Oct. 29 (Bloomberg) -- Mexico is turning to its tax system to tackle the highest obesity levels in North America or Europe, with plans to raise levies on the fatty foods and sugary sodas that contribute to more deaths than drug violence.
The lower house of Congress passed President Enrique Pena Nieto’s fiscal plan on Oct. 17 after adding a 5 percent tax on junk food. The duty is on top of a 1 peso per-liter tax on soft drinks included in the administration’s original proposal. The bill heads to the full Senate for a vote as early as today after upper house committees approved it this morning.
Mexico is struggling to deal with an adult obesity prevalence of 32.8 percent, the highest among major countries after Egypt and compared with 31.8 percent in the U.S., according to the United Nations Food and Agriculture Organization, or FAO. The nation is the world’s top consumer of soft drinks at 163 liters per capita a year, 40 percent more than the U.S., according to the World Health Organization, helping make diabetes Mexico’s top killer.
“Diabetes, hypertension and obesity are a significant burden on the nation’s health system, and it’s going to grow in coming years,” Armando Rios Piter, the Democratic Revolution Party’s highest-ranking member on the Senate Finance Committee, said in a phone interview. “The aim is that these taxes will reduce consumption and spur consumers to replace some items.”
Diabetes cost the lives of about 81,000 Mexicans in 2011, almost three times the number of homicides in a nation wracked by violence as drug cartels battle one another and the government for territory.
Obesity cost the Mexican health system 42 billion pesos ($3.2 billion) in 2008, an amount equivalent to 13 percent of spending on health, according to the National Academy of Medicine. Should current trends hold, that cost would rise to 101 billion pesos in 2017, according to the academy’s estimate.
The junk food and soda taxes were approved by the lower house with backing from Rios’s PRD, the second-largest opposition party, and the ruling Institutional Revolutionary Party, or PRI. The changes are now being debated in the Senate along with the nation’s 2014 revenue plan, which has an Oct. 31 deadline for approval.
The soda tax would raise 12.5 billion pesos a year, with the junk food tax bringing in 3.5 billion pesos, according to the budget bill. That’s less than 0.4 percent of the 4.47 trillion pesos the Mexican government aims to collect under the proposal as it seeks to pay for universal social security and unemployment insurance for the nation of 115 million.
The proposed soda tax could help prevent 515,000 new cases of diabetes by 2030 and lead to $14 billion in savings for the health system, said Arantxa Colchero, a health economist and researcher at Mexico’s National Institute of Public Health. The agency hasn’t studied the potential effects of a junk food tax, she said.
Companies are pushing back against the plans. The National Soft Drink Producers Association, which includes Coca-Cola Femsa SAB and Arca Continental SAB, Latin America’s biggest Coca-Cola bottlers, estimates that a 1 peso per-liter soda tax would result in the loss of 20,000 jobs, from workers who cut sugar cane to those in factories. The industry supports about 139,000 jobs throughout the production chain, according to the association.
The soda tax proposal is “discriminatory,” Coca-Cola Co.’s Chief Executive Officer Muhtar Kent, said in a conference call on Oct. 15. “The consumers suffer. Retailers suffer.”
Grupo Bimbo SAB, a maker and vendor of bakery products, is reviewing the option of “reformulating” some of its products to lower their caloric density, Chief Executive Officer Daniel Servitje said in an Oct. 24 conference call. Gruma SAB, the world’s biggest tortilla maker, declined to comment.
Taxes on food and beverages haven’t accomplished public health goals in other countries, Arca’s Chief Executive Officer Francisco Garza said in a conference call yesterday.
Denmark introduced a “fat tax” on food with more than 2.3 percent saturated fat per total weight in 2011, only to abandon it a year later after the levy was criticized for raising prices and driving consumers to shop in neighboring countries like Germany.
In the U.S., recent efforts to tax soft drinks have foundered in at least 30 states, and the federal government rejected an attempt in 2011 to bar purchases of sugared drinks with food stamps.
In September 2012, New York City’s Board of Health approved Mayor Michael Bloomberg’s plan to restrict sales of sugary soft drinks to no more than 16 ounces (454 grams) a cup. In March, New York Supreme Court Justice Milton Tingling barred the proposal from becoming law, saying it had too many loopholes and violated the jurisdiction of the City Council. Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP, has appealed the decision.
Mexico’s soda and junk food tax proposal is “a good concept, but the effect will only be as good as the execution,” David L. Katz, director of the Yale-Griffin Prevention Research Center in Derby, Connecticut, said in a phone interview.
By defining junk food by caloric density, the law may also apply taxes on healthier foods like almonds and walnuts, Katz said.
The purpose of the soda and junk food taxes is more to encourage healthy habits and fund programs to educate consumers than to raise revenue, Finance Minister Luis Videgaray said in an interview with Radio Formula on Oct. 17.
“What we’re seeking is to use tax policy as a way to induce changes in dietary habits,” Videgaray said.
The food tax will be applied on items that have 275 calories or more for every 100 grams. The tax of 1 peso per liter of soda, which would increase the cost of soft drinks by about 10 percent, would cut demand by 10 percent to 13 percent, according to estimates from the public health institute.
“The demand is elastic, so there’s reason to expect that there would be an important reduction in consumption” with a tax, the institute’s Colchero said.
Ulises Olivares, 43, who was enjoying a breakfast of scrambled eggs, beef, sausage, cheese and refried beans at a Mexico City diner, said the junk food tax could help to curb obesity. It will increase awareness for the need for exercise and healthier lifestyles, said Olivares, who was celebrating his sister’s participation in a five-kilometer race sponsored by McDonald’s Corp.
“We’re looking to avoid junk food,” said Olivares, a manager of Mexico City bank branches for Banca Afirme SA. “People will drink less if they’re being charged more for sodas.”
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