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Evaluating nutritional policies: the case of the soda tax

Methods developed in structural economics allow scientists to carry outex anteevaluations of public nutritional policies, taking into account the reactions of commercial players (industrial firms and distributors) as well as consumers. In the case of the French “soda tax”, it was shown that the retail price would go up more than the amount of the tax. The tax itself would not have a significant impact on how much sugar is consumed because of how the tax is designed, that is, to collect funds rather than to curb the consumption of sugar from beverages.

Présentation de diverses boissons dans un supermarché.. © INRA, SLAGMULDER Christian
Updated on 09/22/2017
Published on 05/05/2014

Questions related to food consumption loom large in debates about public health because of the strong link between the food people eat and the rise of obesity or onset of chronic disease. In an effort to promote balanced diets, in 2001 public health authorities in France put a national nutritional and health programme into place (PNNS) along with, as of 2010, a plan to combat obesity. Up to now, nutritional policies have consisted of steering consumers toward healthier and more balanced choices (advertising campaigns, raising awareness, etc.), but these tools have not been successful in combatting obesity in France. That is why public authorities are now turning to other ways of shaping the environment of consumers (policies based on price, product composition standards, incentives to reformulate products, restricting supply in certain areas, etc.). 

The goal of the studies, which uses methods of structural economics, is to help public policy-makers combat obesity by assessing how taxation/subsidy policies affect food choices. The studies revealed how industrial players and distributors handled pricing once a taxation policy was put into place, and how consumers changed their buying habits. The models developed are used to simulate the impact of different public policies.

The soda tax, implemented in 2012, mounted to €7.16 per hectolitre applied to all sweetened beverage products, regardless of their sweetening agent: sugar or artificial sweeteners, with the exception of syrups and pure fruit juices.  

Research carried out in the Mathematical and Quantitative Economics Research Group (GREMAQ) revealed that the soda tax did have an effect on the consumption of sweetened beverages. However, the overall impact on sugar consumption remained quite limited because sweetened beverages were substituted with fruit juices, whose sugar content is on average equivalent in added sugar to that of the drinks targeted by the tax. Such taxation would have been more effective in terms of changing dietary behaviour if it had targeted sweetened products alone and not included "light" beverages, because consumers would have then shifted to the latter. 

Contrary to the widely-accepted idea that players in the beverage sector (industrial firms or distributors) would absorb some of the cost of this tax in order to limit the impact on sales, studies have shown that it is actually in their interest to pass on price rises to consumers at a rate higher than that of the tax.  In the case of the €7.16 tax per hectolitre, the increase in price would be around €0.10 per litre. This demonstrates the need to integrate the strategic response of commercial players into tax policies. It also shows how important it is to take differentiated products, with a different nutritional make-up, into consideration in analyses.

How well a nutrition tax works depends on how it is designed. If the goal of the tax is to generate revenue for the State, a VAT-based tax makes more sense. Indeed, the higher the price of the product, the more VAT is collected. Conversely, an excise tax based on the sugar content of products would have a greater effect on how much sugar people consume, for two reasons. Firstly, this would mean prices would go up based on sugar content, not value. Secondly, an excise tax based on the sugar content of beverages falls more to industrial players and distributors than an increase in VAT.

Find out more

Bonnet C. (2013),How to set up an effective food tax?,International Journal of Health Policy and Management, 11 (3): 233-234

Bonnet C. and V. Réquillart (2013),Tax incidence with strategic firms on the soft drink market,Journal of Public Economics, 106: 77-88

Bonnet C., and V. Réquillart (2012),Les effets de la réforme de la politique sucrière et des politiques de taxation sur le marché des boissons sucrées,Cahiers de Nutrition et de Diététique, 47 : 35-41