Sugar tax makes soda sales drop

How much of an impact will Mexico’s controversial “junk food” tax have on the sale of Coke this year? Initially, Coca-Cola FEMSA expected sales volumes in Mexico to drop between five and seven percent this year as a result of the food tax which levies 1 Peso (USD 0.08) per litre tax on soda. The tax was introduced in January this year.

During the first half of 2014 carbonated beverage sales for Mexico’s biggest soft-drink bottler, Coca-Cola FEMSA, fell 6.4 percent compared with the same period of 2013. Fellow Mexican Coke bottler Arca-Continental saw soda drink sales drop 4.7 percent during the same period, it was reported.

The purpose of the tax is to curb soda consumption in Mexico, where some 69.5 percent – compared to 69.2 percent in the U.S. – of the total population over the age of 15 is either overweight or obese. This ranking gives Mexico the dubious distinction of being the country with the worst weight problem in the world.

Coca-Cola FEMSA has an estimated market share of about 50 to 60 percent, which implies that a value added tax can have an impact on the market.

However, sales of carbonated soft drinks only declined 0.3 percent (year-on-year) during the third quarter for Coca-Cola FEMSA, signalling that Mexico’s tax on sugary drinks might be having less of an impact on consumption than at the start of the year.

It needs to be pointed out that, in the absence of clean municipal water, many Mexican communities over the years have turned to soda as their main source for hydration.