1

Unidad de Análisis Económico

Taxation to sin food and drinks as public policy to address obesity and diabetes in Mexico

Second Joint Meeting of the EGEP and FCAN October 14, 2015

Content

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Food for healthy eating

Obesity in Mexico

Government intervention

National Strategy to Prevent and Control Overweight, Obesity and Diabetes (ENSOD)

Tax to sin food and drinks

Main findings

Conclusion

3

The dish of good eating

Defined in the Mexican Norm (NOM-043-SSA2-2005) that was developed based upon the characteristics, conventions and needs of Mexican population The dish classifies food in three wide groups according to their role in a healthy diet and provides a guide for the amounts to be consumed per day

Groups:

1. Fruits and vegetables

2. Cereals and tubers

3. Legumes and meat products

4

1. Water: 6-8 glasses

2. Skimmed milk and soy drinks without added sugar: 0-2 glasses

3. Coffee and infusions without sugar: 0-4 cups

4. Reduced calories drinks with artificial sweeteners: 0-2 glasses*

5. 100% fruit juice, whole milk, energizing drinks and alcoholic drinks: 0-1/2 glasses

6. Soft drinks, flavored water: 0 glasses

The jar of good drinking

*Artificial sweeteners: Ingredients that provide flavor to food, reduced in calories as saccharine or aspartame.

The jar, also defined in the Mexican Norm (NOM-043-SSA2-2005), recommends per day:

5 1/ Average Exchange rate MXP – USD: 13.3 Source: INEGI. Banco de Información Económica. Volumen y valor de ventas por clase de actividad y producto. Periodicidad mensual 2007-2014. INEGI. Índice nacional de precios al consumidor; Banco de México, Tipos de cambio y resultados históricos de las subastas 2014.

Volume

Value

Despite the increase in the per capita value the per capita consumption has not shown a significant modification

Sales trends of food for a healthy diet

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014

Grains and oils Frozen fruits and vegetables Dairy products

Fresh and processed meat, fish and seafood Bakery and Tortillas Water

Do

llars

per

cap

ita

0

5

10

15

20

25

30

35

40

45

0

10

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50

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2007 2008 2009 2010 2011 2012 2013 2014

Grains and oils Frozen fruits and vegetables Dairy products (without liquid milk)

Fresh and processed meat, fish and seafood Bakery and Tortillas Liquid milk (Right axis)

Kilo

s p

er c

apit

a

Lite

rs p

er c

apit

a

6 1/ Time base for the index: Second quarter of December 2014 Source: INEGI. Índice nacional de precios al consumidor 2007-2015.

After the 2007/2008 food crisis prices of national products had cyclical periods of increments

Products with greatest impact on prices are grains, fruits and vegetables

Price trends of food for a healthy diet

50

60

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l 20

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Grains Fresh and processed fruits and vegetables Dairy products

Fresh and processed meat, fish and seafood Bakery and tortillas Bottled water

Pri

ce in

dex

Main findings on food for a healthy diet

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There is a Mexican norm that recommends a healthy diet based upon the characteristics, conventions and needs of Mexican population

Diet of Mexicans has changed for worst as the consumption of fresh fruits, vegetables whole cereals and legumes has decreased while the consumption of food with added sugar or high content of fat has increased

Prices of grains, fruits and vegetables have increased significantly in the last decade

Obesity in Mexico

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Mexico presents the highest obesity rate among children and second highes among adults

Pre

vale

nce

of

Dia

bet

es M

ellit

us Mexico also presents

the highest prevalence rate of diabetes among adult population

Overweight ObesityOverweight

and obesityOverweight Obesity

Overweight

and obesity

ENSANUT 2006 20.2 14.6 34.8 21.3 11.9 33.2

ENSANUT 2012 19.8 14.6 34.5 21.6 13.33 34.9

PROSESA 2015 17.4 18.1 35.5 23.3 12.8 36.1

SURVEY

Children (5-11 years) Teenagers (12-19 years)

Source: ENSANUT 2006; ENSANUT 2012 and PROSESA 2015: Estimates developed by DGED for follow up of PROSESA indices.

OECD average:

Source

%

Obesity in Mexico

9 1 Promedio de cotizaciones del tipo de cambio pesos por dólar E.U.A. MXP$13.3 – USD$1 para solventar obligaciones denominadas en moneda extranjera, Fecha de determinación (FIX). 2 Cost of 14 complications derived from four groups of NCD related to obesity: breast cáncer, diabetes mellitus type 2, cardiovascular diseases and osteoarthritis.

The analysis made in 2010 using the CDP model showed that combined approaches of preventive interventions may be up to twice as effective as the single most effective preventive intervention

In 2014, USD$2.02 billion were the annual direct costs in medical care for Mexicans with NCD related to obesity. This cost amounts to 45% of the total health spending in that year. 1

0.2 0.3 0.3

4.8

5.2

6.0

3.4 3.6

3.9

3.0 3.2

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2.1

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6.0

7.0Cancers

Diabetes Mellitus

Overweight and obesity

Cardiovascular diseases

Osteoarthritis

Bill

ion

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llars

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14

(Right axis)

Mill

ion

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llars

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14

10

20

02

20

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11

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Government intervention

PREVENIMSS

ANSA

Rules for sale of food and

drinks in basic education

schools

CONACRO

PREVENISSSTE

Law for food aid for

workers

Constitutional Amendment

(Art 3rd)

PREVENIMSS: Prevention Program of IMSS ANSA: National Food Safety Agreement. Strategy against overweight and obesity CONACRO: National Council for the Prevention and Control of NCDs. PREVENISSSTE: Prevention Program of ISSSTE Constitutional Amendment: Art. 3rd. “Adjustments to the legal frame for the prohibition of all food that do not promote the health of students in all schools” ENSOD: National Strategy to Prevent and Control Overweight, Obesity and Diabetes OMENT: Mexican Observatory for Non Communicable Diseases

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14

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Tax to sin-food and

beverages

Advertisement regulation

Frontal labelling

OMENT

ENSOD

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National Strategy to Prevent and Control Overweight, Obesity and Diabetes (ENSOD)

Medical care

Public policy A

xis

To increase the public and individual awareness of

obesity and its´ association with Non Communicable

Diseases (NCDs)

To lead the National Health System towards early

detection

To resolve and control at the primary care level

To slow down the incidence of obesity and NCDs

INTE

RSE

CTO

RIA

L C

OR

RES

PO

NSA

BIL

ITY

AN

D

AC

CO

UN

TAB

ILIT

Y

Social Determinants on Health Health in All Policies

Epidemiological information and burden of disease

Health promotion and educational communication

Prevention

Quality of care and effective access

Legal aspects

Fiscal aspects

Public health 1

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Tax to sin food and drinks

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Assumptions

Consumers are sensitive to price changes

Sin food and drinks can be easily substituted by healthier options

Administrative costs of tax collection are very low

Tax evasion and illicit trade are low

Results in health are visible in the mid and long terms

Tax on non-alcoholic drinks and energy drinks with added sugars: MXP$ 1.00 / lt.

The products that are listed below, with a caloric density of 275 kcal per 100 grams or greater: 8% ad valorem

Tax scheme (IEPS)

1. Snacks 2. Confectionery 3. Chocolate and other cocoa products 4. Custards and puddings 5. Sweetened fruit and vegetables 6. Peanut and hazelnut creams 7. Caramel based products 8. Sweetened cereals 9. Ice cream and popsicles

13 *Excludes IEPS revenue on petrol and diesel: Total revenue: USD$9.154 billion) Average exchange rate: MXP$13.31 – USD$1.00. Source: SHCP. Estadísticas Oportunas de Finanzas Públicas. 2014. INEGI. Índice de Precios al Consumidor 2014 y Banco de México, Tipos de cambio y resultados históricos de las subastas 2014.

Main findings

IEPS Revenue 2014 2015 (First semester) Drinks: USD$1.347 billion USD$738.5 million Food: USD$1.005 billion USD$613.6 million

USD$2.352 billion (25.7% total IEPS revenue*) USD$2.704 billion expected

72 98

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148 142 139

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96 79

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89 102

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1,000

Tobacco Alcohol Beer

Gambling Telecommunications Non-alcoholic drinks with added sugars

Non-essential food with high caloric density Pesticides Fossil fuels (except petrol & diesel)

Mill

ion

US

do

llars

Main findings

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Value2

Volume

1/ Soft drinks, energetic drinks and juces with added sugar. 2/ Average exchange rate: MXP$13.31 – USD$1.00 and MXP value at constant prices of 2014 Source: INEGI. Banco de Información Económica. Volumen y valor de ventas por clase de actividad y producto. Periodicidad mensual 2007-2015. INEGI. Índice nacional de precios al consumidor. Banco de México, Tipos de cambio y resultados históricos de las subastas 2015

Sales trends for non-alcoholic drinks1 subject to IEPS and still water

0

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2007 2008 2009 2010 2011 2012 2013 2014

Beverages other than water Bottled still water

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2007 2008 2009 2010 2011 2012 2013 2014

Beverages other than water Bottled still water

Litr

es

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r ca

pit

a

15 1/ Average exchange rate: MXP$13.31 – USD$1.00 and MXP value at constant prices of 2014 Source: INEGI. Banco de Información Económica. Volumen y valor de ventas por clase de actividad y producto. Periodicidad mensual 2007-2014. INEGI. Índice nacional de precios al consumidor; Banco de México, Tipos de cambio y resultados históricos de las subastas 2015.

Sales trends for snacks

Main findings

0.0

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2007 2008 2009 2010 2011 2012 2013 2014

Sales volume

Sales value

Kilo

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Months

(Right axis)

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Sales trends for sin food (excluding snacks) subject to IEPS

1/ Average exchange rate: MXP$13.31 – USD$1.00 and MXP value at constant prices of 2014 Source: INEGI. Banco de Información Económica. Volumen y valor de ventas por clase de actividad y producto. Periodicidad mensual,2007-2014. INEGI. Índice nacional de precios al consumidor. Banco de México, Tipos de cambio y resultados históricos de las subastas 2015.

Main findings

Value

Volume

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014

Candy, gum and confectionery Industrial baking CookiesCereals Chocolate, cocoa and chocolate products Gelatins, puddings and dessert powders

US

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r ca

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a

0.0

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2007 2008 2009 2010 2011 2012 2013 2014

Candy, gum and confectionery Industrial baking Cookies

Chocolate, cocoa and chocolate products Gelatins, puddings and dessert powders Cereals

Kilo

s p

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Kilo

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(Right axis)

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Main findings

Preliminary results on health impact An average reduction of 6% on purchases of tax imposed beverages over 2014 This difference increased over the year to reach a reduction of 12% in December

2014 compared with the trend before tax

All socioeconomic groups reduced purchases of taxed beverages. Reductions were higher among lower-socioeconomic households, averaging an 8% decline over 2014 compared to pre-tax trends and up to a 17% decline by Dec. 2014

These preliminary results show average effects in the population studied. Future research would provide estimations on subgroups (i.e. large consumers of taxed beverages) to assess differential effects

Source: Instituto Nacional de Salud Pública and University of North Carolina. Price elasticity for soft drinks in Mexico. Working Paper, 2015.

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Conclusions

• Overweight and obesity are among the most important risk factors to develop NCD in the Mexican case

• ENSOD includes intersectorial actions • Fiscal policies seem among the most cost-effective actions to control

consumption of sin food and drinks • Mix results in terms of sales • Some evidence of reduction on the consumption of sweetened drinks

• IEPS to sin food and drinks is a very successful measure to increase revenue

• It is urgent to negotiate with Mexican Ministry of Finance to direct part of IEPS revenue to finance the full implementation and operation of ENSOD

• Measurement of health benefits in process