IS SUGAR TAX DO­ING ITS WORK AL­READY?

CityPress - - Business - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

There are more signs that the heav­ily con­tested pro­posed tax on sugar-sweet­ened bev­er­ages is start­ing to ef­fect change as the soft drink in­dus­try fights it tooth and nail.

Coca-Cola Bev­er­ages SA this week pre­sented its var­i­ous im­mi­nent re­for­mu­la­tions and prod­uct size re­duc­tions at a hear­ing be­fore Par­lia­ment’s stand­ing com­mit­tee on fi­nance.

By the end of the year, 330ml cans will be dis­placed by 300ml ver­sions and 500ml bot­tles by 440ml ones, while sizes above 2 litres will dis­ap­pear.

By next year, the com­pany claims it will have re­duced the av­er­age sugar con­tent of its prod­ucts by 24%, com­pared with 2016.

In March, Clover said it had put on hold most of its new projects to fo­cus on mit­i­gat­ing the mul­ti­mil­lion-rand ef­fect of the im­pend­ing sug­ar­sweet­ened bev­er­age tax.

Clover has launched its first sugar-free bev­er­age, Tropika Slenda, in re­sponse to the im­pend­ing tax.

Ve­laphi Rat­she­fola, the man­ag­ing di­rec­tor of Coca-Cola Bev­er­ages, told City Press that the bulk of the com­pany’s re­duc­tion was through ac­tual re­for­mu­la­tion of well-es­tab­lished lo­cal brands.

Sell­ing more bot­tled wa­ter and diet brands also helps drive the av­er­age down.

Ac­cord­ing to Rat­she­fola’s pre­sen­ta­tion in Par­lia­ment this week, dif­fer­ent prod­ucts’ sugar con­tent is be­ing cut by be­tween 10% and 70%.

This in­cludes Fanta and Sch­weppes, but Coke it­self is no­tably ab­sent.

Coca-Cola Bev­er­ages’ moves echo those of much smaller com­peti­tors such as Soft­bev and Lit­tle Green Bev­er­ages, which are work­ing to re­place sugar with non-nu­tri­tive sweet­en­ers across their ranges while look­ing at push­ing smaller units.

Re­for­mu­la­tions and re­duced pack­age sizes are both mas­sively in­cen­tivised by the pro­posed sugar tax, de­spite most pub­lic at­ten­tion fall­ing purely on how price hikes could re­duce con­sump­tion.

Iron­i­cally, the in­dus­try is mak­ing pos­i­tive changes in a way that ob­vi­ously re­lates to the sugar tax even while in­sist­ing the tax would hold no pub­lic health ben­e­fit.

Ac­cord­ing to Rat­she­fola, it makes com­mer­cial sense to use less sugar and sell in smaller bot­tles – tax or no tax.

Smaller bot­tles and cans are far more prof­itable than bulk units – which in­clude 1.25 litres and above, he said.

Small packs make up about 30% to 35% of Co­caCola Bev­er­ages’ sales by vol­ume, but con­trib­ute the ma­jor­ity of rev­enue, said Rat­she­fola.

A small bot­tle of Coke of­ten re­tails at al­most the same price as a 2-litre bot­tle.

Sugar-free and re­duced-sugar drinks are also more prof­itable sim­ply be­cause sugar costs more than the non-nu­tri­tive op­tions, he added.

Coca-Cola Bev­er­ages spends about R3.5 bil­lion on sugar in South Africa a year – more than a third of the en­tire mar­ket.

“There is a pure com­mer­cial ra­tio­nale,” said Rat­she­fola.

The sugar tax that has been pro­posed would mas­sively am­plify these dy­nam­ics.

It would come to a higher tax rate on large bot­tles, sim­ply be­cause of the es­tab­lished prac­tice of charg­ing far less for them on a per-100ml ba­sis.

Smaller com­peti­tors have com­plained that the sugar tax may fur­ther en­trench Coca-Cola’s dom­i­nance.

Small bot­tlers are more re­liant on the 2-litre mar­ket.

The in­dus­try is, how­ever, still hold­ing out for its al­ter­na­tive pro­posal – that the gov­ern­ment leg­is­late a tar­get sugar con­tent and only pe­nalise com­pa­nies that do not reach it.

It is not for the in­dus­try to dic­tate what level that should be, said Rat­she­fola.

“We need to be told how much sugar per 100ml.”

The logic of this pro­posal is that it would pun­ish who Rat­she­fola calls “free rid­ers” who might ben­e­fit from con­ces­sions the in­dus­try wins from its in­tense lob­by­ing in the past year with­out hav­ing to re­duce their own sugar use.

Since the ini­tial sugar tax pro­posal in July last year, Trea­sury has al­ready made sig­nif­i­cant con­ces­sions by cut­ting the tax rate from 2.29c to 2.1c per gram of sugar and ex­empt­ing the first 4 grams per 100ml from the tax al­to­gether.

This would re­duce the ef­fec­tive sugar tax on Coca-Cola’s prod­ucts from an av­er­age of 26% down to about 14%, said Rat­she­fola.

Soft drinks tend to have sugar con­tent in the re­gion of 11g per 100ml.

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