Proposed sugar tax – no silver bullet for rising obesity - BizNews, 24 August 2016

By Anthea Jeffery*

The National Treasury wants to introduce a tax on sugar-sweetened beverages (SSBs), which it claims will provide the most ‘cost-effective’ way to counter obesity. Obesity is, of course, an accelerating problem and currently afflicts some 13% of adult men and 42% of adult women in South Africa.

The proposed SSB tax is to be levied at the rate of 2.29c for every gram of sugar (both added and natural) found in Coca Cola and other soft drinks. By contrast, 100% fruit juices, which have no added sugar, will be exempt (as will unsweetened milk).

Based on the volume of soft drinks sold in the country in 2015, the SSB tax could yield as much as R10.5bn in revenue in its first year. This could pose a significant burden on the soft-drinks industry, as well as on already hard-pressed consumers.

The Treasury says its aim is not to increase the government’s tax take, but rather to help reduce obesity. However, sugar taxes are notably ineffective in countering obesity, as a comprehensive international study by the McKinsey Global Institute has shown.

According to the McKinsey study, the interventions with the highest impact on weight change include portion control, product reformulation, and parental education. By contrast, there is no direct evidence that sugar taxes reduce obesity at all, while the case for their adoption is based solely on unproven assumptions.

Perversely, however, as the McKinsey study also shows, sugar taxes nevertheless get by far the most media attention. In one year, for example, sugar taxes featured 930 times in the United Kingdom (UK) media, whereas portion control (perhaps the most effective intervention) was mentioned only 182 times.

This skewed media coverage is, of course, likely to skew policy interventions in favour of a sugar tax. In doing so, it risks distracting attention from measures far more likely to succeed.

Further inquiry makes it easy to understand why SSB taxes don’t work. The sugar in SSBs generally makes up only 3% of people’s daily energy intake. When the prices of SSBs go up, individuals may reduce their consumption of these drinks and so cut their sugar intake – but the diminution in their overall energy intake is likely to be very small.

This is evident in Mexico, where a SSB tax introduced in January 2014 supposedly (the data is contradictory) reduced SSB consumption by 6% during 2014. However, this reduction translated into a decline in SSB consumption of only 11.5ml per person per day. The sugar content in this small quantity is far too limited to have any impact on obesity.

In addition, when the prices of taxed products go up, consumers can always shift to cheaper brands of the same product, or to alternative untaxed drinks (to 100% fruit juices, for instance, which often have more sugar than SSBs), or to other untaxed sugary foods. Once these ‘substitution effects’ are factored in, the likelihood of any reduction in energy intake or obesity is still further diminished.

In pushing for the SSB tax, the Treasury relies heavily on ‘a mathematical model’ developed, among others, by researcher Mercy Manyema and Professor Karen Hofman, both of Wits University. This Manyema article supposedly provides evidence that a 20% SSB tax will reduce the prevalence of obesity in South Africa by 3.8% among men and by 2.4% among women, yielding a total reduction in the number of obese people of 222 669.

However, the Manyema article cites no evidence in support of these conclusions, which are based entirely on a series of assumptions which may not in fact hold true. It further admits, for example, that ‘its model does not include the substitution effect of other sweetened drinks such as coffee, tea, and hot chocolate’, whereas ‘other studies have shown that the demand for tea and coffee…goes up with SSB price increases’.

The estimates provided in the Manyema article also vary widely. The article recognises, for example, that the decline in obesity prevalence among men could be as low as 0.4% (not 3.8%), resulting in reduced obesity for only 16 060 males. Similarly, the reduction in prevalence could be 0.3% among women, resulting in reduced obesity for 16 550 females. On this basis, some 32 610 people would experience a reduction in obesity, rather than the much higher total (222 669) it stresses.

Moreover, sugar is probably not the key factor in rising obesity. In South Africa – as also in the UK, Australia, and Canada – sugar consumption has gone down in recent decades, even as obesity has increased. In addition, as the McKinsey study has emphasised, the causes of obesity are complicated and include as many as 100 different factors.

Among other things, modern society offers people a host of delicious energy-dense foods at relatively low prices, while many people lead sedentary lives in which physical activity is an optional extra. Psychological factors also play a part, for many people use food as a reward or eat to counter stress. Social norms have an impact too, for people tend to eat more when those around them are doing the same – which may help explain why the children of obese parents are often obese as well.

The proposed SSB tax is clearly no quick fix for South Africa’s complex obesity problem. The Treasury thus seems to be intent on introducing it for two key, but unacknowledged reasons.

First, it will be much cheaper to implement than other options, costing R0.20 per head to introduce, as opposed to R7.50 per head for mass media campaigns. Second, it offers a means of bringing in more tax revenue without overtly having to raise the VAT rate – a move that would be hugely politically unpopular.

The Treasury says it will act only on ‘evidence’ and not on ‘speculation’ about the likely adverse economic consequences of a SSB tax on an already struggling economy. If it really plans to base its decision on evidence, rather than speculation, then the way forward is clear.

The international evidence is already in: SSB taxes do not work and the one proposed for South Africa should be scrapped.

Dr Anthea Jeffery, Head of Policy Research, IRR

(Both the IRR’s submission to the Treasury on the SSB tax, and a synopsis of this document, are available on the IRR’s website.)

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