Trade Resources Policy & Opinion What Might Be The Impact of an Australian Soda Tax?

What Might Be The Impact of an Australian Soda Tax?

With the implementation of high profile sugar and soft drinks taxation in France in 2012, in Mexico in 2014 and Berkeley, California in January of this year, the global debate concerning the purpose and efficacy of excise tax proposals on sugary beverages is inevitably moving into other high per capita markets for carbonates.

Presently, the topic is on the agenda in Australia, a top 10 market for carbonates consumption in terms of per capita retail volume sold, and yet another country where obesity and other public health concerns are driving interest in added taxation as a potential policy solution. Fifteen years of volume and value sales data for carbonated drinks in the Australian market, published as part of Euromonitor’s non-alcoholic drinks research program, allow us to speculate on the potential impact of a soft drinks tax by considering the historic impact that price increases have had on Australian retail sales of carbonates, with a focus on cola.

Cola as a case study

As part of non-alcoholic drinks research published this January, Euromonitor International employed an inductive demand model to aid in five-year forecasting. The forecast model attempts to identify several measureable and statistically significant demand factors (including retail price) from historic data sets of the 80 markets researched. These factors are tested against historically available data for retail and on-trade beverage category sales, and then weighted to assist in building 2015-2019 country forecasts.

For Australia, the results demonstrate that a 1% increase in the retail selling price of regular, full flavour cola carbonates can be expected to yield just a 0.2% decrease in retail volume. Consequently, even a relatively substantial (and hypothetical) 7% increase in pricing in 2015 would yield only half a percentage point difference in expected declines: from a 6.5% forecasted reduction in off-trade regular, full-flavour cola volume for 2015, to a 7.0% reduction in 2015 under a soda tax scenario.

Discounting other factors, this finding suggests a weak relationship between price hikes and volume declines in Australian standard cola. However, this finding is simply based on observable data from the market and should not be oversimplified. In constant 2014 Australian dollars, retail unit prices for cola carbonates (including regular and low calorie cola alternatives) have fallen consistently over the review period – by 17% in total over 2000-14. There is greater uncertainty over the impact of a substantial soda tax in Australia, because there is simply no precedent for a substantial price shock in the Australian retail market. Furthermore, the introduction of such taxation would necessarily be accompanied by a high profile health and public policy debate in the media that may further impact consumer attitudes and behaviours towards the cola and wider carbonates category for reasons other than simple price.

Source: http://ausfoodnews.com.au/2015/10/12/what-might-be-the-impact-of-an-australian-soda-tax.html
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