at any level, have any impact on reducing levels of obesity.

"In fact, the most comprehensive study into tackling obesity, the McKinsey Global Institute 2014 report and Public Health England, found that a tax would be much less effective than reducing portion sizes and reformulating products.

“UK soft drinks producers have led the way in both of these areas and have reduced their consumers’ sugar intake by over 17.% since 2012.  

"We are also the only industry with an ambitious plan for the years ahead – in 2015 we agreed a calorie reduction goal of 20% by 2020.”

Source: Journal of Business Research, 2017 http://dx.doi.org/10.1016/j.jbusres.2016.07.017

‘Containing big soda: countering inducements to buy large-size sugary drinks’

Authors: Paul W Dobson, Ratula Chakraborty, Jonathan S. Seaton. 

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