GLOBAL ECONOMY

Soda tax in Mexico is making Coca-Cola sales fizzle – should U.S. follow suit?

In this July 9, 2015 photo, bottles of Coca-Cola are on display at a Haverhill, Massachusetts.

In this July 9, 2015 photo, bottles of Coca-Cola are on display at a Haverhill, Massachusetts.  (AP)

Angelica, the amiable middle-aged owner of a red mini-store that sits on a winding highway in southwestern Mexico, says she is betting big on Coca-Cola’s popularity with her countrymen. “People never stop and ask for Fresca or juice. They always ask for Coca-Cola,” she told Fox News Latino.

Last year, Mexico introduced a tax on soda and sugary to combat its rising obesity problem, but the omnipresent soda brand has not seen much of a decline in popularity. Angelica, whose store is painted with the Coca-Cola logo, says that in Mexico, “if you order tacos, you want a Coca. If you are eating potato chips, you want a Coca.”

Mexico’s love affair with sugary soda is a phenomenon that policymakers have been trying to fight.

In 2013, Mexico’s President Enrique Peña Nieto introduced a one-peso-per-liter tax that increased the price of soda by 10 percent. The tax went into effect in January 2014, and soda producers are feeling the effects. According to Coca-Cola’s annual report, sales in Mexico fell 4.6 percent last year.

Likewise, Pepsi reports that “volume declined 2 percent.” 

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Overall, soda consumption in Mexico fell by 6 percent in 2014, according to researchers at the University of North Carolina at Chapel Hill, with the government collecting more than $1 billion of revenue from the new tax.

Policy makers in the U.S. are now debating whether to follow Mexico’s lead. U.S. researchers have been pointing to Mexico as a successful model that could be replicated north of the border. 

Juan Rivera, a researcher at the National Institute of Public Health, told NPR, “the soda tax in Mexico has been successful.”

People in the U.S. consume, on average, 41 gallons of soda every year. Heavy soda drinkers also tend to be people with lower than average education and incomes and are likelier to be out of shape and inactive. More than 32 percent of American households earning less than $25,000 per year are heavy soda consumers compared to only 16.1 percent of households earning more than $75,000 per year.

But soda consumption in the U.S. has been falling for the past 10 years as consumers switch to healthier alternatives like bottled water. Per capita consumption of soda dropped 21 percent between 2004 and 2014, from 52.4 to 41.4 gallons.

In Mexico, lawmakers imposed the soda tax after noticing locals gaining weight. More than 36 percent of Mexican adults are obese, compared to 32 percent in the U.S. And soda was so popular with Mexicans that its consumption in the country overtook the U.S’s. 

Mexicans drink an average of 43 gallons of soda a year.

Part of the reason is that Coca-Cola has practically become part of the cultural fabric. While fresh bottled milk can often be hard to find in out-of-the-way areas, Coke’s distribution network is phenomenal.

Even in the smallest mountain towns, Coca-Cola has a big presence. The brand’s logo is hand-painted onto the walls of stores in many of the most isolated hamlets and is emblazoned onto the chairs and tables at hole-in-the-wall taco joints across the country.

It might seem easy to assume that Mexico’s cultural affinity for sweet, bubbly beverages would perennially draw a nearly vertical demand curve, even with a steep tax. If a consumer really is crazy for Coke, he or she will be willing to pay more to get it.

But the tax has clearly put a dent in Coca-Cola’s bottom line here; Coca-Cola FEMSA, Latin America’s biggest Coke bottler, saw its profits fall by $277 million in 2014.

The company sold 164 million cases of beverages in Mexico and Central America in 2014, 61 percent of those sales were Coke. Ciel, FEMSA’s bottled water brand, composed 11 percent of total sales.

And while Coca-Cola may still be king in Mexico, its dominant position is under siege.

Researchers from the University of North Carolina calculate that bottled water consumption increased by 4 percent last year. In a country where many people use bottled water to wash fruits and vegetables and even to make coffee and tea, that figure should continue to rise.

While none of the vendors Fox News Latino spoke to said they had experienced a decrease in sales, on a nationwide level soda consumption does appear to be falling, particularly among lower-income consumers.

Ricardo Fuentes Nieva, the new CEO of Oxfam Mexico, an NGO, told Fox News Latino, “The results on the soda tax are positive—it is decreasing consumption of soda in Mexico which is welcome.” But Fuentes added the soda tax needs to be part of a broader package of programs to effectively improve the health of Mexican citizens. “Affordable, healthy alternatives are also important. One of the issues in Mexico is that you cannot drink tap water. You need to drink bottled water,” he explained.

Christopher Wilson, the Deputy Director of the Mexico Institute in Washington D.C., told FNL that even though the soda tax is being regarded as a success, the other side is what you spend the tax money on. 

"To make the best use of the tax you should think about countering the regressive nature of the tax and also to expand the health benefits," he said. "It could be used to improve access to drinking water or expand access to sports and opportunities for exercise for kids.”

Mexico’s soda tax isn’t going to erase demand for Coca-Cola, but it may push consumers to make a small shift in their behavior.

Standing next to a high stack of empty Coca-Cola bottles at a taco stand near the highway in Tulum, a small town south of the Caribbean Coast resort city of Cancun, Tito Sagrero, a local resident, watched a chef ladle a spoonful of grease onto a plateful of slow-roasted, unctuous, cochinita pibil pork tacos.

“I like Coke but it’s like cochinita pibil. If it’s bad for your health, you can’t drink it every day,” Sagrero told FNL. “Maybe once a week is fine.”

Nathaniel Parish Flannery is a freelance reporter based out of Mexico City who has worked on projects in Mexico, Colombia, Honduras, Bolivia, India, China and Chile. Follow him on Twitter: @NathanielParish and Instagram: @nathanielparish.

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