Beverage industry goes to war over sugar tax

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The beverage industry is gearing up with a large budget to oppose SA Treasury’s proposed tax on sugar-sweetened drinks, set to come into effect next year, reports Health-e News.

The deadline for public comment on Treasury’s policy paper on the matter served as the shrill bell heralding the start of round one. The fight is likely to be fiercely contested as Treasury and the Health Department square up against the peddlers of sugar-laden beverages, the report says.

Those behind the tax are arguing that it is a cost-effective tactic to drive down the country’s skyrocketing sugar consumption, and will encourage people to make healthier choices. According to experts, the tax – which will hit all sugar-sweetened beverages (SSBs), including fizzy drinks, fruit juices, cordials, energy drinks, flavoured milk, drinking yoghurt and ice teas – is aimed at saving South Africans billions of rands in health-related costs, and reducing the number of obese people by 250 000 within three years.

Obesity is associated with diseases including type 2 diabetes, heart attacks, stroke, hypertension, joint pain and certain cancers. All come with a hefty cost to the healthcare system – and it is mainly government that picks up the bill although ordinary people suffer the consequences.

The diabetes rate alone has doubled in rural South Africa in a decade which, untreated, can result in blindness and limb amputations. Sugary drinks also cause huge dental problems, yet South Africa is desperately short of dentists.

But, the report says, the industry has come out pumped – flexing their muscles, shouting that sugar drinks have been unfairly demonised, and that the SSB tax would lead to thousands of job losses. The various numbers thrown about range from 60,000 to 72,000 “up and down the value chain”, along with claims that about 10,000 small businesses will be destroyed.

According to industry body the Beverage Association of South Africa (BevSA), the “discriminatory tax” would hit poor people the hardest. The anticipated job losses, they say, will come from small sugar growers though to spaza shop owners who derive much of their income from soft drink sales. These calculations, BevSA says, were worked out for them by “Oxford Economics”.

The report says requests for access to either the research company or the research have failed.

And, according to the report, Health Minister Dr Aaron Motsoeledi has already challenged the job loss claims, describing them as the expected threats of “economic hitmen” – tactics his department had encountered when they introduced legislation aimed at cracking down on smokers. In that case big business had also threatened massive job losses.

“In fact, they even said the GDP would be reduced and that the economy would collapse,” Motsoaledi is quoted as saying. “There is nothing new in people making mega bucks trying to defend themselves and threatening that we are going to lose jobs… they always threaten job losses among the poor, meaning these are economic hitmen who, to protect their own mega-profits, use the poor to assassinate themselves. It is quite tragic,” Motsoaledi said.

He explained that sugary drinks, although not the only products containing high amounts of sugar, were being targeted as they had been deemed the “most problematic” internationally because they contained no nutritional value whatsoever, and other countries were doing the same.

BevSA argues that there are other contributors to SA’s obesity problem, including vegetable oils, poultry, cereals, milk and eggs along with sugar and other foods. They claim that sugary drinks make up only 3% of the daily kilojoules consumed by South Africans – but again the evidence to support this is thin. BevSA also argues that consumers, deterred from buying taxed sugary drinks by the higher price, may not necessarily be persuaded to reduce their calorie intake as they will possibly simply substitute their drinkable sugar hit by purchasing something else like chips, chocolate or sweets instead.

But, the report says, if consumers turn to alternative purchases, this means that spaza shops and small businesses would not fail. They would simply change their stock offerings. This counters BevSA’s own job losses argument. The decreased cold drink sales would be balanced by increased sales of other products, leading to job losses in the sugary drinks industry being counteracted by job gains in others.

The report says South Africa currently has the highest overweight and obesity rate in sub-Saharan Africa, with up to 70% of women and 40% of men being classified as overweight or obese according to the Lancet medical journal. In children, one in four girls and one in five boys between the ages of two and 14 years are overweight.

The Department of Health has resolved to reduce the percentage of people who are overweight by 10% by 2020. According to Priceless-SA (Priority Cost Effective Lessons for Systems Strengthening South Africa) at the University of the Witwatersrand’s School of Public Health, moderate obesity is associated with an 11% increase in healthcare costs, while severe obesity is associated with a 23% increase.

The report says it is clearly an issue that needs to be tackled. And so government is preparing to tackle our nation’s fat by first targeting the empty calories contained in sugary drinks with a tax that will see their costs rise about about 20%.

There is no doubt that the fight is going ahead, the report says. As was seen when government brought in measures to combat smoking and alcohol use and abuse, industry will push back hard and pull no punches.

 

The soft drink industry’s job loss claims and resulting damage to the economy is nothing compared to the cost of not taxing sugary drinks, according to Karen Hofman who heads up Priceless SA.

According to a Health-e News report, she told international nutrition and public health experts at the recent World Nutrition Congress: “Excessive sugar consumption is costing us lives, which is the worst part, but it is also costing the economy.”

Also, the report says, BevSA’s claims that thousands of jobs would be lost if the government adopts the proposed sugar tax have been challenged by Trade and Industry Policy Strategies (TIPS), an independent research non-profit organisation. TIPS’ Neva Makgetla said the figures “vastly overstate the number of jobs that depend on the production of sugary beverages” which Hofman said is unsurprising because companies routinely exaggerate the employment impact of regulatory measures in order to sway public opinion.

In the BevSa’s submission to Treasury, they claim that the tax will reduce South Africa’s gross domestic product (GDP) by 0.4%. But whether these claims are credible or not, a 2016 report from the US Chamber of Commerce stated that the impact of NCDs on South Africa’s GDP for 2015 will be a staggering 6.8%. Using estimates of the impact these diseases have on absenteeism, presenteesism (working while sick) and early retirement the study predicted the impact on the GDP to rise to 7% by 2030.

The report says South Africa already has the highest obesity rate in Africa and according to the International Diabetes Foundation the country’s diabetes incidence stands at 10%, and is above the global average. Hofman said that already over a third of premature deaths from NCDs in South Africa occur in people under the age of 60 and will continue to affect the young economically active population unless urgent action is taken.

She said the country is eighth in the world in terms of its sugar consumption and that fiscal measures were the necessary first step in addressing sugar’s impact on the increasingly ailing health of South Africans.

BevSA has claimed that the regressive tax would unfairly affect the poor as rich people would still be able to easily afford higher-priced products. “The economic reality is poor people cannot afford quality health care and are the people likely to die prematurely from NCDs, creating a poverty spiral,” argued Hofman. She said poor health and disability will diminish the labour force capacity, affecting the economy, but will also increase inequality as poor people will continue to lack the health and resources to raise their standard of living.

“The more wealthy in South Africa will reduce consumption of SSBs a little or not at all because they can afford to, but the main beneficiary of this tax in health terms will be the poor,” she said. “And the gap between the health of the rich and poor can be reduced. While the industry calls that regressive, that’s what I call progressive.”

 

A voice of reason from Patrick Masobe, CEO of Agility Health and the founding CEO of the Council for Medical Schemes who says while the concerns of beverage manufacturers cannot be dismissed, there is much at stake if South Africans do not embrace a sustainable approach to looking after their health.

He writes in a Business Day report that the epidemic of health conditions associated with high blood glucose levels, including diabetes, is already a national problem with wide-ranging economic repercussion, the full extent of which is not easy to quantify. Given the fact that low- and middle-income countries are experiencing a more rapid increase in the rate of diabetes and other non-communicable diseases than wealthier nations, reducing the morbidity and mortality associated with such conditions should be regarded as a national and regional development imperative.

The World Health Organisation has suggested obesity and related conditions account for up to a fifth of global healthcare spending and, Masobe says, one must balance the concerns voiced by the beverage industry with the economic impact of continuing on our present trajectory, considering that it has been estimated that lifestyle diseases cost South Africa’s GDP $1.88bn between 2006 and 2015.

Masobe writes: “Many of our citizens are falling ill due to unhealthy diet and lack of exercise, and the impact of this on productivity, including sick leave and workers performing less than optimally due to the symptoms accompanying such conditions, is immense – although difficult to measure accurately.

“It would be naive to look at tax on sugar-sweetened beverages as a golden elixir to fix the problem of growing rates of non-communicable diseases. A broad-based approach is needed, starting with public education and awareness campaigns.”

Masobe writes that the sugar-tax proposal has not been structured in such a way that a tax would be levied according to the volume of sugar or calorific sweetener in a beverage. A lower tax for lower sugar levels would be a consumer education tool and a far more effective strategy than a tax levied as a percentage of the price per litre, or per unit. He says this also presents an opportunity for big players in the beverage industry to reconsider the volume of sugar in their products. If the health of their consumers was not sufficient imperative, perhaps such a tax could encourage the industry to moderate the amount of sugar in certain drinks.

Masobe writes that the multinationals dominating the beverage market already have a diversified product range, including sugar-free carbonated drinks and mineral water that would not be affected by the proposed tax. He says if the tax on sugary drinks were to substantially influence consumer behaviour, and there is considerable debate about the degree to which this is likely to happen in the South African context, it is likely that the market for sugar-free alternatives would grow proportionately.

Masobe says that people are unlikely to stop buying sugar-sweetened drinks, but this tax help people to think more seriously about moderating their consumption and making healthier choices adding that if SA does not tackle the problem of non-communicable diseases head-on, the economic impact of dallying is likely to hurt us in the long run. The consequences of ignoring the burgeoning problem of non-communicable diseases creep up slowly but surely, and for this reason it is imperative that we act now.

Masobe writes that we cannot expect a tax on sugary drinks on its own to solve this growing health problem but with far-reaching and sustainable strategies, we can work towards improving the health and prosperity of our nation.

 

Leon Louw, executive director of the Free Market Foundation writes in a Business Day report: “You are a chemical process. Not a person in pursuit of happiness, just chemicals agglomerated at birth and dissipated at death. You exist, according to your health ministry, to perpetuate the process. It hates the fact that you might be happy. Pleasure without ‘nutritional value’ is taboo. You must have a long, miserable life.

“Tax on sugar-sweetened beverages is the bitter-sweet flavour of the month. Initially, only fat people will be taxed. Other sugar sources – sugared tea and coffee, sweets, cakes, wine and spirits, bread, rice and potatoes, salad dressing, sauces and pastes, fruit juice and flavoured water, preservatives and flavourings – will follow.

“Sugar-sweetened beverages tax is just the start. You are also not allowed to like fatty meat, dairy products, salted crisps and nuts, fine wine, greasy breakfasts or fast food. No matter what you eat, if you eat enough to be overweight, your lifestyle will join the falling dominoes of liberty. Our ministry is shameless about goose-stepping us towards lifestyle nationalisation. They want everything banned that does not perpetuate you at the expense of happiness or liberty. When challenged, they are bewildered rabbits in headlights.

“During a debate, a departmental spokesman dismissed our Constitution’s first provision, which guarantees the right to dignity and the ‘enjoyment’ of freedom, by misrepresenting section 27 (the podcast is on the ClassicFM website). He repeated the health fanatic mantra that section 27 guarantees health, when he and his colleagues know the section in fact guarantees the right to ‘healthcare’.
En route to section 27, authoritarians who ignore section 1(a) pass section 10, which guarantees ‘the right to have … dignity respected and protected’.

“On TV, Health Minister Aaron Motsoaledi called the Free Market Foundation ‘clowns’ for raising civil liberty and constitutional concerns. Health propaganda clowns, on the other hand, are no laughing matter. Lifestyle authoritarianism is justified because their failed healthcare system cannot cope with the alleged effects of smoking, drinking, eating and relaxing. When they accuse corporate, small business and civil society critics of “putting profits before people” three fingers point back at them.

“They seem to believe the myth that health-care costs exceed revenue from bad habits. If sugar-sweetened beverages and other sinners really have reduced life expectancy, instead of imposing costs, they subsidise healthy living thrice over through taxes on what they consume, avoidance of old-age health-care costs and foreshortened pension claims. The causes and economics of ill-health are more complex than simplistic sugar tax arguments acknowledge.

“Sugar-sweetened beverages tax discriminates regressively against the poor by disproportionately stripping them of income. The Department of Health admits that the tax will not affect the rich. Its spokesperson warned that if the poor continue enjoying sugar-sweetened beverages, their tax will be increased until it hurts. By discriminating against people with a genetic ‘sweet tooth’ or ‘eating disorder’, the tax is indistinguishable from racism and sexism.”

Louw writes: “The culmination of small erosions of basic rights is terrifying. When smokers who do not impose their smoke on others were attacked, anti-smokers rejoiced. Now that their turn has come, they have no principled defence.
If sugar-sweetened beverage tax reduces consumption as promised, it will add no more than a few minutes or hours to life expectancy. The myth that sugar has no nutritional value implies the legitimacy of taxing nearly everything presumed unhealthy.

“Watching TV, reading and sitting have no nutritional value. Unless we stop this madness TV, book and chair taxes will soon force us to walk and stand while we eat flavourless food.”

 

Frans Cronje, CEO of the IRR writes in Business Day that a detailed look at the science shows the Health Department’s and Treasury’s claims are not true. Cronje writes: “This emerges from a submission by the South African Institute for Race Relations on the Treasury policy paper (to which I contributed substantial research).

“In support of its contention, the Treasury relies on a paper that attempts to quantify the effect of a 20% tax on such drinks. It was written by researchers including Mercy Manyema and Karen Hofman of Wits University with the explicit aim to ‘enable the (Department of Health) to consider (a sugar-sweetened beverage tax) as a lever to prevent and reduce the burden of disease resulting from obesity-related (non-communicable diseases)’.”

Cronje writes: “The Manyema paper claims to ‘provide evidence on the potential effect of fiscal policy on sugar-sweetened beverage consumption and obesity in SA’, but it provides no such thing. It consists of a mathematical model that relies on a number of assumptions linking an excise tax to an increase in price, a corresponding decrease in sugar-sweetened beverage consumption, a consequent reduction in body mass index and a lower national obesity rate. Therefore, it provides not evidence but theoretical speculation about a causality chain that is only as strong as its weakest link.

“A review of 880 studies by the Institute for Economic Affairs points out the problem with such models: “There is a striking contrast between theoretical studies, which generally predict that such taxes ‘work’, and studies of hard data in places that have actually implemented them, which generally show the opposite. Lacking real world evidence that sugar taxes are effective as health measures, campaigners continue to cite findings from crude economic models that do not adequately account for the ability of consumers to choose cheaper or discounted brands, to shop at cheaper shops, or to switch to alternative high-calorie food and drink products.”

“International experience shows a sugar tax has less of an effect on sugar-sweetened beverage consumption than expected, and no effect on obesity rates at all. In a study by the McKinsey Global Institute, which notes that there are more than 100 variables that affect obesity outcomes, a tax on sugar proved to be the least effective of 44 obesity-related interventions. The Treasury policy paper does point out that it is the most ‘cost-effective’ intervention but that is only true in a trivial sense, because the cost of levying an excise tax is negligible.

“The Manyema paper does not adequately consider the potential for substitution, such as switching to coffee and tea, which can be sweetened to taste at hardly any cost, or fruit juice. The latter is an interesting case. The Treasury has excluded 100% pure fruit juice from the sugar-sweetened beverage tax, reinforcing the perception that it is healthier than sweetened soft drinks. The surprising reality is that even unsweetened fruit juice contains as much or more sugar than typical soft drinks.

“Assuming, for the sake of argument, that all the Manyema paper’s assumptions hold true, it still fails to justify a tax on sugar-sweetened beverages. It says an increase in daily energy intake of 94kJ accounts for a 1kg gain in weight, and assumes that the opposite is also true.

“However, it concludes that the proposed tax will only reduce daily energy intake by 36kJ on average, which represents a tiny 0.34% of the recommended intake of an adult male and only 0.55% of that of a child. If 94kJ accounts for 1kg of body weight, then a cut of 36kJ in daily energy intake would account for 383g of weight loss – too small to detect on an average bathroom scale.

“The only statistic that the Treasury policy paper lifts from the Manyema study is that the obesity rate is predicted to decline 3.8% in males and 2.4% in females, but that deceptively overstates the real effect. Using obesity rates from the South African National Health and Nutrition Examination Survey study (SANHANES-1), this would only marginally reduce obesity rates, from 10.6% in males to 10.1%, and from 39.2% in females to 38.2%.

“The number of people who would no longer be classified as obese, according to the Manyema study, would decline by between 32,610 and 412,323 people. This extraordinarily wide range indicates very high statistical uncertainty. Even so, the average of 222,669 fewer obese people accounts for only 0.4% of the population, and those would be the people for whom a reduction of 36kJ per day, or 383g in body weight, would be enough to take them from just above the ‘obese’ line to just below it. In context, the predicted decline in absolute obesity numbers conceals how limited the effect is really predicted to be.

“The SANHANES-1 study also finds that only 19.7% of South Africans have a high sugar intake to begin with. On average, South Africans do not consume too much sugar, whether in the form of sugar-sweetened beverages or otherwise. Moreover, it finds that although 25% of South Africans are classified as obese, only 15.7% of the population reports being unhappy with their weight.

“In the real world, the effect of a tax on sugar-sweetened beverages would be negligible, even if all the assumptions and predictions of the Manyema paper’s mathematical model hold true, which is far from a given. In public health terms, there is no justification whatsoever to impose an onerous tax on an arbitrarily selected product category that will affect not only major producers, but also everyone in the value chain from sugar farmers to small-scale retailers, who derive as much as 20% of their income from sugar-sweetened beverage sales.

“One is left with only one possible conclusion: despite the Treasury’s protest that it’s not about a potential R10.5bn in annual revenue, that can be the only possible motive. The proposed tax on sugar-sweetened beverages is an unjustified tax grab that will have a negligible effect on public health, if any at all.”

 

The Treasury has affirmed, meanwhile that it has no intention to earmark taxes to fight South Africa’s epidemic of non-communicable diseases (NCDs) as it “is unsound fiscal policy.”

Health-e News reports that this is despite Motsoaledi saying in Parliament that the Department of Health supports the idea of the DA’s proposal to ring fence the revenue for research on NCDs.

The report says in Mexico, the revenue gained from their own SSB tax was earmarked for the installation of water fountains to make healthy drinking water more accessible and experts have called on South Africa to similarly ring fence money for public health programmes.

But Janusz Luterek, a food regulatory expert and attorney for Hahn & Hahn, said that this is not possible in South Africa where taxed revenue goes to a National Treasury where the Minister of Finance will decide where to allocate money announced in his annual budget. “And we can’t pre-empt the Minster’s decision,” he added.

Treasury, however, is quoted as saying that they will work with Motsoaledi to find how best to allocate these funds: “Additional revenues will be allocated through the normal budget process for programmes to fight NCDs. The process will be very transparent. The Department of Health will identify the appropriate interventions.”

 

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