MPHO THOTHELA: Time to balance the scales on fizzy drink tax and obesity

It is time to broaden the conversation around the complex issue that is obesity if we are to find a solution that reduces noncommunicable diseases in SA without hampering the economic recovery that is so desperately needed at this time. Our current situation, where the supposed “health argument” is pitted against the “economic argument” — is no longer serving the country.

The recent study commissioned by the National Economic Development and Labour Council entitled “Economic impact of the health promotion levy on the sugar market industry” notes that within the first year of the introduction of the sugar tax, the sugar industry bled 16,621 jobs overall, and 9,000 jobs in the cane-growing sector specifically. Most of the job losses have been in rural areas, where poverty levels are already the highest.

While health lobby groups are calling for an increase to the sugar tax as the medium-term budget policy statement approaches, we would caution against any measure that does not fully take account of both health and socioeconomic effects of any change. This balanced approach of both areas of effect is what has been missing to date and needs to be introduced to the decision-making process. The approach of the Sugar Master Plan and its consensus-seeking principles serve as an example of this approach, with government, labour and business all engaged.

While industry has articulated the dire economic effects of the sugar tax, another reason an increase would be undesirable is because while the sugar tax has been shown to have an effect on consumption, it is not yet clear whether it has achieved its objective of reducing obesity levels. Simply put, we now have hard economic numbers clearly demonstrating the negative effects of the sugar tax, but not yet hard numbers to indicate the health benefits. For that, we need a robust international standard total dietary intake study covering all regions and household types in our country, which we understand will now be implemented.

The health promotion levy was implemented with the intention of increasing the price of sugar-sweetened beverages with sugar above a certain threshold. This was envisioned to decrease demand for taxed beverages and ultimately lower consumption of sweetened drinks, and thereby lower sugar consumption. This, it was expected, would lower body weight and obesity, resulting in the health benefits of the lower prevalence of non-communicable diseases associated with obesity. Any assessment of the effects of policy must be evaluated relative to the objective of the policy, which was to lower the prevalence of obesity and, ultimately, the cost associated with noncommunicable diseases.

There are several questions that remain regarding the effectiveness of the sugar tax in meeting the overall health objective. In a study by Hofman, Stacey, Swart, Popkin and Ng (2021) entitled “SA’s Health Promotion Levy: Excise tax findings and equity potential,” the authors propose a possible framework that can be used to evaluate the effectiveness of the sugar tax. They examine several factors that need to be taken into consideration:

• The effect of the levy on price: The levy is implemented with the intention of increasing the price of sugar-sweetened beverages to decrease demand. The extent to which prices increase depends on the extent to which the tax is passed onto consumers. In this regard the question of substitution and consumer choices of sources of sugar still needs to be addressed.  
• The effect of price changes on household purchases of beverages: Whether higher prices for taxed beverages result in decreased purchases of taxed beverages and increased purchases of untaxed beverages depends on the price elasticity of demand, or how “price sensitive” consumers are. In our Covid-19 impacted society, consumers may be more price sensitive than before and a change in tax rate could have even more pronounced effects than initially estimated. Some would argue for a downward rate of tax in this context.  
• The effect of purchasing decisions on consumer sugar intake: Whether the increase in price and decreased purchases have resulted in decreased consumption of sugar is an important proof point.
• The effect of reduced consumption on weight/obesity: Whether the reduction in the consumption of sweetened drinks has resulted in a reduction in body weight in SA has not been established. Internationally, there is very little evidence of this type of tax having an impact on the weight and obesity. One of the reasons for this is that taxing such a narrow selection of product is unlikely to make a difference to overall sugar and calorie consumption. In the absence of a total dietary intake study, the potential for a tax on sugar-sweetened beverages to affect body mass index is unclear, and even once the results of such a study are known, the relative contribution of a narrow tax base needs to be analysed.
• The effect of the levy on beverage sales and through the beverage value chain: The economic impact associated with a reduction in sugar demand and beverage sales arising from the levy has been quantified. This must form part of an assessment of the effectiveness and the impact of the tax, especially in the context of the industries it affects and how robust these industries are and whether they are able to absorb such systemic shocks, such as the sugar cane industry of rural KwaZulu-Natal and Mpumalanga. The fact is all tax interventions have effects beyond the narrow targets, effects that affect real livelihoods.  
• The effect of levy on tax revenue: It is necessary to consider the overall impact of the levy on tax revenue. Despite an increase in revenue from the levy, the overall tax effect may well be negative given the decrease in VAT and corporate tax payments associated with lower sales. A thorough, balanced evaluation of the overall tax revenue effect is necessary. Although posited as a health intervention, the balanced picture of impact on health and socioeconomic impacts is needed to evaluate the effectiveness of this measure in specific country conditions.  

As the Beverage Association of SA (Bevsa), we have committed to the food and beverage industry’s Healthy Food Options Industry Initiative led by the Consumer Goods Council of SA. The forum is a partnership with the department of health to develop and drive healthy food options initiatives that are aimed specifically at promoting healthy eating habits to manage obesity. We know we can’t achieve our goals alone. We will continue to scale efforts with the food and beverage industry in partnership with government, recognising that collective action is needed to make a meaningful impact in tackling obesity.

To have a broader conversation around the effect of the sugar tax and the complex health issue that is obesity, a multisectoral approach with experts and stakeholders across multiple industries will be required. This will be necessary to ensure that internationally formulated policies that lack context aren’t applied in a way that hampers rather than helps our economic reality and recovery, and that the applied policies improve the health outcomes of those that really need these policies to work for them.

• Thothela is executive director of the Bevsa and chairs the International Council of Beverages Association’s Codex Committee Africa.