Dr Eleonora Fichera is Reader in Economics at the University of Bath. She is Deputy Head of Department, co-Editor of Health Economics Letters and Associate Editor of Health Economics.
The rise of obesity and non-communicable diseases (NCDs) is a major public health concern. In the United Kingdom about 26.9 percent of the population aged 15 or over are obese, while in Spain it reaches 16.7 percent. Unhealthy diet, physical inactivity, smoking and alcohol use are the most significant risk factors for this growing prevalence of NCDs, with added sugars contributing to weight gain obesity.
A wide range of policies have been introduced to alter food and beverage choices, such as the labelling of food products (Fichera and von Hinke, 2020) and taxes on sugar-sweetened beverages (SSBs). Sugar taxes have been introduced in many countries such as the US, Mexico, Chile, Canada, Denmark, Finland, France, Hungary, Spain and the UK.
The aim of these taxes is to internalise externalities that might manifest themselves as costs of excess consumption falling on others (e.g., through increased health care costs or productivity losses), or as costs falling on the “future self”, but not fully accounted for (e.g., diet-related diseases). However, the effect of these taxes depends on how consumers respond (e.g., whether they switch to other unhealthy products), and which consumers respond (e.g., whether they are the relatively poorer individuals, or those who consume more sugar to start with).
In a recent study, we looked at how a sugar tax introduced on the 1 May 2017 - in a region of Spain, Catalonia - affected consumer behaviour. In particular, which consumers were affected the most, and which beverage purchases changed. The tax resembles the UK Soft Drink Industry Levy (SDIL) introduced in 2018, and has a tiered structure charging 0.08€ per litre beverages containing between 5gr. and 8gr. per 100 ml, and 0.12€ per litre beverages containing more than 8gr. per 100 ml.
Using a large supermarket chain’s loyalty card data from 884,843 households between May 2016 and April 2018, we compared monthly purchases in Catalan stores to purchases in the rest of the country, before and after the introduction of the tax.
We found reductions in purchases of high sugar taxed beverages such as colas by 1.8%, pops by 0.3% and milkshakes by 0.3%. Although it may appear that these numbers are small, they are not so when considering that at baseline, milkshakes have the second highest sugar amount after colas. Overall, households reduced higher sugar (taxed) beverages and increased their lower sugar (untaxed) counterparts.
How important are these reductions in sugar for health? As the tax reduced sugar purchases by 2.2% per household per month, there is a reduction of about 2.3g of sugar per month per household, corresponding to an average reduction per capita of just 3.7 calories per month. This is unlikely in itself to have huge impacts on health. These results are also stronger for relatively wealthier customers for whom the tax may be more salient and representing the largest share of the sample.
What can explain our results? First, we found that producers only partially passed the tax through to consumers. This pass-through varied by beverage type and is higher for pops and colas where we found the largest reductions. Second, because the tax was implemented at a time of the Catalan referendum, it is unlikely that it was made salient to consumers. Finally, because the tax was introduced in one region of the country, it is unlikely producers have been able to reformulate beverages.
What can the UK learn from the Spanish experience?
As the UK SDIL has a very similar tiered structure, there are policy lessons that can be learnt from the Catalan tax.
First, sugar taxes should be made visible at check-out and should be advertised. Second, although the tiered structure may incentivise producers to reformulate their beverages, taxes should be implemented at the national level to make reformulation easier. As the UK sugar tax was announced in March 2016, there is evidence that soft drink makers such as Coca-Cola, Britvic and Lucozade Ribena Suntory, and retailers such as Tesco, Asda and Morrisons, have reformulated drinks to be below the levy’s threshold (Reuters, 2018).
Third, taxes may differently affect population groups. We found the Catalan tax had stronger effects on relatively wealthier customers who may have been more informed about the introduction of the tax, and more able to assess its importance. As reformulation applies to all sugar beverages, it could potentially change the direction of the heterogeneous effects, and change the behaviour of less wealthy households also.
Finally, the list of taxed beverages should be more specific and appropriate enforcement should be put in place so that producers have to pass the tax through to consumers.
However, even when implemented, SSB taxes will only be effective when accompanied by a wider approach to food policies, including information campaigns, labelling, reformulation and a systemic approach to healthy diets.
This blog is based on recent research ‘How do consumers respond to “sin taxes”? New evidence from a tax on sugary drinks’. Read the paper in full here.
All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.