Mexico's National Soda Tax Is Raising Prices

But whether Mexicans will drink less soda in the long term—and whether a similar law in Berkeley, California, will work at all—remains to be seen.
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(Photo: Cindy Ord/Getty Images for iHeartMedia)

(Photo: Cindy Ord/Getty Images for iHeartMedia)

Earlier this year, Berkeley, California, became the first city in the country to impose an excise tax on soda. The idea is to raise the price of a bottle of soda, and in turn decrease the amount guzzled down by the city's inhabitants. Whether that plan is working remains unclear, but new research on a similar excise tax in Mexico suggests it might—as long as Berkeley residents don't head to Oakland or San Francisco to get their pop.

Mexico has a serious obesity problem, with 32.8 percent of adults and 35 percent of adolescents qualifying as obese (roughly the same as the United States). Not surprisingly, soft drinks and junk food are part of the problem. But unlike the U.S., the Mexican government took action, enacting a nationwide, one-peso-per-liter soda tax that took effect in January 2014. But whether the tax is having an effect is a tricky question. For one thing, consumers don't pay excise taxes directly. Usually, producers and retailers pay them, and they're passed on to consumers through increased prices. So the first question is, does the Mexican tax actually raise prices for consumers?

Overall, soda prices went up about 11 percent after the excise tax went into effect.

To find out, a team led by by Arantxa Colchero, a researcher at Instituto Nacional de Salud Pública in Cuernavaca, Mexico, first collected detailed price data from the National Institute of Statistics and Geography, the organization responsible for computing Mexico's consumer price index. Controlling for the time of year, population, and economic indicators, the researchers found that the tax generally did get passed on to consumers in the form of increased prices. In Mexico City and the north of the country, in fact, soda prices per liter increased by more than a peso. Overall, soda prices went up about 11 percent after the excise tax went into effect.

Despite preliminary reports from the same researchers that Mexicans were also drinking less soda, the new study shies away from the issue. Whether consumption will decrease in the long term, the authors point out, will depend on how drinks are marketed, and how much people ultimately adjust their soda-drinking habits in response to higher prices. Maybe their thirst for a soda will climb back up as they adjust to higher prices, making the tax less effective in the years ahead.

It also remains to be seen whether Berkeley will see similar effects as Mexico. Whether there's even been much of an increase in prices in the city is a matter of some controversy—they went up, but not as much as some had expected. And consumers could always go to neighboring Oakland, Albany, Richmond, or San Francisco to stock up—another factor that could suppress prices and encourage obesity in Berkeley.

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