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The price of sin (in the soft drink sense)

Paris – Repercussions of the new “sin tax” on soft drinks.

Soft Drink, Photograph: Getty Images.

While many hard-pressed European governments seem tempted by creating new sumptuary taxes on fast food or sweetened drinks, France ranks among the first to have stepped up with the adoption of a new tax on soft drinks in January 2012. A gaping budget deficit and the urge to balance the public expenses ushered the implementation of a new excise duty of €7.16 per hectoliter for all sweetened – naturally or artificially - soft drinks.

Inconsistent, improvised, unfair, opportunistic… A front of diverse opponents started to build up against the project, leaving the government in an awkward position as presidential elections started to come closer. Nicolas Sarkozy, who campaigned in 2007 as a purchasing power champion, was unwillingly drawn into the debate and eventually let his prime minister carry the bad news that the law will be implemented, shifting the emphasis towards artificially sweetened drinks and leaving the political arena and its own party even more confused.

But beyond the tax’s inconsistencies and arbitrary aspect, food and drinks industrials could not help but interpret this new tax as the government’s denial of the recent industry efforts on social and environmental responsibility. Targeted in the 2000’s by public authorities on environmental grounds, water bottlers had got the message and consequently invested massively to improve their carbon footprint. They are now at the vanguard of the FMCG industry, overcoming obstacles and reaching outstanding results in carbon reduction programs for their companies.

However the eye of the storm seems to have moved away from the packaged water industry towards the soft drink arena, which has achieved excellent results since 2008 despite the current economic crisis. Three months after the tax’s implementation, private label producers were gathered at the MDD (Private Label) Fair in Paris. Even though many of them share the idea that the new tax will be indeed detrimental to the industry, some of them were particularly cautious as to draw conclusions too soon.

“The first two months of the year were particularly cold and Q1’s mediocre results can be attributed to these climatic factors”, argued Emmanuel Vasseneix, CEO of France’s leading manufacturer of juice and nectars, LSDH, and president of the French juice producer’s union Unijus. “If one wants to tax sugary food and drinks, it has to be done entirely, not restricting the tax only to soft-drinks or nectars”, added Emmanuel Vasseneix, who deplores the lack of unity of the soft-drink industry. “Professionals got tangled in a debate whether it was acceptable or not to include low-calorie drinks in the tax project”.

Meanwhile, the parliament increased the tax from €3.56 to €7.16 per hectoliter, an excise duty which particularly affects private label products. “Just like other laws aiming at regulating relationships between retailers and producers, those new taxes didn’t help in smoothing relationships” regretted Vasseneix.

Fig 1. Price hike following the implementation of the tax on soft-drinks

The French soft drinks market survived the first euro-crisis without major problems, however its resilience could well be affected should the public authorities continue to pressure the entire industry. Whilst outwardly the sector appears in relatively good health, it faces many structural and shorter term difficulties, including rising input prices (PET, glass, juice concentrates and sugar), a faltering on-premise market and ongoing tense relations with big retailing groups in the off-premise distribution channels.

 Amance Boutin is the France Research Consultant for Canadean.