Is Mexico's Soda Tax Really Working?

Mexico has become the most obese country in the world. In a purported effort to combat the problem, the country implemented a one-peso-per-liter excise tax on sugar-sweetened beverages in January 2014.

That tax, supporters claim, is working.

A 2015 working paper by University of Chicago Prof. Jeffrey Grogger found that Mexico’s soda taxes raised sugar-sweetened beverage prices by approximately 10 percent.

More recently, a study published last month in the British Medical Journal found between a 6- and 12-percent reduction in purchases of sugary drinks after the law’s passage.

That study was funded by Bloomberg Philanthropies—which also provided $10 million to push Mexico to adopt the soda tax in the first place—and the Robert Wood Johnson Foundation, which supports soda taxes.

It’s no surprise that a tax on sugary drinks might cut into consumption of those drinks. But there’s never been any reason to believe that, say, a 10-percent decrease in the small percentage of the calories people consume (soda accounts generally for around 5 percent) would result in decreases in obesity levels, or in calories consumed.

While the BMJ study notes that “humans do not reduce food intake when consuming caloric beverages”—based on research that shows sugar calories consumed in liquid form don’t make people feel full—it’s reasonable to conclude that humans also don’t reduce caloric intake when not consuming caloric beverages.

They’re simply more likely to consume other calories.

“Soda and candy taxes do not necessarily decrease caloric intake,” reports the Tax Foundation, which has studied the issue. “One recent study finds that when adolescents switch away from soda due to price increases, the drop in calories is offset by an increase in calories consumed in other food and drink.”

Not surprisingly, while the BMJ study shows a reduction in soda consumption, the results aren’t crystal clear. For example, the study also indicates bottled-water sales are down by four percent. In a country without adequate sources of clean water, that’s a public-health issue.

Critics have blasted the tax. The American Beverage Association points to data showing the reduction in calories equates to a decrease of less than five calories per day. And reports indicate that Mexican lawmakers already “have second thoughts about the soda tax.”

There are other problems with the tax, none small.

“The [BMJ] study authors say it’s too early to determine for certain whether the tax is really working,” writes Time‘s Alexandra Sifferlin. “The study is observational and cannot prove causality, and other factors, like health campaigns about sugary beverages and economic changes, were also happening simultaneously.”

A recent Urban Institute analysis of food and beverage taxes also notes that Mexico’s tax “exempt[s] products like orange juice and beer—which have significant sugar content—to focus on soda, teas, energy drinks, and similar beverages.” That’s practically an invitation to consumers to simply switch from soda to other caloric sources like beer or juice.

“That narrow focus creates substitution opportunities that will weaken the effect of the tax; some consumers, for example, may switch to juices,” the Urban Institute authors write.

After all, as Chicago’s Prof. Grogger and others note, the purpose of soda taxes is not to raise the price consumers pay for soda. It’s not to reduce soda consumption. Rather, the purpose of soda taxes is “[t]o staunch the rise in obesity” among those who live in the taxed area.

Regardless of what else soda taxes might achieve, there’s no evidence to date that shows soda taxes reduce obesity.

Let me be clear. Even if such evidence did exist, I’d still oppose soda taxes on the same grounds I’d oppose Doritos taxes, raw milk taxes, bread taxes, or any food taxes that are intended to skew consumer choice. It’s on those same grounds that I oppose farm subsidies and other agricultural measures that are at least partially responsible for the glut of cheap sweeteners that are on the market in the first place.

Obesity is a real problem. Food taxes are not a real solution to that problem.