Does a Jump in Soda Sales Mean Mexico’s Soda Tax Isn’t Working?

The Oakland City Council voted unanimously on Tuesday to put a penny-per-ounce soda tax on the November ballot, officially sparking yet another fight over taxing sugar-sweetened beverages in the Bay Area. In 2014, both San Francisco and Berkeley, California, voted on soda tax measures, with voters in Berkeley handily passing the first such policy in the United States. (While the San Francisco proposal garnered 55 percent of the vote, it required a two-thirds majority to pass.) Boulder, Colorado, is voting on a similar measure in the fall, and Philadelphia is considering adopting a three-cents-per-ounce tax in its new city budget.

In one way or another, all of these policy proposals are building on and take inspiration from the national soda tax Mexico enacted in 2014. According to a peer-reviewed study conducted by a team of researchers from the University of North Carolina, the National Institute of Public Health of Mexico, and the Center for Nutrition and Health Research, soda sales dropped by an average of 6 percent in the first year the roughly 10 percent tax was implemented, with sales slipping by up to 12 percent in the latter part of the year. Mexico is regularly upheld as proof that soda taxes work.

Except that just as the debate over taxing sugar-sweetened beverages in the United States is picking back up, new data out of Mexico is showing that sales have increased. Last week, Coca-Cola Femsa SAB, the largest Coke bottler in the country, reported a 5.5 percent increase in sales from the beginning of 2015. The other major Coke bottler, Arca Continental SAB, said it sold 11 percent more soda in the same period.

Do rising sales mean that the soda tax bubble has burst? After all, not only does Mexico have a national tax, but the country had the highest rates of soda consumption in the world—and troublingly high rates of obesity and diabetes. If the policy is faltering in Mexico, then what of its U.S. copycats?

“We know these taxes don’t work,” Muhtar Kent, Coke's CEO, said at the annual shareholder meeting last Wednesday. Kent sees the new sales figures out of Mexico as proof of that.

Shu Wen Ng, a nutrition professor at the University of North Carolina who worked on the Mexico study, said the sales data is misleading and that consumption continued to slide in 2015.

“The reports from the beverage industry in changes in sales are only looking at total aggregate sales,” she said, and they don’t account for population rise, inflation, unemployment rates, or other social and economic factors that affect consumption. Even weather, she said, needs to be controlled for: 2015 was a hotter year than 2014, and what’s better on a sweltering day than a very cold Coke?

“It would appear that the sales of beverages went up in 2015 by about 7 percent, but once you start making these additional changes, the numbers start changing,” Ng said. “You cannot just look at the raw numbers. Looking at just the raw numbers is going to tell you just one story.”

Arantxa Colchero of Mexico’s National Institute of Public Health, a colleague of Ng’s who worked on the study of Mexico’s 2014 consumption, laid out a different story in a post on the institute’s website: The line of thinking that an increase in soda sales suggests the tax is not working “does not consider other factors that influence purchases and consumption of these beverages that are independent of the effects of the tax—and that change from one period to another.” She estimates that consumption was down 8 percent in 2015—greater than the 6 percent average decline in 2014—from the pretax rates observed between 2007 and 2013.

The story doesn’t end with sales and consumption, because as Berkeley is showing by funneling $1.5 million in soda tax revenue into public health programs, the effectiveness of such policies isn’t limited to using sticker shock to change behavior. In Philadelphia, the proposed soda tax is intended to fund a city prekindergarten program, while a portion of the revenue from Mexico’s tax goes toward improving freshwater infrastructure for rural schools.

“The revenue can be used toward what is most needed depending on the location you’re talking about,” said Ng. “In Mexico, there are some more immediate needs than others,” such as access to clean water. While drinking from the tap might not give Americans Montezuma’s Revenge, she noted that the drinking water crisis in Flint, Michigan, is a stark reminder that our own water infrastructure is in need of help.

“The general argument, regardless of where you are,” Ng said, “is that the revenue from these taxes can be used to improving water infrastructure, period.... You want to limit the consumption of sugary drinks, but you can increase access to safe drinking water.”