Soda Tax – Best Served Chilled

San Francisco, Albany, and Oakland voted for soda tax on the lines of Philadelphia

s1Local governments in many U.S. cities are clamping down hard on the consumption of sugar-sweetened beverages and fizzy drinks to battle obesity, diabetes and other diet-related diseases by pushing for soda tax. Three California cities, San Francisco, Albany, and Oakland, have voted for soda tax, with Boulder, Colorado, and Cook County, Illinois, to follow suit in the near future, as reported by Reuters on November 9th, 2016. While tax proponents have called it a national movement, opponents have questioned the effectiveness of such a tax, arguing that the taxes hit lower-income populations the hardest, and that it is unfair to single out soda in the battle to fight obesity and diabetes.

The soda tax assumes significance since more than one-third of U.S. adults are said to be obese. Diabetes, which will affect an estimated 600 million people by 2035, costs about $245 billion a year in the U.S. alone in health-care resources and lost productivity, according to the American Diabetes Association.

In San Francisco, Oakland and Albany, the taxes will be a penny per ounce, the same as in neighboring Berkeley, where voters passed a levy in 2014. In Boulder, the vote was for a 2-cent-per-ounce tax. In San Francisco and Oakland, the soda tax measures passed with 62% support. In Albany, it passed with 71%, and in Boulder, with 55%.

Soda movement gains pace

Carbonated drink makers including PepsiCo Inc. (NYSE: PEP), The Coca-Cola Co. (NYSE: KO), and Dr Pepper Snapple Group Inc. (NYSE: DPS), operating in the roughly $100-billion U.S. soft drinks market, are opposing the taxes although the impact of such taxes on profits and volumes may be insignificant. However, the impact of such taxes could be greater over the long-term if the taxes are increased and if more jurisdictions introduce them in the coming months.

The soda tax movement has gained a lot of publicity with philanthropists like former New York Mayor Michael Bloomberg joining the fray and pumping millions in campaigns in favor of the taxes. Joining Bloomberg, Laura and John Arnold, billionaire philanthropists, along with the American Heart Association, have donated an estimated $12 million in 2016 to this cause. On the other side, the soda industry represented by the American Beverage Association, as well as the major players, Coca-Cola and PepsiCo, have more than doubled its spending to about $37.7 million for lobbying and campaigning against soda tax initiatives.

Soft drink makers face consumer backlash

s2The carbonated beverage industry is going through a major churn in recent years as consumers are increasingly shunning both sugary drinks and artificially sweetened beverages that contain zero nutrition, excessive aspartame, or caffeine, since they are said to increase diabetes and other related health risks. As a result, beverage majors including PepsiCo, Coca-Cola, and Dr Pepper Snapple are grappling with plunging sales and falling demand for their soda and diet soda drinks.

As health-conscious Americans increasingly shun soda, carbonated beverage makers are consciously making a shift away from sugary, bubbly drinks in favor of healthier beverages such as instant fruit juices, fruit blends, and flavored waters. These alternatives do not contain as many calories as soda, and also do not include ingredients like aspartame, which is said to pose health risks, but still deemed safe by the Food and Drug Administration.

Philadelphia hits soft-drink industry with tax

In 2014, Berkeley, California, became the first U.S. city to pass a soda tax measure at the polls, after which Philadelphia passed a tax on soft drinks on June 16th, 2016, dealing a significant blow to the soft drinks industry. In a 13-4 vote, the City Council approved a plan to add a 1.5-cents-per-ounce tax on soft drinks containing added sugar or artificial sweeteners. People who buy sugary drinks will have to pay an additional 18 cents in tax for each 12-ounce can of soda and $2.16 in tax for each 12-pack purchased. Drinks that will not be taxed are those that are more than 50% juice or milk. Philadelphia will start collecting the tax from January 1st, 2017. The tax is expected to generate $91 million in the first year and $409.5 million over five years.

Two sides of the coin

s3While beverage companies make the shift to healthier beverages such as instant fruit juices, fruit blends, and flavored waters, consumers argue about the pros and cons of imposing such a tax. The imposition of the soda tax will make sugary soft drinks more expensive and thereby reduce consumption in the near-term, improve health awareness, and prompt people to choose lower- or no-calorie beverages instead.

On the other hand, pure fruit juices and sweet milk-based drinks, which can have just as much sugar as soda (or more), are not currently being taxed. Hence, consumers can still consume sugar-loaded non-soda beverages that are potentially cheaper, but still calorie-dense, once the tax is imposed. What’s more, sugary carbonated drinks are only one of potentially hundreds of food sources that contain added dietary sugar, and taxes on them have not yet been linked to marked health improvements in people. And the debate continues!!

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