The sugar tax has had a surprising effect on soda companies

Around the world, the "soda wars” are raging on: Soft drink companies assert soda is a delightful refreshment, but public health officials argue it drives the globe’s astronomical obesity and diabetes rates. One way the authorities are trying to combat the problem: Soda taxes.

But do these punitive monetary measures work? A heartening new study suggests that they just might make a difference.

One of the places to institute a tax on soda was the United Kingdom, in 2016. In a new study, researchers reveal that the tax has seriously influenced industry behavior — even if it hasn't changed how much soda Britons are gulping down.

The team analyzed the UK soda market 85 times between 2016 and 2020 and compared their findings to a prediction of how the market might have continued had the tax not been introduced at all.

They documented how many soft drinks over the 5g/100mL threshold were being sold, as well as the price, volume, and variety of soft drinks.

The analysis suggests taxing the soda companies led them to reduce the amount of high-sugar sodas by more than 30 percent on average — with potential health benefits for thirsty consumers.

In fact, just the threat of a tax was enough to spur the companies into action. Before the tax took effect, soft drink companies reformulated their products to avoid being taxed, maximize profits, and appeal to sugar-concerned consumers.

It is too early to tell whether their sugar-cutting moves have benefitted public health overall, but the industry response belies an unexpected upside of tax-avoidance — healthier products for consumers.

The study was published Tuesday in the journal PLOS Medicine.

A sweet ultimatum

In March of 2016, the UK government issued an ultimatum to the soda industry: After a two-year grace period, soft drinks that contained more than 5 grams of sugar per 100 milliliters would be taxed. That equates to 25 grams of sugar per half-liter bottle. Fruit juices and milk-based drinks are exempt from the levy. Companies had two years to reformulate their products, adjust product sizes, introduce new products, or remove old ones. The tax went into effect in April 2018.

The tax aimed to change industry, not consumer behavior. Soda taxes are often criticized for placing the burden of change on the public — which could disproportionately affect low-income families — rather than the manufacturers.

The UK soda tax may have avoided this trap: The costs were taken on by the companies, not soda drinkers. The analysis did not include soda sales data, however, so the researchers cannot say for sure if there were unexpected costs to the consumer.

Downstream effects

In one respect, the soda tax worked: Companies reduced the amount of sugar in their drinks significantly. The percentage of drinks over the sugar threshold on market fell from an expected level of 49 percent to 15 percent over the time period.

By February 2019, only 15 percent of sodas were being taxed for having too much sugar. The rest all fall below the taxable threshold.

The tax was not totally successful, however. Companies did not change the variety or number of products they offered, or significantly alter product sizes.

The price of low-sugar soft drinks — those that fell below the taxable range — also increased.

The researchers did not account for which sodas sold best, or how many sodas were sold overall. Whether or not the tax influenced purchasing habits is unclear from this study.

The industry tax resulted in steeper sugar declines than other consumer-focused taxes or public health campaigns, the researchers say. The changes indicate soda taxes may be better at changing manufacturer behavior, which then shapes consumer choice, rather than public-health interventions.

Next, the research team wants to study consumer attitudes relating to the UK soda tax. They hope to determine if people swapped out soda for other sugary beverages like juice, or if some people were harder hit by the tax than others.

Ultimately, less sugar on the market is better for us. Turning down a sugary Coca Cola or Sprite is probably harder than never having the option to buy it in the first place.

Abstract:

Background: Dietary sugar, especially in liquid form, increases risk of dental caries, adiposity, and type 2 diabetes. The United Kingdom Soft Drinks Industry Levy (SDIL) was announced in March 2016 and implemented in April 2018 and charges manufacturers and importers at £0.24 per litre for drinks with over 8 g sugar per 100 mL (high levy category), £0.18 per litre for drinks with 5 to 8 g sugar per 100 mL (low levy category), and no charge for drinks with less than 5 g sugar per 100 mL (no levy category). Fruit juices and milk-based drinks are exempt. We measured the impact of the SDIL on price, product size, number of soft drinks on the market- place, and the proportion of drinks over the lower levy threshold of 5 g sugar per 100 mL.

Methods and findings: We analysed data on a total of 209,637 observations of soft drinks over 85 time points between September 2015 and February 2019, collected from the websites of the leading supermarkets in the UK. The data set was structured as a repeat cross-sectional study. We used controlled interrupted time series to assess the impact of the SDIL on changes in level and slope for the 4 outcome variables. Equivalent models were run for potentially levy-eligible drink categories (‘intervention’ drinks) and levy-exempt fruit juices and milk-based drinks (‘control’ drinks). Observed results were compared with counterfactual scenarios based on extrapolation of pre-SDIL trends. We found that in February 2019, the proportion of intervention drinks over the lower levy sugar threshold had fallen by 33.8 percentage points (95% CI: 33.3–34.4, p < 0.001). The price of intervention drinks in the high levy category had risen by £0.075 (£0.037–0.115, p < 0.001) per litre—a 31% pass through rate—whilst prices of intervention drinks in the low levy category and no levy category had fallen and risen by smaller amounts, respectively. Whilst the product size of branded high levy and low levy drinks barely changed after implementation of the SDIL (−7 mL [−23 to 11 mL] and 16 mL [6–27ml], respectively), there were large changes to product size of own-brand drinks with an increase of 172 mL (133–214 mL) for high levy drinks and a decrease of 141 mL (111– 170 mL) for low levy drinks. The number of available drinks that were in the high levy category when the SDIL was announced was reduced by 3 (−6 to 12) by the implementation of the SDIL. Equivalent models for control drinks provided little evidence of impact of the SDIL. These results are not sales weighted, so do not give an account of how sugar consumption from drinks may have changed over the time period.

Conclusions: The results suggest that the SDIL incentivised many manufacturers to reduce sugar in soft drinks. Some of the cost of the levy to manufacturers and importers was passed on to consumers as higher prices but not always on targeted drinks. These changes could reduce population exposure to liquid sugars and associated health risks.