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Op-Ed: Sin taxes are here to stay

Shrewd businesses should keep up with shifts in consumer priorities, instead of campaigning against junk food taxes.

Heavy guns are pounding both sides in the battle of the bulge. Would-be British prime minister Boris Johnson has attacked “sin taxes”.  The ads of the UK’s biggest cancer charity show mocked-up cigarette packets labelled: “Obesity is a cause of cancer too”. Accusations of fat shaming followed. Food and drink businesses can expect no respite. Obesity rates are soaring. So is the cost of treating its consequences.

Critics of sugar taxes such as Johnson think they clobber the poor. The UK’s experience with fizzy drinks suggests otherwise. A tax introduced in 2018 raised less than half the forecast amount.

Makers rejigged drinks, although not all were hits. Ribena, a blackcurrant beverage consumed or spilled by kids, already had a reputation for dying soft furnishings purple. Its reformulation was accused of tasting like drain cleaner.

Healthier customers have not hurt the wellbeing of drinks groups. Take AG Barr, maker of Irn-Bru, a beverage as traditionally Scottish as religious dissent and dental caries. The group spent £1.4m on a new low-sugar formula and largely escaped the tax. Its share price, which slumped on news of the levy, has since risen 80%.

Nudging consumers towards low-sugar soft drinks has only a modest impact on total sugar intake. Manufacturers need to cut sugar in food and snacks too. US group Mondelez has developed a low-sugar version of Cadbury Dairy Milk chocolate, using fibre to preserve its texture.

Such tricky tasks are boosting speciality-ingredients companies such as Givaudan, Chr Hansen and Kerry. The sector trades at a premium to the food companies it serves.

Shrewd businesses should keep up with shifts in the consumer priorities that regulation reflects, instead of campaigning against junk food taxes. A few companies — Danone, Nestlé and PepsiCo — have promised to lobby in support of anti-obesity policies. The food industry can still be expected to fight sugar taxes hard.

A pinch of salt, rather than sugar, should be taken with the populist sentiments of Johnson. Health warnings are ineffective. New drugs marketed by the likes of Eli Lilly, Novo Nordisk and Eisai are promising but costly. The annual health cost of obesity has topped $2-trillion globally. Inaction is not an option. Expect governments to abandon taxes on sugar? Fat chance.

Source: The Lex Column, Financial Times

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