MEXICO'S EXPERIMENT WITH PUNITIVE JUNK FOOD TAXATION-WILL IT WORK IN THE LONG TERM?

It is only recently that the world is recognizing the ill effects of high calorie diets, especially high sugar products churned out by the food and beverage industry. During the last few years efforts have been going on to persuade the processing industry to voluntarily reduce the sugar levels in their products and down size the serving portion so that consumers are discouraged from imbibing too many calories. The damage sugar can cause to human health is well documented and if no action is taken now to curb such consumption future generation will never condone the same. Mandatory actions, punitive policy steps, consumer education, warning labels, high financial levies on finished products etc are some of the options considered to discourage consumption of high calories foods. But to date no single action in any country seems to have worked satisfactorily and industry merrily goes on producing these foods, attracting consumers through lower prices and other promotional efforts. But a recent report from Mexico shows glimpses of a contour of a policy that seems to be helping the country in making a small impact on reduced consumption of high calories products. Here is a take on this subject. 

"No wonder Coke and Pepsi are spending millions of dollars to fight proposed taxes on sugary drinks in California. PepsiCo reported a higher quarterly profit Thursday as global sales rose, but one weak spot was Mexico. The company said snacks sales volume declined by 3 percent, hurt by a new tax on junk foods. Recent declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in in San Francisco and nearby Berkeley. PepsiCo — which makes Frito-Lay chips, Gatorade and Tropicana — reported similar declines in its snacks business for the first half of the year, starting when the tax went into effect. Coca-Cola, which reports its third quarter results Oct. 21, has also reported beverage volume declines in Mexico for the first half of the year, citing a similar tax on drinks. Mexico has the world's highest per capita consumption of Coca-Cola drinks. Hugh Johnston, chief financial officer for PepsiCo, said in a phone interview that declines in Mexico were in line with what the company expected. To mitigate the impact of the tax, he said PepsiCo plans to target different package sizes for different outlets. The taxes in Mexico add one peso, about 7 cents, to the cost of a liter of sugary drinks, and 5 percent of the price to foods with 275 calories or more per 100 grams. It's not yet clear whether the taxes' impact on consumption will last or how significant it will be over time. And while PepsiCo monitors such tax initiatives around the world, Johnston said he doesn't expect them to become more common. Back in the U.S., San Francisco and Berkeley are seeking to become the first cities to pass per-ounce taxes on sugary drinks in the upcoming November election. The measures are being closely watched because many say defeats in the Bay Area, which is known for its liberal politics, would be a major blow to advocates of such taxes as a way to improve nutrition. Similar measures in other U.S. cities have failed. Health advocates have pushed taxes as a tool to cut consumption of calorie-laden junk food, similar to tactics that have successfully been used against cigarettes. Makers of such products say they are being unfairly singled out. During a conference call with analysts and investors, PepsiCo CEO Indra Nooyi addressed the measures in California and said she believed such "discriminatory taxes" are "wrong." "We will make our case and hope the voters are sensible enough to look at the right answer," Nooyi said. Since the start of this year, the American Beverage Association contributed $7.7 million to defeat the proposal in San Francisco alone, according to a filing made this week. That's far more than the $391,000 in contributions reported by supporters of the tax over the same time. In the meantime, the beverage industry has touted its commitment to reducing the calories people consume from drinks by more aggressively marketing drinks with less sugar. The industry has also stressed the need to raise awareness about balancing the calories people consume with how much physical activity they get."

Taking a clue from the tobacco experience, Mexico increased the taxes on junk foods containing nutrient light and calorie dense products making these products significantly costlier to the consumer. While absolute data regarding any dip in consumption is not yet forthcoming, the industry reaction does indicate that the new approach is working. The business volume for junk foods seems to be declining in Mexico, affecting many major manufacturers though it cannot be termed as dramatic. If the whole world moves in this direction there is a possibility that over a period of time industry is forced to rethink about their obsession with high sugar and high salt products. A silver lining is the commitment given by American food industry to reduce calories served by their products by 1.5 trillion by 2015 and it is reported that on the whole 6.4 trillion calories have been cut between 2007 and 2013 by the industry collectively. Whether such calorie cutting has any meaning can be gauged by the fact that on an average each consumer consumed 74 calories less which may not be significant considering that calorie over consumption is rampant in that country and much more rigorous reduction is called for. The unusual interest taken by the industry to beat back balance initiatives to impose high taxes in some of the states in the US by pumping huge resources to defeat the motion, is any indication voluntary action is never going to work for this industry obsessed with profits ignoring the well being of the consumer. As of now punitive taxation as being enforced in Mexico seems to be the only way to achieve any meaningful result in the years to come.

V.H.POTTY
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