Effects of Mexican beverage tax deepening over time

2017 02 03 16 15 30 311 Sugar Drinks 400

The decline in purchases of sugar-sweetened beverages in Mexico following the implementation of a tax in 2014 on these beverages is continuing to deepen, according to a new study published in Health Affairs.

Researchers from Mexico and North Carolina found that sales of taxed beverages fell in both 2014 and 2015, despite reports to the contrary. In addition, the drop in purchases was larger in 2015 than in 2014, and the greatest reduction was found in households at the lowest socioeconomic level.

"The results of our study showing a greater reduction in purchases of sugar-sweetened beverages in Mexico in the second year after implementation of the tax on them suggests that in the case of these beverages, the long-term impact of a price change may also be larger than the short-term effect," the study authors wrote (Health Affairs, February 22, 2017).

Lead study author M. Arantxa Chochero, PhD, is an associate professor of health economics at the Center for Health Systems Research at the National Institute of Public Health in Cuernavaca, Mexico.

Habit forming

To reduce the consumption of sugar-sweetened beverages, the Mexican government enacted an excise tax of 1 peso per liter on all nonalcoholic beverages with added sugar starting in 2014. This included powdered sugar-sweetened beverages based on their reconstitution and flavored or sweetened dairy products. The legislation allows for the tax to be adjusted when the cumulative inflation rate compared with January 2014 in Mexico reaches 10%.

The tax was typically fully passed on to consumers in urban areas through increased prices in 2014, according to research previously published by the authors. The price of untaxed beverages did not significantly change with the exception of diet sodas, which make up only a low proportion of untaxed beverages and whose price increased.

The researchers conducted an analysis of data from store purchases of 6,645 Mexican households in 53 cities from January 2012 through December 2015. This included information on sociodemographic variables and purchases of food and beverages. The study controlled for inflation, which is important since the tax has not yet been adjusted for inflation. Dairy was excluded because the data used did not include dairy product purchases before October 2012 for comparison.

The researchers developed two models: one compared the pretax period of 2012-2013 with the post-tax year 2014, and the other compared 2012-2013 with 2015. Within each model, they compared the estimated post-tax volume of beverages purchased with the predicted or counterfactual volume if the tax had not been implemented.

Purchases of taxed beverages declined 5.5% in 2014 from what would have been expected otherwise, and they declined 9.7% in 2015 from these counterfactual levels, for an average drop of 7.6%, the authors found. The researchers also found significant differences among socioeconomic levels. While purchases of taxed beverages significantly declined at all socioeconomic levels, the reductions were largest among households at the lowest level (18.8 mL per capita per day in 2014 and 29.3 mL per capita per day in 2015).

Differences in purchases of taxed and nontaxed beverages by socioeconomic level
Taxed beverages
Socioeconomic level Year 2014 Year 2015 Average, 2014-2015
Lowest level -9.0% -14.3% -11.7%
Middle level -5.9% -11.7% -8.8%
Highest level -4.4% -5.6% -5.1%
All levels -5.5% -9.7% -7.6%
Untaxed beverages
Socioeconomic level Year 2014 Year 2015 Average, 2014-2015
Lowest level 2.4% -5.9% -1.8%
Middle level 5.6% -1.2% 2.1%
Highest level 4.5% -1.5% 1.2%
All levels 5.3% -1.0% 2.1%

"Given our results between the first and second year of the tax, it appears that the decline has grown over time, which suggests potential habit formation in terms of lowering sugary beverage intake," study co-author Shu Wen Ng, PhD, told DrBicuspid.com. Ng is an associate professor in the department of nutrition and a fellow at the Carolina Population Center at the University of North Carolina at Chapel Hill.

“Reduction in sugary beverage consumption ... can help prevent the worsening of and possibly even alleviate dental health issues.”
— Shu Wen Ng, PhD

Purchases of untaxed beverages increased an average of 2.1% during the study period, with the largest increase at the middle socioeconomic level, but dropped at all income levels in 2015, particularly at the lowest socioeconomic level. The increase in untaxed beverage purchases was mostly driven by bottled water, which Dr. Ng said was promising.

"However, there are two potential substitutes that could be harmful from a diabetes and dental health standpoint: flavored or sugar-sweetened milk, such as chocolate milk and yogurt drinks, and 100% fruit juices," she said.

However, because of the sugar content of these beverages, it would be preferable if the tax was expanded to cover them, Dr. Ng said.

"I would expect that the combined reduction in sugary beverage consumption with some substitution toward water and plain milk can help prevent the worsening of and possibly even alleviate dental health issues," she added.

Causality undetermined

The authors noted a number of limitations of their research:

  • They could not establish causality.
  • At the same time the tax was implemented, an 8% ad valorem tax was imposed on nonessential energy-dense food, which could have influenced the demand for beverages.
  • Changes in sugar-sweetened beverage demand could have been due to increased awareness of the negative effects of the products on health.
  • The data did not include dairy purchases or purchases made by consumers in smaller cities or rural areas.

The researchers are continuing to measure how the tax is influencing consumer choice, as well as any changes in consumption of calories and sugar from beverages and food, according to Dr. Ng. They plan to compare data from Mexico's national health and nutrition survey in 2018 to data from 2012 to measure changes in the prevalence of caries, diabetes, obesity, and other cardiometabolic outcomes.

Dr. Ng supports other countries and localities in enacting sugar-sweetened beverage taxes. In Philadelphia, where such a tax was instituted in January, supermarkets and distributors are reporting a 30% to 50% drop in beverage sales. The city had projected a sales decline of 27%. The tax brought in $5.7 million in revenue in January, more than twice what Philadelphia had projected.

Back in Mexico, increasing the tax could strengthen its impact on lowering sugary beverage consumption, but politics and lobbying by proponents and opponents will determine the outcome, Dr. Ng said. Raising the tax would provide a larger incentive for the beverage industry to produce healthier drink alternatives, she added.

"Given the sustained effect of the tax on sugar-sweetened beverages over a two-year period and findings that responses to prices of cigarettes (price elasticities) increase monotonically with prices, the impact of the tax on sugar-sweetened beverages in Mexico could be increased by raising the tax to at least 2 pesos per liter (resulting in a 20% increase in price)," Dr. Ng and her co-authors concluded in their study.

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