Will the South African government’s proposed sugar tax address the obesity challenge of the country, or damage the economy by undermining the beverages sector? The debate continues in a statement issued by the Beverage Association of South Africa (BevSA), entitled: Calorie reduction without destroying jobs – there is a better way.

BevSA’s says its submission in response to the Treasury’s policy paper on a tax on sugar-sweetened beverages was questioned by the Trade and Indusrial Policy Strategies (TIPS), an economic research organisation which undertakes commissioned research as well as policy papers and think pieces around industrial policy and economic development. BevSA argues that its submission should be reconsidered.

BevSA cited projections by Oxford Economics data that 62,000 to 72,000 job could be lost after the implementation of a sugar tax and said two other independent analyses by KPMG and the sugar industry have confirmed that tens of thousands of jobs are at risk.

“While we value the review from TIPS, we also recognise the value of constructive dialogue. The opportunity to present Oxford Economics results and methodology, along with KPMGs and other consultancies, will go a long way in understanding where the figures have been derived from,” the statement reads. “We know that ALL modelling and projection data is derived from assumptions. The Oxford Economics data used assumptions based on the Treasury’s SSB Tax policy paper. We are willing and want to engage with government and its research agencies to understand the impact of the SSB tax holistically.”

BevSA says it welcomes National Treasury’s decision to table its own socio-economic impact assessment study, and hopes that TIPS will investigate whether the tax may undermine industrial policy.

The statement continues: “As industry, we believe Treasury’s tax proposal is not the solution to addressing the obesity challenge. BevSA members are able, and have committed, to deliver a 14 to 18 calorie (58 to 75 kilojoule) reduction in average daily energy intake from SSBs; double the reduction the tax is expected to achieve. The government has an opportunity to secure a greater impact on obesity and revenue growth, through collaboration with industry without the risk of job losses.”

While substitution within the non-alcoholic ready-to-drink (NARTDs) category will help mitigate SSB volume erosion, the Oxford Economics analysis calculated an overall net impact on sales volumes and jobs.

For substitutes to create jobs, consumers would have to spend similar amounts on substitute products. BevSA says that based on Treasury’s own analysis, the total level of consumer spending in SSBs will drop only minimally – the drop in volume largely compensated for by the price increase due to the tax.

Oxford Economic found there would be limited movement from consumers towards diet or sugar free variants. Consumer preferences and behaviours are complex to model and their potential reactions could be over-simplified. Evidence from field studies in America suggests substitution could be into other calorie-dense categories such as confectionary, dairy, or alcohol. Switches to other categories would also not necessarily mitigate the impact on the poor, as the tax represents a substantial real price increase, eroding their purchasing power.

Evidence shows that in South Africa, female obesity increases with wealth. The statement continues: “The Department of Health’s proposed Total Dietary Study would provide clarity in this regard, therefore policy formulation prior to this is premature.”

In terms of sugar consumption figures in South Africa, BevSA used exactly the same data source as used by SA’s National Department of Health: the Food and Agricultural Organisation (FAO) of the United Nations. The figures show that since 1991 there has been a significant shift in the South African diet towards food categories unrelated to sugar, namely vegetable oils and cereals.

Within the sugar category, BevSA acknowledges there has been a shift in consumption from raw sugars to processed sugars over the past two decades, a trend consistent with economic growth, a growing middle class, and urbanisation. According to FAO, total sugar consumption declined by 46 calories per person per day over the same period. Numerous other South African nutrition studies provide sugar consumption estimates in line with FAO data.

The economic multipliers used to derive indirect and induced job losses in the BevSA submission were developed by Oxford Economics on the basis of government input-output tables. The beverage industry is a people-intensive business, with a long supply chain from growers to consumers. This explains the relatively high economic multipliers, which specifically include the informal retail sector which derives a large economic benefit from NARTDs. These multipliers are specifically calculated for the beverage industry and cannot be used across all manufacturing activity.

KPMG has, separately and independently of BevSA, concluded job losses would amount to 34,475, compared to Oxford Economics’ estimate of 62,000 to 72,000. KPMG‘s analysis is more conservative, using a lower elasticity than the estimate cited by Treasury and a lower weighted average price change than BevSA (20% vs 25%).

BevSA says its submission did not exaggerate employment figures by inferring all suppliers and retailers in the value chain depend exclusively on sales of sugary drinks. Suitable distinctions were made between employment in the entire informal retail industry (360,000 to 455,000) and informal retail sector jobs the industry supports (80,000 to 130 000).

Of the 180,000 to 200,000 informal retail outlets, BevSA have based the 16,000 to 26, 000 of jobs at risk on a proportional reduction of revenue and profits. It says both analyses point to tens of thousands of jobs at risk. “In the current economic climate, the socio-economic impact is unacceptable. Surely any job loss, if avoidable, is one too many, particularly when the alternative is no jobs together with better obesity outcomes.”

Many spazas are operating at, or very close to break-even. Many would not be able to accommodate a one-third drop in volume of products that provide 30% of profits; they would be forced to lay off employees, or close down all together. This has been the experience of other markets – following the implementation of an SSB tax in Mexico, some 30,000 small retailers closed, in part due to the tax.

BevSA says the proposed introduction of the tax on SSBs is a serious issue for the South African economy and the nation’s health, and its members are requesting greater consultation to ensure all consequences are fully understood. BevSA is confident its analysis is robust, independently derived, and stands up to scrutiny.

Moreover, it says it hopes that government and industry will come together in the coming weeks to jointly find the most effective way to reduce the blight of obesity on our nation, without damaging the economy in the process. The industry is already committed to doubling the health impact outlined in Treasury’s tax proposal while continuing to build business growth and job creation. It is an outcome which would be far more favourable for industry, consumers and the Treasury.

This statement was issued by The Beverages Association of South Africa.