Taxation of sugar-sweetened beverages and energy-dense nutrient-poor products | Illinois Prevention Research Center | University of Illinois at Chicago

Dr. Lisa Powell traveled to Barbados to give a talk on taxation of energy dense foods and beverages.

Taxation of sugar-sweetened beverages and energy-dense nutrient-poor products

Taxation of sugar-sweetened beverages and energy-dense nutrient-poor products: Why and How?

I recently traveled to Barbados where I was invited to give a presentation for the Pan American Health Organization (PAHO) Meeting on Strategy for Health-Related Law.

Hosted by the PAHO Office for Barbados and Eastern Caribbean, the goal of the meeting was to develop stronger fiscal and regulatory policies to reduce overweight and obesity.

The meeting participants included regional PAHO delegates representing four countries as well as the PAHO representative from Washington DC, a World Health Organization representative from Geneva, and an international expert from the University of Edinburgh. My presentation, titled Taxation of sugar-sweetened beverages and energy-dense nutrient-poor products: Why and How?, covered the following areas:

  1. Background on obesity rates, food and beverage consumption patterns, and contextual factors;
  2. Evidence on sugar-sweetened beverage (SSB) price elasticities of consumption and related impacts on body weight, included evidence from recent SSB taxes; and,
  3. A discussion of challenges for policy makers related to questions around what to tax, tax pass-through, regressivity, job losses, and tax design.
Soda in a vending machine

Image credit: Alexisnyal Flicker CC BY 2.0

To begin the presentation, I situated the obesity epidemic of the four participant countries, Barbados, Jamaica, Dominica, and Suriname, in an international context and, highlighted that the obesity rates for these countries were higher than the Organization for Economic Co-operation and Development member-country average. I also highlighted significant gender disparities in obesity rates; particularly for Barbados where the rate is 45.9% among women compared to 22.5% among men. It was noted that it is important to focus on consumption patterns of energy dense food and beverages that are high in sugar and/or saturated fat and that are products that are consumed frequently. I shared examples of such highly consumed products on a given day by U.S. youth including: SSBs (73%), fast food (41%) and pizza (23%). SSB are the largest contributor to added sugar in the U.S. diet. Although the consumption of SSBs generally has fallen since 2000 in the U.S., the prevalence of sports drink consumption has increased across all age groups and heavy (≥ 500 kcal) SSB consumption has increased among children and remained flat among adults in the U.S. Of further concern, low-socioeconomic status children, adolescents and adults have higher odds of heavy SSB consumption.

I reviewed the mean estimates of the price elasticity of demand (the percentage change in quantity demand as a result of a 1% increase in price) for SSBs based on U.S. studies. These studies found a SSB price elasticity of demand of -1.2, suggesting that a tax that raises the prices of SSBs by 10% would be associated with a 12% decline in SSB consumption. I then presented evidence from Mexico that showed that following the introduction of a one peso/liter tax on SSBs (equivalent to approximately a 10% tax), average volume of taxed beverage purchases was 6% lower in the first year post tax and was 12% lower by the end of the year. These changes were greatest among low-income households, averaging 9.1% lower and reaching 17.4% lower by the end of the year. I reviewed the evidence of the impact of SSB taxes on body weight noting that the results are mixed and highlighting the importance of understanding substitution across beverages and other foods.

I then discussed the importance of assessing the extent of the tax pass-through to prices (that is, by how much prices increase following the implementation of the tax) as less than 100% pass-through would dampen the expected impact on consumption. Although full pass- through was found for Mexico’s SSB tax, early evidence from the SSB tax introduced in Berkeley, CA, showed 50% or less pass-through to SSB prices within the first six months of the tax. It is therefore important to continue monitoring the pass-through.

As with any potential tax increase, there are many critiques with regard to raising taxes on SSBs. I discussed these concerns, including potential job losses and the issue of tax regressivity (that is, the fact that consumption taxes are more burdensome for lower- compared to higher-income individuals). With regard to jobs, a recent study showed that once both income and substitution effects and the government tax revenue are accounted for, no net decline is found in overall employment following the introduction of an SSB tax. In terms of regressivity, while the tax itself is economically regressive, the health benefits are progressive since low-income individuals are more price sensitive and are heavier consumers of SSBs.

I also presented a number of tax design features to consider when determining whether to implement an excise versus a sales tax. This included a discussion of how the tax is applied, where the tax is presented to consumers (i.e., in the shelf-price versus at the point-of-sale), and where in the distribution chain the tax is collected. These considerations have implications for the potential effectiveness of SSB taxes in reducing consumption and improving public health.

Concluding my talk, I provided a brief overview on SSB tax evaluation and provided the PAHO participants an overview of data and methodologies that can be used to evaluate impacts on consumption, substitution, and obesity and the extent of price pass-through, cross-border shopping, job losses, and regressivity. Once the formal presentations had concluded, we then got down to work in work groups to lay out tax policy and evaluation plans tailored to each country.

Presented at Presented at Pan American Health Organization (PAHO) Meeting on Strategy for Health-Related Law, July, 2016.

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Delegates from the Meeting on Health Law: Implementing Fiscal and Regulatory Policies to Prevent Obesity in Children and Adolescents in English-Speaking Caribbean Countries