/ 4 February 2016

Tax on soft drinks could benefit obese SA

Coca-Cola has identified South Africa’s lower-income groups as a primary target for increasing its profits.
Coca-Cola has identified South Africa’s lower-income groups as a primary target for increasing its profits.

With government finances under massive strain, an additional R7-billion a year would be pretty sweet.

Sweet is the operative word here – this is a preliminary estimate of what a 20% tax on sugar-sweetened beverages could potentially bring in if the state developed a taste for the idea.

This is according to Priceless SA (Priority Cost-Effective Lessons for Systems Strengthening South Africa), a research institute at the University of the Witwatersrand’s school of public health.

But more valuable than the extra revenue are the potential benefits of reducing obesity and related diseases such as diabetes, which are extremely costly for the country’s economy, according to Aviva Tugendhaft, the deputy director of the institute.

South Africa is fast becoming a fat nation and, according to a 2015 research paper by Tugendhaft and others, inaction over the growing intake of sugary drinks could lead to the rise of an additional 1.2-million obese South Africans by 2017.

In the paper, titled Cost of Inaction on Sugar-Sweetened Beverage Consumption: Implications for Obesity in South Africa, the authors calculate that the increased consumption of sugar-sweetened beverages by just 2.4% – the rate at which the sales of sugary drinks are calculated to rise annually – could result in this dramatic spike in obesity.

South Africa already has the highest levels of obesity in sub-Saharan Africa, according to the research paper. It rose to 11% in men and 39% in women between 2003 and 2012.

The research defines a sugar-sweetened beverage as sugar-sweetened non-alcoholic drinks, which includes carbonated and non-carbonated sweetened drinks, sweetened fruit juices and squash concentrates.

Although the consumption of sugar-sweetened beverages is not the only cause of obesity, it is strongly linked to weight gain, according to the paper, and with weight gain comes increased risks of noncommunicable diseases such as diabetes, cardiovascular disease and cancer.

All these conditions come with a cost to the healthcare system, workplaces and families, Tugendhaft said.

Moderate obesity is associated with an 11% increase in healthcare costs, but severe obesity brings a 23% increase in these costs. Priceless SA has projected that, by 2030, total healthcare expenditure related to adult diabetes will cost South Africa between $1-billion and $2-billion.

Obesity and related diseases also have a significant effect on the workplace because of things such as absenteeism, workers compensation and reduced productivity, she sad.

Obese workers are also estimated to cost their employers 50% more in paid time off than their healthier colleagues, she added. These diseases also disproportionately affect the poor.

“They are the people with the least access to pre-disease screening and they are dependent on a public health-care system that is completely overburdened,” she said.

To lose a breadwinner to death or a disability such as diabetes-related amputation or blindness – often because the problems are diagnosed too late – places enormous strain on families who cannot afford it, she explained.

Mexico has become a poster child for a tax on sugar-sweetened beverages. The country, where more than half of adults are obese or overweight, introduced a 10% tax on sugary drinks at the beginning of 2014.

A study revealed that their consumption had declined by 12% by the end of 2014 and, in the lowest socioeconomic groups, had been reduced by 17%, according to a BBC report. It also brought in a reported 20-billion pesos (about R17.6-billion) to government coffers.

To add weight to the debate over taxing these drinks, the World Health Organisation recently re-commended that taxes on sugary drinks be instituted to help curb childhood obesity.

“Overall, the rationale for taxation measures to influence purchasing behaviours is strong and supported by the available evidence,” it said.

“Low-income consumers and their children have the greatest risk of obesity in many societies and are most influenced by price. Fiscal policies may encourage this group of consumers to make healthier choices (provided healthier alternatives are made available) as well as providing an indirect educational and public health signal to the whole population.”

The costs of excess sugar intake also extend to dental care. According to the department of health, dental diseases are the most prevalent noncommunicable diseases globally, causing, among other problems, pain, anxiety and functional limitation including poor school and work attendance. There are no exact costs for South Africa, but the treatment of dental diseases is expensive, taking 5% to 10% of healthcare budgets in industrialised countries, it said.

According to Dr Celeste Naude, a senior researcher at Stellenbosch University’s Centre for Evidence-Based Health Care, any public health intervention that may help to reduce obesity, and especially reduce the likelihood of going from a healthy weight to obesity, is worth considering.

But obesity is a complex condition and evidence suggests that there is “no single dominant economic cause of obesity”. Rather, a wide variety of factors may contribute a modest amount to the risk. “Because there is no dominant cause of obesity, there is no single magic bullet that will reduce it,” Naude said.

Studies of economic approaches to preventing obesity, such as taxes or financial rewards for weight loss, have found “modest effects” on weight, thus many policies and actions at different levels will be necessary to have a substantial effect on obesity prevalence, she said.

A tax on sugar-sweetened beverages would need to be combined with other interventions. These could include the reformulation of foods and drinks by industry, curbing price promotions on unhealthy foods and drinks, restricting advertising of unhealthy foods and drinks, and the improvement of nutrition literacy, she added.

When considering fiscal policies, such as a sugar tax, many aspects need to be assessed such as the potential health gains weighed against the wider effect on jobs, monetary savings to the health sector, implementation costs and government revenue, she said.

But Joe Maila, the spokesperson for the ministry of health, said the department “is only considering the available data and has made no recommendations to the treasury around the introduction of a tax on sugar-sweetened beverages”.

Nevertheless, in its national strategy on the prevention and control of obesity, released last year, the department said that fiscal measures, or taxes, are deemed to be the most cost-effective intervention to address obesity. At 20c to every rand, it is cheaper than the second-most cost-effective measure, food advertising regulation, which comes to 90c.

Maila said there are many considerations to be made before introducing a new tax, including “the progressive or regressive nature of the tax, its effect on employment and finding appropriate overall tax levels that encourage growth”.

“There are serious questions that arise about which specific products should be taxed and why that need to be seriously considered,” he said.

Critics of such a tax include the Democratic Alliance. Its spokesperson on health, Wilmot James, said the party believes the tax would unfairly discriminate against the poor. “It would have knock-on consequences on food pricing, which hits the poor hardest,” James said.

Research in the United States had shown that there is no significant link between taxes on sugary drinks and changes in the body mass index of adolescents at risk of being overweight.

A simple tax on drinks was shortsighted, James said. Instead there should be a package of measures aimed at curbing obesity. This included efforts such as encouraging municipalities to build outdoor gyms, increasing access to exercise opportunities, particularly among poorer people.

Although Mexico is doing the best among countries that had introduced such a tax, its results are “not fabulous”, James said.

But Tugendhaft disagreed, and said the results are “a huge success”, particularly given the drop in consumption by people in lower socioeconomic groups.

The money freed up from buying sugary drinks could also be used for healthier alternatives or other household necessities.

In South Africa, the upper living standards measure (LSM) groups still drink substantially more Coca-Cola than the middle and lower LSM groups, according to the research paper. But this is going to change.

“The largest soft-drink franchise in the country has outlined its future growth strategy and has identified LSM 1–6 as its main market opportunity, with a specific focus on LSM 1–3   (18),” the researchers said.

Coca-Cola accounts for about 60% of the off-trade soft drinks market in South Africa, which excludes those sold at hotels, restaurants and registered bars.

Tugendhaft said it is true that poorer consumers are the most price sensitive to taxes such as these, but Priceless SA did not view this as a negative outcome.

Given the plans by beverage firms to increase sales among poor consumers, who are worst affected by the rise of obesity and related diseases, it is imperative that they be protected, she said.

In Mexico’s case, the effect on weight has not yet been assessed, said Tugendhaft, adding that the effect on weight would take some time to show.

It is also more important to consider the increase in weight and obesity that would have occurred without the tax in place, Tugendhaft said.

She agreed that a tax on sugary drinks should be part of a much bigger package, including easier-to-understand food labelling, advertising regulations, interventions at the workplace and at schools, and potentially subsidies on healthier foods.

The treasury did not respond to requests for comment.

Bitter pill for sugar and drinks industry to swallow

The growing debate over the effectiveness of taxes on sugar-sweetened beverages globally has not gone unnoticed by the world’s soft-drinks manufacturers.

In a 2014 annual report filed to the United States Securities and Exchange Commission, Coca-Cola identified, among other issues, growing public concerns over rising obesity and new or increased taxes on sugar-sweetened beverages as a risk to their profitability.

The 2015 national strategy on the prevention and control of obesity, released by South Africa’s department of health, said fiscal measures, or taxes, are deemed to be the most cost-effective way to help address obesity.

Coca-Cola South Africa referred questions to the industry body, BevSA, which speaks for producers, bottlers, importers and distributors of non-alcoholic beverages.

Its executive director, Mapule Ncanywa, said the industry does not believe the selective taxation of sugar-sweetened beverages would be effective in combatting obesity.

“Singling out one category of products for additional taxes is discriminatory and will do nothing to promote healthy and balanced lifestyles, and will certainly not have an ultimate benefit for consumer health,” she said.

The Mexico tax has not resulted in a measurable improvement in the health of the average Mexican, she said. The organisation is committed to ensuring that South Africa does not end up with an approach that affects the most vulnerable in society. Sustainable solutions from all stakeholders are needed to promote “healthy, balanced and active lifestyles”, said Ncanywa.

The industry has championed several voluntary commitments, such as guidelines on marketing to children and communication about healthier lifestyles, she said.

South Africans should consider a healthy lifestyle that includes behaviour change and a balanced diet.

“One nutrient on its own cannot be guilty for a certain disease without considering the whole picture,” she said.

Trix Trikam, the executive director for the Sugar Association of South Africa, said there are more effective strategies than a tax to deal with the complex health and nutrition challenges.

The sugar industry generates an estimated R12-billion annually and is an important economic contributor to the country through things such as agricultural and industrial investments, foreign exchange earnings, being labour-intensive and because of its links with suppliers and support industries, according to Trikam.

About one million people depend on the industry for a living and it supports about 79 000 direct jobs, or about 11% of the total agricultural workforce of South Africa.

He maintained that there is no conclusive evidence that a tax on sugary drinks will reduce consumption, and it is likely to affect the poor more than the wealthy.

“There are many possible scenarios that could play out, including people purchasing sweetened beverages from neighbouring countries at a cheaper price, or continuing to consume the beverages regardless of the price,” he said.

The deputy director of Priority Cost-Effective Lessons for Systems Strengthening South Africa (Priceless SA), Aviva Tugendhaft, said the soft drinks industry is likely to be affected in the short term. But because the tax would be on sugar-sweetened drinks and not on sugar, manufacturers could move to healthier alternatives, which would prevent job losses, she said.

She recognised that imposing a tax is “not a simple matter” and the economic effects have to be considered.

But she questioned whether short-term losses would outweigh the toll that obesity and related noncommunicable diseases such as diabetes already have on the economy.