Name

IOANA SAVA

Candidate
Number


Teacher

MR. RIAAN RIEKERT
Source of the
Article

THE GUARDIAN
Title of the
Article


MEXICO TO TACKLE OBESITY WITH TAXES ON JUNK
FOOD AND SUGARY DRINKS
http://www.theguardian.com/world/2013/nov/01/m
exico-obesity-taxes-junk-food-sugary-drinks-exercise
Date of Article

NOVEMBER, 1
st
, 2013
Date Written NOVEMBER, 29
th
, 2013

Word Count (650
750 Words)


742

Area of the
syllabus your
commentary
relates to (please
tick the one
which is most
relevant)


Section 2: Microeconomics
Topic 2.4. Market failure






Mexico to tackle obesity with taxes on junk food and sugary drinks
President calls for hour of exercise per day and a 'change of culture' as Mexico has higher rates
of adult obesity than the US
Friday 1 November 2013 16.24 GMT
Jump to comments (69)

President Enrique Pea Nieto calls for a 'change of culture', including incorporating at least an
hour of exercise for all Mexicans every day. Photograph: Marco Ugarte/AP
Mexico has become the standard bearer in the global fight against obesity, after
parliamentarians passed a law imposing significant new taxes on junk food and sugary drinks.
The vote by congress is a triumph for the anti-obesity crusade of President Enrique Pea Nieto,
who will now sign the measures into law. As the legislation was passed, he called for a "change
of culture" in his country, including the incorporation of at least an hour of exercise for all
Mexicans every day. Mexico has higher rates of adult obesity even than the United States,
according to the UN Food and Agricultural Organisation this year 32.8% against 31.8% of
Americans.
"We can't keep our arms crossed in front of a real overweight and obesity epidemic," the
president said. "The lives of millions of Mexicans are literally at risk."
Taxes on unhealthy foods and sugary drinks such as colas and lemonades have been introduced
by a few other countries in Europe and Scandinavia, but often subtly. Mexico has confronted
the food and drink industry head on, resisting tough lobbying and warnings that raising prices
would do nothing to help the country's economy.
But the government has taken the long view that the potential economic harm from reduced
junk food and soft drink sales now is insignificant compared with the damage in 10 years time if
obesity continues at the current rate. The healthcare burden of diabetes and heart disease in
Mexico is already huge and increasing. Some 9.2% of children in Mexico now have diabetes.
The taxes will increase the price of junk foods those high in saturated fat, sugar and salt by
8%. It will also put one peso (about 4p) on a litre of sugary drinks such as Coca Cola, which
Mexicans consume in vast quantities at a rate of 43 gallons per person per year the highest in
the world. The money raised is intended to go towards health programmes and increased
access to drinking water in schools. Among other measures, the government will introduce a
nutritional stamp of approval for healthier foods on sale in supermarkets.
Obesity campaigners worldwide have been looking to food and drink taxes as a way to
encourage people to change their diet and reduce the amount of fattening food and drink they
consume. Norway has had higher duties on sugar, chocolate and sweetened drinks since 1981
and Samoa, which has very high obesity, has had taxes on sugary drinks since 1984. Australia
introduced a 10% tax on soft drinks, confectionery, biscuits and bakery products in 2000.
Most of these taxes have not been high profile, however, avoiding a fight with industry. France
attempted to introduce a tax on sugary drinks, but under pressure from manufacturers,
conceded that it should apply to diet drinks as well as those containing sugar, which avoided
characterising sugary drinks as unhealthy. Hungary has the most extensive anti-obesity tax,
which applies to foods high in sugar, fat and salt as well as to sugary drinks, but it is at a low
level and has also been politically difficult.
The food industry claims such taxes are a burden on the poor and do not work. They cite the
Danish example. In 2011, the Danish government imposed a tax on all foods containing more
than 2.3% saturated fat, which hit such popular staples as butter and bacon. It was unpopular
partly because it was introduced by the treasury as a fundraiser, rather than being presented as
a measure to improve population health.
Newspapers ran stories about Danes stockpiling and crossing the border to buy cheaper butter.
Eventually the government fell, and the tax was withdrawn after six months.
But, says Professor Mike Rayner, director of the British Heart Foundation Health Promotion
Research Group at Oxford University, "the Danish saturated fat tax is a dream from a
researcher's point of view. We're beginning to get the preliminary results of the introduction of
the tax. Of the data they have already got, it had a 4% effect on saturated fat levels. It is
completely wrong to say it didn't work."
What is happening in Mexico is "really interesting", he said. "We need more of these steps
around the world to come up with good clear evidence of their effectiveness."
Rayner and colleagues published a paper this week in the British Medical Journal based on
modelling rather than real-life experience, which suggested a tax on sugary drinks of 20% in the
UK would cut the number of obese adults by 180,000 and those who are overweight by
285,000.


The issue of excessive consumption of products with a high content of sugar, salt or saturated
fats by the Mexican population, identified in the article, is a case of market failure. Specifically, the
raised problem falls into the category of negative externalities of consumption, where a third party is
disadvantaged by the increased consumption of a economic good. In this situation, the third party is the
public health system that has to provide medical assistance for diabetes and heart diseases caused by
incorrect diet. The basic economic model suggests that the negative externalities occur when the
marginal private benefits(of an individual economic unit) are greater than the marginal social
benefits(of society as a whole).













This graph shows MPB(marginal private benefits) as a demand curve and MPC(marginal private
costs) on the supply curve. In a free market economy, consumers want buy a product at a private
optimum level, where MPB is equal to MPC. The outcome is the overconsumption of junk food at the
quantity Q1 and the price P1. The socially acceptable quantity is at Q2, at the equilibrium point between
MSB and MPC. Therefore, the difference from Q1 and Q2 represents overconsumption of this product. As
a first solution, an 8% ad valorem tax is put on all junk food - e.g. 1 peso/litre of sugary drinks. This will
cause the MPC curve(supply curve) to move to the left to MPC+tax, as seen in the diagram.
The effect of taxation on a negative externality of consumption
MPB
MSB
MPC
MPC + Tax
Quantity of sugary products
Price of sugary products
P3
P1
P2
Q1 Q3 Q2
The difference in quantities(negative externality) can be either internalized(completely
cancelled) or decreased by the measures taken by the government and President's Enrique Pea Nieto
active reform against adult obesity - Mexico has the highest level worldwide. Together with taxation,
other socially viable measures imposes are: labelling and reducing the price of healthy food, subsidising
the health system or introducing one mandatory hour of physical exercise for all potent citizens of
Mexico.
Other governments have also come up with school based education programs to show the
negative effects of an incorrect diet on health(e.g. diabetes, heart disease). When the population
becomes more aware of the risks of fatty foods consumption, the demand for it will decrease.














In this graph, due to negative advertising the demand curve(MPB) moves closer to MSB-shifting
to the left-, reducing the quantity consumed further. Hopefully, all the measures taken will lead to the
targeted decrease in quantity, reaching a socially optimum level at Q2.
The article states that the long-term costs of providing health-care against diet-related disease
is greater than the economic effects of taxation or any other of the solutions mentioned above. This
indicates that there are advantages and disadvantages to the measures taken to lower the negative
externality. The obvious good points of taxation is that in the case that the product is not highly inelastic
The cumulated effect of tax and negative advertising on a negative externality of
consumption
MPB
MSB
MPC
MPC + Tax
Quantity of sugary products
Price of sugary products
P4
P3
P1
P2
Q1 Q3 Q2
the consumption will decrease; however, if the tax is set too high as a result of superficial economic
analysis, it may lead to unemployment in the food industry. Also, people might refuse to buy the food at
the high prices and purchase it from other countries or a black might form-which in Mexico could be
dangerous as such products might not meet sanitary standards. If the product is in fact inelastic, it will
benefit the government revenue, as the quantity demanded won't decrease at the higher price.
Subsidizing the health system is a viable economic decision as it takes into consideration the
long-term development of the country; unfortunately, it is conditioned by the taxation scheme and the
money involved may be insufficient to be ground for a real reforming program.
Finally, the aspect of school education is really relevant to passing the right lifestyle guidelines
to the next generation, but when not encouraged by the family education may not succeed as intended.
Moreover, to provide such training is very expensive and needs to be supervised by the right authorities
and specialist(nutritionists, doctors, other medical staff entitled to advice on the matter).
In conclusion, negative externality can be decreased only at the cost of either junk food
consumers and producers or the Mexican government. There are many economic factors to consider in
establishing the right tax price and money must be invested in a research plan to determine the best
pathway. However, this and the subsidizing of social help might put a strain on other aspects of the
economy, given the fact that Mexico has a very unstable monetary situation.