Opponents of the proposed tax say it will drive up food prices, cost jobs, and have little impact on obesity

The run-up to the budget is always a jittery time for the food and drink industry, and this year is no different, with a tax on soft drinks being considered and a “fat tax” lurking in the background since last year.

Increasing taxes on food and drink is not just an Irish issue. Last week, the French senate provoked cries of “Mon Dieu!” by approving the so-called Nutella amendment, which would triple the tax on palm oil and some other vegetable oils. Palm oil is a key ingredient in Nutella, an extremely popular chocolate spread in France.

The Danish government is going in the opposite direction, scrapping its fat tax because of public criticism over increasing prices, administration costs and concerns that it is putting jobs at risk by encouraging people to cross the border to buy food.

Perhaps not surprisingly, business group Ibec says the Government should study the Danish experience carefully before it even thinks about introducing sugar or fat taxes.

Shane Dempsey, head of consumer foods at Ibec’s Food and Drink Industry Ireland, says the Danish government now has a €170 million gap in its budget for next year following the withdrawal of the fat tax.

“It was a costly mistake,” he says. “Are we destined to do the same?”

He believes the introduction of taxes on fat or sugar would result in job losses in the food sector. “I think anything that threatens to raise prices and depress demand will cost jobs. And increased unemployment is not a positive contributor to reducing obesity.” The National Dairy Council is also concerned at any suggestion that a fat tax might be introduced. It was one of the organisations that successfully campaigned against the Broadcasting Authority of Ireland’s proposed ban on cheese advertising during children’s programmes.

The council’s nutrition manager Catherine Logan says the arguments made then still stand. A tax based on saturated fat content would unfairly penalise cheese and dairy products because it would not take their high nutritional value into account.

It was “striking” that Denmark removed the tax, says Logan, and Irish policymakers should examine the reasons why.

“The tax had a huge impact on the overall economy, increasing prices, increasing company administration costs and cross-border shopping,” she says. “We really have to proceed with caution. Anything that is being implemented, we must ensure that it is evidence-based and is based on Irish data.”

It appears the emphasis has now shifted from the fat tax to a sugar tax. Ibec came out fighting last week after details emerged of an Institute of Public Health report recommending an increase in duty on fizzy drinks.

The document, prepared for the Department of Health’s action group on obesity, recommends increasing excise duty on soft drinks by 10 per cent, causing prices to rise by up to 20 cent per bottle.

Dempsey says the proposal is flawed for a number of reasons. No one has been able to show that introducing a sugar or fat tax will reduce obesity rates, he says. He has heard proponents of the tax saying that it will send a signal that these products are bad.

“Using taxation as a method of signalling? Has this signalling ever worked before?”

He believes it would be more effective to reduce Vat on fruit juices and water. He also maintains that retailers, afraid to pass on the tax to consumers because of the recession, will force manufacturers to absorb the cost. “So the tax has no chance, flawed and all as it is.”

Putting the health arguments aside, Dempsey says our often-overlooked soft drinks industry is crucially important. It exports nearly €3 billion of concentrate for cola drinks every year. The Beverage Council of Ireland, which represents soft drinks and fruit juice manufacturers, says the link between obesity and soft drinks just doesn’t add up. Obesity rates have soared in recent years while sales of regular soft drinks have fallen.

“Over the last 10 years, the sales of no-calorie and low-calorie products has increased by 36 per cent, while the sale of regular soft drinks fell by 19 per cent,” says its head of communications Declan Jackson. Regular soft drinks account for 3.6 per cent of caloric intake for the 40 per cent of the population who consume these products. “For 60 per cent of the population these products contribute zero calories to their daily food and beverage intake.”

Jackson says the council agrees with Minister for Health James Reilly on the urgent need to tackle Ireland’s obesity problem, but there is little evidence to support the claim that a taxation measure would have an impact on obesity rates.

Not all food and drink manufacturers believe a tax on fat or sugar would be a bad thing. Con Traas, who runs the Apple Farm in Cahir, Co Tipperary, says a sugar tax would favour artisan producers, as most of them don’t add sugar to their fruit juices. He believes such a tax could lead to “a significant increase” in employment in the artisan sector.

“That is because the large-scale manufacturing of high sugar-type drinks generates very few jobs per drink consumed, compared with the artisan sector, where I would estimate there are 10 times as many people employed per drink produced,” says Traas. “If a million consumers bought an artisan-made juice just once a week in place of a sugar-sweetened beverage, about 300 extra full-time jobs would be created in the direct manufacturing of those artisan juices.”

David Llewellyn, who runs Llewellyn’s Orchard Produce in Lusk, north Dublin, also says a sugar tax would benefit his fruit business as he doesn’t add sugar to his juices.

“Obviously, drinks that are manufactured from sugar and water are extremely cheap to produce as against a drink manufactured out of natural fruit,” he says. “We have to grow the fruit and extract the juice out of it, so it’s vastly more expensive.”

He says a sugar tax wouldn’t fully level the playing field, “but it certainly wouldn’t do us any harm”.

Meanwhile, the soft-drinks manufacturers hope last week’s call for a sugar tax has come too late for next month’s budget and might be put on the back-burner.

“Whatever you might make in a soft-drink tax, you are probably going to lose through cross-border shopping or reduced consumption,” says Dempsey.

What is Ireland's soft drinks industry worth per year?

All figures refer to a 2010 survey of Beverage Council of Ireland members.

3,655

The number of people directly employed in the non-alcoholic-beverages sector. It also provides 3,045 jobs in indirect employment

€106.5m

The amount of money the soft-drinks industry spends every year on the purchase of Irish goods and services. Its annual expenditure on capital investment amounts to €32.5 million, with payroll costs of €106.8 million

73

The number of new products introduced by the soft-drinks industry in 2010