A review of “Higher Retail Prices of Sugar-Sweetened Beverages 3 Months After Implementation of an Excise Tax in Berkeley, California”
One year ago, Berkeley became the first city in the US to pass an excise tax on sugary beverages. This 1-cent per ounce tax went into effect March 2015, and there has been some debate as to how effective it has been. HAB45 supports policies that reduce consumption of sugary beverages among young children, so we were thrilled that voters approved this measure. We’re hopeful that it will not only generate much needed funds to support nutrition programming in Berkeley, but also help to decrease the amount of sugar presented to young children.
Public health experts consistently agree that overconsumption of sugary drinks is a serious health issue. As the authors put it, “Consuming sugar sweetened beverages increases the risk of obesity, diabetes, and dental carries, and has been linked to approximately 184,000 deaths per year worldwide.” In addition, sugary beverage advertising targets low-income communities and communities of color, who are then more likely to consume sugary beverages, and their health suffers for it.
Excise taxes – taxes levied on distributors, not stores or customers– have the potential to make sugary beverages go the way of the cigarette by not only deterring purchase, but by using the collected money to fund public health and nutrition education. In this sense, Berkeley’s soda tax has already been a success –by August 2015 it generated $692,826.95 that the City will spend on health programs as advised by the Panel of Experts that the tax measure established.
It is too early to measure any decrease in obesity or diabetes in Berkeley, but we can measure the tax’s efficacy by watching the price of sugary beverages change relative to other cities. For the tax to deter purchase, consumers must “feel” the price increase. In other words, distributors must increase sugary beverage prices for retailers, who will then increase the shelf price paid by consumers. According to this study, the effectiveness of an excise tax in deterring purchase hinges on its “pass-through rate,” or the extent to which the tax is passed on to consumers through increased prices.
To determine the pass-through rate of this tax, researchers examined pre- to 3 month post-tax prices of both sugar-sweetened and non-sugar sweetened drinks (diet drinks, milk, water, and 100% fruit juice) at retailers in Berkeley and compared them to price changes in Oakland and San Francisco where there are currently no beverage taxes. If the tax is working, the prices of sugary beverages in Berkeley should have increased more than regular beverages, and they should have increased more than sugary beverages in San Francisco or Oakland. They recorded prices in low-income neighborhoods with high proportions of African-American and Latino residents and sampled the stores that these populations are likely to frequent – stores within walking distance including convenience stores, liquor stores, and small grocery markets.
The price change of soda in Berkeley in comparison to other cities was 0.69 cents more per ounce —a pass-through rate of 69%. It may not be huge, but this means that a 20-ounce soda originally $1.75 would cost $1.89 after the tax. Overall, the pass-through was 0.47 cents per ounce for all sugar-sweetened beverages. In response to the tax, the Dollar Tree discontinued sugary beverage sales at both its Berkeley locations this January. Considering that this data was collected only three months after the tax was enacted, these results are extremely promising. The pass through rate should grow as distributors and retailers adjust to the tax, and if all goes according to plan, the purchase rate of sugary beverages will decrease as well.
For the time being, the best indicators of the tax’s success are tax dollars allocated to public health and the pass-through rate. By both of these measures, the tax is so far very successful and should continue to generate much needed funds while gradually raising prices of sugary beverages. We won’t be able to observe any health benefits of the tax for some time, but as the price of sugary beverages increases people should be less inclined to buy them, and prevalence of obesity and type II diabetes should decrease.
At Healthy & Active Before 5 we support policies that reduce consumption of sugary beverages, particularly among children ages 0-5, and we’re excited to see the long-term effects of Berkeley’s soda tax. We are in the process of determining our role in supporting local policies that limit children’s access to sugary drinks, including taxes similar to Berkeley’s that could generate revenue for early childhood obesity prevention. Read more about our stance on sugary beverages here.
- Falbe, Jennifer, Nadia Rojas, Anna H. Grummon, and Kristine A. Madsen. “Higher Retail Prices of Sugar-Sweetened Beverages 3 Months After Implementation of an Excise Tax in Berkeley, California.” Am J Public Health American Journal of Public Health 105.11 (2015): 2194-201. Web.