Mexico Proposes New Food/Drink Taxes

September 10/Business Monitor International Ltd. -- As politicians in the U.S. weigh up proposals for a "lifestyle tax" on unhealthy food and drink products, politicians in Mexico are outlining plans for new food and drink taxes designed to offset declining revenues, while at the same time encouraging consumers to opt for healthier options. The proposals cover products across the food and drink industry and could impact the results of Mexico's biggest food and drink companies, including bakery giant Bimbo and soft drink producer Coca-Cola Femsa.

The problems associated with obesity are increasing throughout Latin America due to dietary changes brought about by increased wealth, urbanisation and the growth of supermarkets. Mexico has been particularly affected, with figures from the World Health Organization suggesting that the country has one of the highest prevalence of obesity for both males and females anywhere in Latin America. This is partly due to the fact that processed food and drink products from multinational firms have been available for many years thanks to the close proximity of the U.S. and is reflected in the fact that per capita consumption of soft drinks is the highest anywhere in Latin America.

The issue is now firmly in the sights of politicians and with government tax receipts under pressure from the global economic downturn, the ruling party has seen an opportunity to raise revenues while also being seen to take action to the problem. Luis Enrique Mercado, a member of the ruling National Action Party, has announced that his bloc would support taxes on soft drinks, increased duties on beer and removal of tax exemptions for food with high calories and low nutritional value.

These measures will be felt across the food and drink industry. As the current market leader in the soft drink sector, Coca-Cola Femsa is likely to feel the biggest impact from new taxes in this area. With local press reports indicating that a 10% tax will be proposed, the impact on a soft drink market already showing signs of maturity could be significant, and investment bank UBS downgraded its recommendation on the firm from buy to neutral on the news. Another firm that could feel the impact Grupo Bimbo, which is Mexico's largest bread maker but also derives a significant proportion of its revenues from cake and snack products that are likely to be hit by the elimination of value-added taxes on unhealthy foods.

Proposals to reduce the consumption of products linked to obesity clearly have implications for a number of other multinational food and drink manufacturers present in the region, including Hershey and Mars. The rise in obesity reflects the success that these producers have had in marketing their products in this region. However, a concerted effort to bring down consumption may necessitate a change in strategy and a focus on healthier products, which for firms with a relatively restricted portfolio may be easier said than done.  

From the September 14, 2009, Prepared Foods E-dition