Extra tax on sugary drinks may not be effective at tackling obesity, study indicates

“Increasing taxation on sugary drinks is an easy way out of a complex problem and it is very uncertain what the results will be, Holland says.
12 August 2022
Extra tax on sugary drinks may not be effective at tackling obesity, study indicates

The proposal for a 20% tax on soft drinks and sweetened beverages, approved by the Senate Social Affairs Committee in May, may not have the desired effect. In addition, a study led by economist Márcio Holland of Fundação Getulio Vargas’ Sao Paulo School of Economics (FGV EESP), together with José Maria Arruda de Andrade, a professor of law at the University of Sao Paulo, concluded that this measure, aimed at reducing consumption of these products and helping fight obesity, could destroy 15,400 jobs, reduce Brazil’s GDP by R$1.3 billion and cut tax revenue by R$850 million.

“Increasing taxation on sugary drinks is an easy way out of a complex problem and it is very uncertain what the results will be. There is no doubt that excess weight and obesity have become a major epidemic. However, solving it will not be easy and there is no single measure that will be enough to tackle the issue,” Holland says.

Soft drinks and obesity

“Proposals to increase taxation on sweetened beverages start from a fragile notion of causality between consumption of these beverages and the number of people who are overweight and obese. Inferring causality between two or more variables requires empirical procedures that existing studies simply do not present,” he argues.

According to Holland, in order to tackle the growth in excess weight and obesity, we need to consider a whole series of factors, such as age, family history of obesity, lack of breastfeeding, people’s way of life and work routines, forms of public transport, gender, per capita income, level of development, education, metabolic and hormonal issues, trauma and psychosocial disorders, smoking and other calories consumed.

“A multidisciplinary approach is necessary to infer anything about the significance of each factor in contributing to the growth of obesity. We do not know of any study in Brazil with the required level of quality and robustness,” he says.

Declining consumption

According to the Health Ministry’s 2021 Chronic Disease Risk Factors and Protection Telephone Survey (VIGITEL), there was a significant decline in the regular consumption of soft drinks among people aged over 18 in the last decade. In 2011, almost 30% of respondents reported consuming soft drinks five or more days a week. Ten years later, the figure had halved to 14%.

However, the same survey revealed that the proportion of Brazilian adults who are obese (with a body mass index of at least 30 kg/m2) continued to grow, from 15.8% in 2011 to 22.4% in 2021.

Overall, soft drinks only represent 1.3% of Brazilian families’ caloric intake, points out the study led by Márcio Holland. Annual per capita consumption in Brazil is well below the world average. Between 2010 and 2020, this indicator fell 34%, to 58.3 liters, according to a study conducted by the Brazilian Association of Soft Drink and Non-Alcoholic Beverage Manufacturers (ABIR). Data from the Household Budget Survey carried out by the national statistics agency, IBGE, corroborates this finding. Furthermore, making an international comparison, according to figures from Euromonitor International, Brazil’s per capita soft drink consumption is among the lowest out of a sample of 93 countries.

Poorest people harmed

According to Holland, an extra tax on sugary drinks would not benefit public health and it would reduce the income of Brazilian households, especially the poorest ones. Consumers with greater purchasing power are less sensitive to price increases than those on lower incomes. As a result, a large part of the reduction in demand for soft drinks would take place among the poorest families.

Furthermore, the final effect on the revenue of soft drink manufacturers would tend to be neutral or even positive, as they would easily adapt to the new tax system by altering their product mix. However, in general, Brazilian families would consume less while paying more.

Another argument used by supporters of the new tax is that higher prices would lead consumers to buy more sugar-free products, but the study also refutes this. According to José Maria Arruda de Andrade of the University of Sao Paulo, there would be no significant substitution by fruit juice, given that the cross-elasticity of these products is only 0.21, according to estimates in IBGE’s 2017/2018 Household Budget Survey. In other words, each 1% price increase generated by a soft drink tax would only boost fruit juice consumption by a paltry 0.21%. In the case of water, the cross-elasticity rate is a mere 0.38%.

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