Selective Taxes on Sugary Drinks Won’t Change the Course of the Growing Obesity Epidemic

On 16 March 2016, Britain became the latest country to take the route of taxation to tackle a growing obesity crisis. Chancellor George Osborne announced that the government will introduce a sugar levy on soft drinks in two years' time.

The announcement has taken campaigners and industry by surprise, coming just months after the government ruled out a sugar tax. Mr Osborne said the levy, which would be imposed on companies and based on the sugar content in drinks, would raise about £520 million annually. The revenue is expected to fund more sports activities in schools.

Moves by various governments to advocate the imposition of excise taxes on sugar-sweetened beverages (SSBs), as a method to reduce the incidence of obesity, is becoming increasingly more prevalent. Governments in Indonesia, the Philippines, Malaysia, India and Brunei are studying the introduction of taxes to be imposed on non-alcoholic beverages that contain caloric sweeteners, sugar or artificial non-caloric sweeteners. South Africa’s budget minister has also proposed a tax on SSBs as part of its budget for 2017. Other countries that have already imposed taxes, such as Mexico, are already suggesting the effectiveness of the measure.

Multi-factorial problem, multi-stakeholder approach

Food Industry Asia (FIA) supports the view that obesity is a multi-factorial issue and that a solution needs input that is grounded in evidence-based science and commitment from industry, as well as many other stakeholders. FIA believes that the most effective measures (with long-term impact) to combat obesity are those aimed at influencing the behaviour and habits of the population. This can be achieved with comprehensive policy actions and public education, disease prevention and promotion of healthy lifestyles.

From an industry perspective, this entails product reformulation, portion control, restrictions on marketing to children, promotion of nutrition literacy and labelling, and public education on diet and physical activity. These measures are likely to be more effective than the implementation of selective taxes.

Proponents and supporters of SSB taxes argue that they are a highly effective means to cut down on sugar consumption, thereby reducing the number of obese people. However, obesity is caused by a variety of factors – it requires a holistic, multi-stakeholder approach to affect change through the means of sustainable and effective solutions. Even the World Health Organization’s (WHO) Report of the Commission on Ending Childhood Obesity (ECHO), which states that there is sufficient rationale to warrant the introduction of an effective tax on SSBs, clearly articulates that “no single intervention can halt the rise of the growing obesity epidemic”. Furthermore, the report highlights that “only a whole-of-government and whole-of-society approach can stem the rise of obesity”.

Scientific evidence and recommendations from past reports and studies

The Report’s co-chairs, Professor Sir Peter Gluckman and Dr Sania Nishtar, have commented in various forums, including the media, that “there is no magic bullet” to solve the obesity problem. Sir Gluckman emphasised that childhood obesity is caused by a multitude of factors—biological, behavioural, environmental, contextual and social—which means that there is a need to act on all factors at once.

Unbalanced diets, sedentary lifestyles and other psychosocial factors are among the major causes of obesity. The McKinsey Global Institute (MGI) report, which is one of the most comprehensive and wide-ranging global studies on the issue, suggests that targeting a specific nutrient or a range of food or drink products will not reduce the rates of obesity. The MGI study found that a 10 per cent tax on high-sugar and high-fat products in the UK will be ten times less effective than reducing portion sizes, and eight times less effective than a reformulation of products. Based on existing evidence, any single intervention is likely to have only a small overall impact on its own. A systemic, sustained portfolio of initiatives, delivered at scale, is needed to address the health burden.

Many scientific studies suggest the effectiveness of such taxes in discouraging consumption of foods and non-alcoholic beverages high in fat, sugar and salt, is still uncertain. Also, literature published over the recent years offer no clear evidence on the effect of SSB taxes on overall consumption of an individual. For example, a study published in the Journal of Public Economics showed that taxation of soft drinks leads to a moderate reduction in consumption, but this reduction is offset by increases in consumption of other high-calorie drinks. This shows that taxes’ limited effectiveness is principally a result of food taxes not reducing the number of calories consumed, but simply shifting consumption patterns. It is too narrow a tool to address critical public health concerns at hand.

Real-life examples and proven ineffectiveness of “fat tax” implementation

The so-called “fat tax” introduced in 2011 by the Danish government was scrapped after a year because the health effects – as a result of the tax – were insignificant. Other contributing factors that led to the removal of the tax included job losses, high administrative costs that burdened food producers and retailers and cross-border shopping. Due to the failure of the “fat tax”, the Danish government has ceased to implement new taxes on foods with added sugars, including yoghurts and marmalades. Finland, likewise, introduced a tax on confectionery and ice cream in 2012, in an effort to curb sugar consumption. Initially, sales of confectionery products dropped slightly; however, by the end of 2013, long-term sales had returned to pre-tax levels. Because of this, the Finnish government announced it would abolish the tax in 2017.

The evidence to show that food taxation will achieve behaviour change or improve consumers’ access to healthier foods is not conclusive. To date, fiscal policies such as taxes and subsidies have been driven primarily by a need to raise revenue, rather than to change population behaviour. In its 2014 Obesity Update, the OECD reported that its work on fiscal policies concluded that taxes on food and non-alcoholic beverages need to be carefully designed to achieve their intended effects. OECD adds that the use of taxes for health promotion remains a politically sensitive subject, despite increasing interest from many governments.

In January 2014, the Mexican government introduced a tax on SSBs and on high-calorie foods – increasing prices to reduce consumption. The tax of one peso per litre on SSBs increased the retail price of such products by 9 to 19 per cent. Introduced as a measure to reduce obesity, this intervention does not appear to have made a meaningful impact in the caloric intake of the Mexican population. For example, the calorie consumption from beverages has declined only slightly – six fewer calories per day in a diet of more than 3,000 calories per day. In addition, a recent study evaluating the effects of the tax on price and consumption found that “although the price of calories increased by close to 4 per cent, the quantity of calories consumed decreased by about 1 per cent only.” Although the results are still preliminary, the study also found that “the evidence shows that the effects of the Mexican taxes on calories consumed in-home are very small.”

Professor Tom Sanders, Emeritus Professor of Nutrition and Dietetics at Kings College, stated that evidence of the impact of Mexico’s tax on SSBs is underwhelming. Citing details published in the BMJ, Professor Sanders said that purchases of taxed sugar-containing beverages fell by 12 ml per head per day, and those of untaxed beverages (including fruit juice) increased by 36 ml per head per day. The fall in taxed beverages was greater in the poorest households, at 35 ml per head per day, but even this is only equivalent to about 1 sugar cube (16 kcal) – a drop in the caloric ocean.

Taxes on food and non-alcoholic beverages, while not yet proven effective in reducing obesity rates, could adversely affect investments, employment and economic developments. Further work should be undertaken to assess the impact of fiscal measures on diet, obesity and public health within a country-specific context before reaching conclusions.

Everyone has a role to play in the fight against obesity. A multi-stakeholder approach is required to identify sustainable and effective solutions to do this. The dependency on selective excise taxes will not significantly change the course of the growing epidemic; rather, it might result in unintended consequences that can prove too costly.

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