Mexico’s “Junk Food” Tax Hitting Coke and Pepsi

No wonder Coke and Pepsi are spending millions of dollars to fight proposed taxes on sugary drinks in California.

PepsiCo reported a higher quarterly profit Thursday as global sales rose, but one weak spot was Mexico. The company said snacks sales volume declined by 3 percent, hurt by a new tax on junk foods.

Recent declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in in San Francisco and nearby Berkeley.

PepsiCo โ€” which makes Frito-Lay chips, Gatorade and Tropicana โ€” reported similar declines in its snacks business for the first half of the year, starting when the tax went into effect.

Coca-Cola, which reports its third quarter results Oct. 21, has also reported beverage volume declines in Mexico for the first half of the year, citing a similar tax on drinks. Mexico has the world’s highest per capita consumption of Coca-Cola drinks.

Hugh Johnston, chief financial officer for PepsiCo, said in a phone interview that declines in Mexico were in line with what the company expected. To mitigate the impact of the tax, he said PepsiCo plans to target different package sizes for different outlets.

The taxes in Mexico add one peso, about 7 cents, to the cost of a liter of sugary drinks, and 5 percent of the price to foods with 275 calories or more per 100 grams.

It’s not yet clear whether the taxes’ impact on consumption will last or how significant it will be over time. And while PepsiCo monitors such tax initiatives around the world, Johnston said he doesn’t expect them to become more common.

Back in the U.S., San Francisco and Berkeley are seeking to become the first cities to pass per-ounce taxes on sugary drinks in the upcoming November election. The measures are being closely watched because many say defeats in the Bay Area, which is known for its liberal politics, would be a major blow to advocates of such taxes as a way to improve nutrition. Similar measures in other U.S. cities have failed.

Health advocates have pushed taxes as a tool to cut consumption of calorie-laden junk food, similar to tactics that have successfully been used against cigarettes. Makers of such products say they are being unfairly singled out.

During a conference call with analysts and investors, PepsiCo CEO Indra Nooyi addressed the measures in California and said she believed such “discriminatory taxes” are “wrong.”

“We will make our case and hope the voters are sensible enough to look at the right answer,” Nooyi said.

Since the start of this year, the American Beverage Association contributed $7.7 million to defeat the proposal in San Francisco alone, according to a filing made this week.

That’s far more than the $391,000 in contributions reported by supporters of the tax over the same time.

In the meantime, the beverage industry has touted its commitment to reducing the calories people consume from drinks by more aggressively marketing drinks with less sugar. The industry has also stressed the need to raise awareness about balancing the calories people consume with how much physical activity they get.

6 Responses
  1. Rick Smith

    Mexico is doing what the United States won’t do, stand up for the health of their citizens in the face of big business financial greed.

  2. Mexico is USA’s child. Making laws that should be personal decisions. It is wrong whatever country is mandating it. We all should have the dignity to make a personal decision that does not effect others! You are taking away a personal right.

    1. So many people now rely on social service such as Medicare and Medicaid, and the public health system in Mexico, that choosing to be obese and make poor health choices isn’t a personal choice anymore, it involves government money, which comes from an entire nation of taxpayers. Even people on private insurance pay skyrocket premiums to cover the cost of millions of open heart surgeries for people who were making “personal decisions” to be obese.

    2. well, let’s make the world perfect!!! If you read the media today everyone wants to be slim, fit and gluten free!!! Whooopoeee. Not everyone will live forever, get over it, you will die. People should be allowed the human decency to make choices. Get rid of money and corporate politics, then there would be no greed and people could make their own choices. Value your own choices because you had the right to make them yourself and no govt. did it for you!!!!!!

  3. Good!! At the bus station, they couldn’t understand why I took out the coke from my “lunch” bag and gave it back to them. They looked at me like I had 10 heads!! Lol

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