It is interesting reading about the tax
on sugary drinks that David Mendosa wrote about here after the votes
on November 8, 2016. Now we have more information from a study led
by the University of East Anglia (UEA). The researchers state that
the wider economic benefits of a tax on sugary drinks need to be
recognized by policymakers if retailers' pricing behavior is to be
changed.
The researchers argue that economic
welfare would be improved if firms could be dissuaded from using
'value size' pricing - which involves deliberately selling larger
size drinks at much lower unit prices than smaller sizes - and this
economic benefit would be in addition to the health benefit from
reduced consumption of harmful sugary drinks.
Such value size pricing is
exceptionally harmful when it leads to excessive consumption of
unhealthy foods and drinks, as well as exploiting consumers who wish
to limit their consumption and stick to smaller sizes for their own
health and enjoyment.
This makes sense if communities are
taxing sugary drinks and needs to be understood by consumers.
Last month the UK government published
draft legislation for a tax on sugar-sweetened drinks, which is set
to begin from April 2018. The rate has yet to be set but it is hoped
the move will help tackle the nation's obesity problem.
In the US, several cities are now
considering introducing or reviewing their existing soda taxes.
Other countries, notably France, Hungary and Mexico, have such taxes
already, while South Africa, Australia and New Zealand may be
contemplating introducing them.
The UEA study models how a retailer, be
they a supermarket, restaurant, or any outlet selling drinks for
immediate consumption, might use different sizes of sugary drinks
with different relative prices to target different consumer groups.
It then considers how policy measures might change the vendor's
behavior and affect consumer choices.
The authors warn that policymakers
should not underestimate the determination of retailers to profitably
segment consumers and that poorly designed measures which do not
fully take this aspect into account can damage rather than improve
economic welfare.
They say their findings, published in
the Journal of Business Research, provide further justification for
introducing a substantial soft drinks industry levy to tackle the
problem of excessive consumption of sugary drinks fueling obesity.
The study was led by Paul Dobson,
Professor of Business Strategy and Public Policy at UEA's Norwich
Business School, working with Ratula Chakraborty, also of Norwich
Business School, and Dr Jonathan Seaton from Loughborough University.
Prof Dobson said that the drinks industry is seeking to make any levy
as low as possible when in fact it needs to be high in order to
change pricing behavior in a meaningful way.
"Our paper conveys a really
important point that is fundamental to public policy making in this
area but which has been entirely overlooked," said Prof Dobson.
"This is that the current basis for intervention to restrict the
excessive quantity of sugary drinks rests entirely on the premise
that this will be good for the health of consumers and a cost saving
to society from reduced healthcare costs.
"However, there are good economic
reasons as well as health reasons to have a sugary drinks tax as a
means to curb excessive consumption of calorie-laden sugary drinks
and encourage more efficient pricing. A soft drinks industry levy
needs to be set high enough to ensure that the retailers are
discouraged from imposing a surcharge on smaller drinks sizes, which
penalizes moderating consumption in order to steer consumers towards
consuming excessively through relative discounts and multi-buy offers
on large drinks sizes."
In one recent example of the kind of
temptation that value size pricing offers consumers, a leading
supermarket retailer selling a sugary carbonated drink was offering
the following prices before Christmas: buy two 1.75 liter bottles for
£2 (1470 kcal at 2.3 pence per teaspoon of sugar), one 1.75 liter
bottle for £1.66 (735 kcal at 3.8 pence per teaspoon of sugar) or
one 0.5 liter bottle for £1.25 (210 kcal at 9.9 pence per teaspoon
of sugar). The unit price of the latter small size bottle was more
than four times higher than on the multi-buy offer on the large size
bottle.
Similar incentives to 'go large' exist
at restaurants, fast-food outlets and other eateries where for a few
extra pence or cents consumers can supersize their sugary drinks or
have free refills.
Prof Dobson said: "It is no wonder
that many consumers feel compelled to take advantage of the size
discount and then consequently over consume. Equally, those
consumers sticking to the small size can feel aggrieved at being
penalized by paying a high price for their discipline in restricting
their consumption.
"It is the exploitation of these
disciplined consumers which puts off other consumers from restricting
their purchase sizes in favor of the temptation of grabbing a
supposed bargain because of the way the offer is couched as a
'discount', when in fact it is the small size which suffers a
'surcharge' from which the retailer can handsomely profit.
"Policy measures which dissuade
retailers from using such pricing tactics to drive higher volumes of
sugary drinks are therefore justified on both health and economic
grounds."