Is sugar tax doing its work already?

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 sugar-sweetened 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 Coca-Cola 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.