Levied in 2014, the Mexican sugary drinks tax appeared to be a success. Coke and Pepsi sales were down while bottled water purchases were rising.
But not for long:
Where are we going? To the unpredictable impact of a soda tax.
Mexico’s Soda Tax
The Mexican soda tax on sugary beverages was supposed to cut an obesity rate that was close to one-third of all adult Mexicans. At one peso per liter, the tax created a 10% price increase (or more) for a typical soda purchase. With an initial 6% decrease in soda sales in 2014 rising to 12% by yearend, it appeared to be working.
Now though, the impact seems to be diminishing. One bottler said soda volume rose 5.5% from year ago levels while another cited an 11% spike. And while Mexico’s Institute of National Health reports that per capita consumption is down, calorie totals dipped by a scant seven a day.
Below you can see an appreciable pop in price:
And this is how Mexico compares to other countries:
And to U.S. states:
Our Bottom Line: Elasticity
The impact of a soda tax is all about elasticity. Just think of a rubber band. How much it expands in response to a price change displays whether your demand is elastic or inelastic. When they plan holiday sales, retailers expect our demand will be elastic while some prescription drug makers have predicted little change in sales from increased prices because consumers display inelastic demand for necessities.
With Mexico’s soda tax, some scholars theorize that initially demand was elastic. However, after two years, soda drinkers could not resist their Coke or Pepsi and reverted to inelastic behavior.
Perhaps we can just conclude by saying that nothing is a sure thing with soda taxes.