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Studies say soda tax reduces sales – but is that good or bad?

SANTA FE, N.M. — If a 2-cents-per-ounce tax on sugar-sweetened beverages is approved by Santa Fe voters in a special election on May 2, would the City Different be any different from other places where so-called “soda taxes” have been imposed?

Studies – including two prominent reports funded by the pro-soda tax side – on the effect similar taxes have had in Mexico and in Berkeley, Calif., suggest a sharp decline in sales and consumption of sugary drinks, especially among low-income families, as consumers turn to water or other healthier drinks.

Whether a sales decline is good or bad is part of the argument in Santa Fe’s special election campaign.soda23

Opponents of the tax say fewer sales of sugary drinks means a loss of jobs. Proponents say less consumption of sweetened beverages is a “win-win,” helping produce a healthier population, even as the tax generates revenue – estimated at more than $7 million a year – to finance an expansion of pre-kindergarten programs in Santa Fe.

Regular population growth and Santa Fe’s tourist trade will help sustain tax revenue as a funding source for pre-K as per-capita soda consumption goes down, they say. Opponents doubt that and cite recent developments in Philadelphia, where a 1½-cent-per-ounce tax on distributors of sweetened drinks went into effect Jan. 1.

“Shops are reporting sales losses as people shop outside the city,” Barry Kiess, CEO of Coca-Cola Bottling Co. of Santa Fe, said in a statement to the Journal. “As a result, small businesses are making layoffs, they aren’t hiring and hard-working people’s paychecks have decreased.”

Philadelphia’s supermarkets and distributors there report a 30 percent to 50 percent drop in sales of sugary drinks after the first two months of the tax and some have threatened layoffs. The city and Mayor Jim Kenney have stridently disputed those reports, calling the soda industry’s claims “fear-mongering.”

Just this week, the Public Health Institute in Oakland released a study by PHI and researchers from the University of North Carolina examining the impact a 1-cent-per-ounce sugary drink tax has had in Berkeley. The study says consumers didn’t end up with higher grocery bills overall and local businesses weren’t harmed by the tax over its first year.

“The Berkeley tax is a home run,” Lynn Silver, a PHI researcher who was the lead author of the study, said. “Residents chose healthier options, it raised revenue for promoting health and we saw no evidence of higher grocery bills for consumers or harm to local business revenue.”

The study follows another one released last fall by researchers at the University of California Berkeley that focused on the impact of the tax on lower-income households in the first six months. That study found a 20 percent drop in consumption of soda and other sugar-sweetened beverages in Berkeley’s low-income neighborhoods, while consumption of the same types of drinks rose by 4 percent in nearby Oakland and San Francisco, both of which have now passed soda taxes that haven’t yet gone into effect.

It also found that Berkeley residents reported a whopping 63 percent increase in the consumption of bottled or tap water.

The new PHI study used a year’s worth of data that included 15.5 million consumer checkouts at 23 stores not just in Berkeley, but also in the surrounding Bay Area for comparative purposes. It also conducted phone surveys of nearly 1,000 Berkeley residents before and after the tax.

Among the findings were:

• Sales of sugary drinks dropped 9.6 percent in Berkeley, while they increased 6 percent in stores located in Bay Area cities where there was no tax.

• Sales of water increased by 15.6 percent, meaning people purchased more ounces of water than what was measured as the decrease of ounces of sugary drinks.

• Overall, the sales of untaxed “healthier” beverages, like fruit and vegetable drinks, tea, and plain milk, increased by 3.5 percent.

• The $1.4 million generated by the tax in the first year translates to $12 per capita in Berkeley.

• About two-thirds of the penny-per-ounce tax on distributors was passed through to consumers. It was fully passed through for soda and energy drinks, and at large and small chain stores and chain gas stations, but only partially passed through at smaller “corner stores” and independent gas stations.

Kiess, of the Santa Fe Coke bottling firm, says that, if approved, the tax on sugary drinks would likely be fully passed through to consumers – $1.44 per six pack of 12-ounce cans, for example. “It would be hard for any business in Santa Fe to absorb a 100 percent tax,” he said.

A ‘win-win’

Pre-K for Santa Fe, a political committee supporting the tax, was quick to hail the new study in a news release with quotes from restaurant owners and Kelly O’Donnell, an economist who conducted her own analysis used to support the idea of a soda tax. “These findings are consistent with the economic forecasts I conducted on the soda tax in Santa Fe. It truly is a win-win for the community,” she said.

The study was funded by Bloomberg Philanthropies, the charitable group of former New York City Mayor Michael Bloomberg, who is a huge financial supporter of pro-soda tax campaigns, including Santa Fe’s. According to campaign finance statements, Bloomberg so far has contributed $329,750 of in-kind services to Pre-K for Santa Fe.

Asked whether it was fair to question the study considering its funding source, Sandra Wechsler, a spokeswoman with Pre-K for Santa Fe, said, “The study was published in a peer review medical journal and conducted by well-credentialed public health researchers and scientists.”

David Huynh of Better Way for Santa Fe & Pre-K, the political committee opposing the tax, said the study actually supports what his group has been saying. “It shows that the tax would be passed on to consumers, that people are willing to shop outside the city and that beverage sales would decline,” he said.

Huynh said for those who see the tax as a way to reduce obesity, the tax in Berkeley is a failure. He points to data from the study that show the tax resulted in a reduction of just six calories per day from sugared drinks for Berkeley residents, which was more than offset by a 32-calorie-per-day increase from non-taxed beverages like milkshakes and yogurt smoothies.

Those are the same points made by the American Beverage Association in a blog post in response to the study. The ABA is the main contributor to the anti-tax Better Way for Santa Fe & Pre-K, which so far has received more than $1 million in support of the campaign against the tax.

Bloomberg Philanthropies also helped fund a previous study on what amounts to a 10 percent tax on sugary beverages in Mexico after its first two years.

Examining store purchases from 6,645 households, the study found a 5.5 percent reduction in the sale of sugary beverages in 2014, followed by another 4.2 percent decrease in 2015. Like the Berkeley studies, the greatest decline in Mexico sales occurred among lower socioeconomic households.

A prior study by the Instituto Nacional de Salud Pública published in the British Medical Journal had found a bigger reduction after the first year the tax went into effect. Its survey of 6,200 households in 53 Mexican cities showed a 12 percent drop in sales the first year of the tax. Again, the greatest reduction was in the poorest households where purchases of sugary drinks dropped 17 percent.