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In a recently released paper, the Trade and Industrial Policy Strategy attempts to discredit the beverage industry’s research and claims around job losses. Mapule Ncanywa, BevSA Executive Director, responds.
Trade and Industrial Policy Strategy (TIPS), an organisation funded by the trade and industry department has questioned BevSA’s submission which responded to the treasury’s policy paper on sugar-sweetened beverages tax. The submission cited Oxford Economics data that projects there could be 62 000 to 72 000 job losses if sugar tax was implemented. 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 KPMG’s and other consultancies, will go a long way in understanding where the figures have been derived from.
We know that all modelling and projection data is derived from assumptions.
The Oxford Economics data used assumptions based on the Treasury’s sugar-sweetened beverages tax policy paper. We are willing and want to engage with government and its research agencies to understand the impact of the tax holistically.
BevSA welcomes the national treasury’s decision to table its own socioeconomic impact assessment study. We hope TIPS will soon rise to its mandate to at least investigate whether the tax may undermine industrial policy – as we believe it will.
As industry, we believe the treasury’s tax proposal is not the solution to addressing the obesity challenge. BevSA members are able, and have committed, to deliver a 14-18 calorie (58 – 75 kilojoule) reduction in average daily energy intake from sugar-sweetened beverages; 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.
These harmful consequences start with the price impact of the tax, which TIPS patently misunderstands. BevSA calculates the weighted-average price impact of the proposed tax to be 25%, largely driven by pack mix. Using the elasticity assumptions in the academic paper cited by the treasury this equates to a volume drop of 33% across the entire sugar-sweetened beverages category.
While substitution within the non-alcoholic ready-to-drink category will help mitigate sugar-sweetened beverages volume erosion, the Oxford Economics analysis calculated an overall net impact on sales volumes and jobs. Moreover, substitution into non-ready to drink beverages, such as tea and tap water, does not create economic activity at anywhere near the level of soft drinks.
Hence the impact on volume and employment is quite different to how TIPS conceives it. For “substitutes to create jobs”, consumers would have to spend similar amounts on those substitute products.
However, based on the treasury’s own analysis, total level of consumer spending in sugar-sweetened beverages will drop only minimally – the drop in volume largely compensated for by the price increase due to the tax. Again using the same research
cited by government, Oxford Economic found there would be limited movement from consumers towards diet or sugar free variants, and does not provide any indication of the likely impact on water consumption.
Consumer preferences and behaviours are complex to model and TIPS may be over-simplifying consumer reactions. Evidence from field studies in the United States 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.
Contrary to TIPS’ conclusion, evidence shows that in South Africa, female obesity increases with wealth. The health department’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 the health department: the Food and Agricultural
Organisation 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, we acknowledge 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 the Food and Agricultural Organisation, 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 this 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 non-alcoholic ready-to-drink beverages.
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 with Oxford Economics’ estimate of 62 000 to 72 000.
KPMG’s analysis is more conservative, using a lower elasticity than the estimate cited by the treasury and a lower weighted average price change than BevSA (20% versus 25%).
BevSA 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.
Nonetheless, both analyses point to tens of thousands of jobs at risk. In the current economic climate, the socioeconomic 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 sugar-sweetened beverages tax in Mexico, some 30 000 small retailers closed, in part due to the tax.
The proposed introduction of the tax on sugar-sweetened beverages is a serious issue for the South African economy and the nation’s health. BevSA 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, we hope that the 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 the 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.
