Alcohol and tobacco used to be the obvious “go-to” consumer goods when it came to raising taxes to help reduce consumption of unhealthy products and increase governmental income. Today, however, governments have turned their interest toward other types of food and drinks. At the end of October, for example, the French government adopted two new taxes, one on soft drinks with added sugar and the other, to everyone’s surprise, on artificially sweetened soft drinks. The tax will amount to an extra €.716 per liter, or €.02 for a 33cl can. Since the average price per liter for a regular soda is around €1, this would constitute a 72% price increase!
The tax on soft drinks was announced at the end of August. At the time, it was only supposed to affect soft drinks with added sugar. The fact the French Assembly decided to adopt two separate taxes shows that there is still room for debate before the official implementation of the tax on artificially sweetened soft drinks, which is expected to come into effect before the end of 2011, as the government needs to wrap up its 2012 budget.
So what does this mean for soft drinks? If both taxes go through, companies will have to focus on naturally sweetened soft drinks such as fruit-based drinks. The adoption of the tax for artificially sweetened drinks seems very counter-productive: the tax was first advertised in the media as the “obesity-tax,” helping consumers to make the right choice for their health and ultimately boost lower calorie options. However now it means most soft drinks’ prices will increase uniformly, which will make it harder for consumers to tell the difference and go for the healthier/cheaper option. Consumers won’t see an obvious alternative to their carbonates consumption with all products on the same price level. Even with the price increase, carbonates should remain slightly cheaper than 100% juice option.
This tax on artificial sweetener could be a sign of what’s to come for artificial sweeteners, especially aspartame. The French food agency ANSES is expected to give new consumption recommendations for aspartame at the end of 2011. Some manufacturers such as the retail Super U have already said they will replace aspartame with Stevia in its soft drink private label range by 2012.
At first glance Stevia-based products could be the winner of this new law. However Stevia is rarely used on its own. Because of its licorice-like taste most manufacturers prefer not to use it alone and instead mix it with artificial sweeteners or sugar—which mean the final product would also be affected by the new law. The other issue is stevia’s price, which is still much higher than other artificial sweeteners.
France is not the only country in which a “healthy” tax has been adopted. In fact, last month in Denmark the government introduced a “fat tax”—a tax on products containing more than 2.3% of saturated fat. (Denmark was the first country to ban trans fat back in 2004.) Although the ban did not prevent obesity rates from rising, it did help decrease death by ischemic heart diseases from 133 per 100,000 inhabitants in 2004 to 92 in 2010. This new “fat tax” impacts mostly butter, cream, bakery items, ice cream, confectionery, dairy and ready meals.
Higher unit price does not always thwart consumption, but it can be the opportunity for companies to change their ingredient lists and add more value components to justify the price increase. It can also make healthier alternatives seems more advantageous or at least affordable in comparison. For example, even if 100% juice products are still expected to remain more expensive than carbonated drinks, even after the added tax, 100% juice will appear more affordable and certainly a better value for money in comparison.