Much attention has been focused on the impact Mexico's tax on soda tax introduced in January 2014 has had on consumption. Ben Cooper looks at the effect the parallel tax on calorie-dense foods has had on consumers and on food companies.
The impact of a 10% tax on sugar-sweetened beverages in Mexico, introduced in January 2014, has attracted enormous attention worldwide as a test of the effectiveness of nutrient taxes in tackling obesity. However, the 8% tax on foods with a caloric density of more than 275 kcal per 100g of product has attracted far less attention.
The drinks tax has been revealed to have reduced sales, though industry advocates say research commissioned by health groups has overestimated the impact. But, once again, there has been less analysis on how the food tax has impacted on consumer spending habits.
Taxation is one element within Mexico's multi-stranded anti-obesity strategy, which has also included restrictions on advertising certain foods and drinks to children and, most recently, the introduction of uniform, front-of-pack nutritional labelling.
Local consumer advocacy group El Poder del Consumidor, part of the Nutritional Health Alliance, says the effects of the food tax "are still being investigated". One crucial factor here is the food tax affects a broader range of products and its impact is inevitably harder to track.
Euromonitor analyst Beatriz del Llano points out some products marketed as better-for-you can be subject to the tax. "It is very important to keep in mind, that this tax also is impacting health and wellness foods and beverages if they exceed the limit of 275 calories per 100g," del Llano tells just-food, citing the example of a nutrient-fortified breakfast cereal which might have a health and wellness positioning.
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By GlobalDataIts broader application across the food sector may also explain why its impact appears to be less marked, and why the picture is mixed. For example, Arca Continental, a Mexican company which sells both soft drinks and snack foods, says the drinks tax, together with weak consumer spending and adverse weather conditions, "had a detrimental effect" on sales volumes in its beverage business. Its carbonated beverage sales declined by 2.7% in 2014.
By contrast, its snacks business "delivered an excellent performance during 2014 with growth in sales and profitability levels". Its Bokados brand posted a single-digit increase in net sales during the year, the company adds. In fact, according to Euromonitor data, several snacks categories grew in 2014.
However, Mexican food giant Grupo Bimbo, in its annual report on 2014, says: "The consumption environment in Mexico remained weak throughout the year, primarily due to pressure on consumers arising from a new excise tax on certain food categories". Bimbo reported a 1.5% drop in net sales, "a result of pressure on volumes arising from the weak consumption environment and pricing initiatives taken in the fourth quarter of 2013 related to the excise tax".
El Poder del Consumidor believes the findings of research undertaken by the Mexican National Institute of Public Health and the University of North Carolina suggesting sales of sugar-sweetened beverages dropped by 6% last year, show the government's tax-led approach is working. It is calling for an increase in the tax to 20% and other measures though once again these are focused on the beverage sector.
This speaks to a critical facet of the nutrient tax debate. Sugar-sweetened beverages will almost invariably be the primary target for those campaigning for fiscal interventions like those being tried in Mexico. This has only become more the case since the diet and health debate has focused more narrowly on sugar as the nutrient of concern.
While the food tax may have attracted less attention and had a less marked effect on consumer spending patterns, del Llano says food companies have "definitely" stepped up activity in the health and wellness sector since the tax was introduced. According to Euromonitor data, the health and wellness category grew by 8% in 2014, versus 5% in 2013. "So definitely there is more attention to health and wellness products due to the tax," del Llano says. "The new tax has seen many Mexican consumers take more interest in sugar and calorie contents and trade standard varieties for healthier ones".
Del Llano adds: "Many manufacturers have begun reformulating, and following other strategies such as expanding their portfolios with healthier options, to avoid the tax on high-caloric food and/or participate in the growing category of health and wellness products."
As to whether food companies had responded to the government's restrictions on advertising to children by increasing marketing of better-for-you foods for children, ConMéxico, a trade body representing major food companies, said it was for official government bodies to analyse the effectiveness of such measures. ConMéxico told just-food food and drinks companies have "worked for over ten years towards the innovation and development of new products. These are core part of our companies' business and will continue to match to our consumers' needs as well as new tendencies in nutrition, environment etc."
The chief reaction to the advertising restrictions from campaigners has been criticism that they are insufficient. El Poder del Consumidor director Alejandro Calvillo says the regulations are "deeply flawed", failing to protect children sufficiently in the peak TV viewing time between 8pm and 10pm. The regulations have also been criticised for not covering online marketing.
"We have monitored over 130 hours of television to better understand what types of foods and marketing techniques children are exposed to now that the regulation is in effect," Calvillo tells just-food. "Our preliminary results indicate that children continue to be exposed to foods that are high in sugar, salts and sodium (according to international recommendations) and that a diversity of marketing techniques continue to target children including the use of animation, characters, celebrities, games, toys and promotions."
Campaigners have also voiced concern companies have reacted to the new taxes by simply stepping up their marketing and promotional activities, though once more criticism has largely been aimed at beverage companies.
Tatiana Andreyeva, a health economist and director of economic initiatives at the Rudd Center for Food Policy & Obesity at the University of Connecticut, believes such a shift is always likely when nutrient taxes are imposed. "Consumers react to a variety of factors – price, advertising, access and variety of products. Now price is a negative factor because it's higher, the industry has to work on other factors, for example advertising or promotions, trying to counteract the tax effect."
When asked if it had stepped up advertising and promotional activities around food products affected by the tax, Mondelez International said its strategy "has been focused on protecting price points to minimise impact to consumers" and that "we continue to advertise our products to consumers in a way that's aligned with both our own internal standards as well as those of the Mexican government".
Del Llano says the tendency for food companies to promote a product on the basis of "natural" ingredients or vitamin fortification has become much more common since the imposition of the tax.
"Many products boast 'natural ingredients' which became one of the most used slogans by packaged food and beverage players in 2014," del Llano says. "The regulation of health claims in Mexico is relatively lenient, with 'natural' ingredients being weakly defined and no strict control of the claims made based on vitamin and mineral content. This situation offers companies some flexibility in terms of advertising." While such products may boast higher levels of certain healthful nutrients, they could also still be high in sugar or fat.
In this regard, the addition of the third component in the Mexican government's anti-obesity strategy, namely the introduction of front-of-pack nutritional labelling, could help. However, campaigners have already voiced concern about the scheme. In addition to other criticisms, campaigners are particularly critical that a guideline daily amount (GDA) approach has been taken rather than colour coding.
