Pound for Peso: Mexico’s Soda & Junk Food Tax Weighs upon Corporations

October 31, 2013 — Leave a comment
Coca Cola Femsa bottling plant

Coca Cola Femsa bottling plant

A controversial twin tax on sugary soft drinks and junk food under discussion in Mexico’s legislative branch is likely to reduce volume sales for some of Mexico’s top public companies. These include Femsa and Bimbo, two of Mexico’s 19 largest public companies, according to Forbes 2013 list Global 2000 Largest Companies.

Owned by billionaire Eva Gonda Rivera and family, and José and Francisco Calderón Rojas, Femsa, with $18.5 billion in annual revenue, is Mexico’s largest Coca-Cola bottler; Bimbo is the largest baking company in the Americas and distributor of brands such as Sara Lee, Entemann’s, and Thomas’s English Muffins, among others. Owned by the billionaire Servitje family, Bimbo’s yearly sales are $13.42 billion.

According to The Wall Street Journal, Coca-Cola Femsa Chief Financial Officer Hector Treviño told analysts last week that if the tax on soft drinks becomes law, the  bottler will raise its prices in an effort to sustain earnings. The company sees the proposed tax curbing its sales volume by about 5% next year. The Journal reported that Treviño said Femsa and the rest of the bottling industry are likely to pass the price increase on to consumers, with his company seeing the average price increase at 12% to 15% for non-diet sugary drinks.

On Friday Mexico’s lower House approved a soft drinks tax of 1 peso (8 US cents) per liter and a 5% excise tax on high-calorie packaged foods including potato chips, peanut butter and sweetened breakfast cereals. The Mexican Senate is expected to pass both measures in the coming days.

The tax may hurt consumption in Mexico, but is unlikely to put much of a dent in the net wealth of Mexico’s beverage barons. Enrique Galván Ochoa, a Mexican business analyst, said that since the companies “will most likely transfer the tax cost to consumers, and since consumers are addicted to sweet drinks and comida chatarras (junk food), they will first give up other things [besides sweet drinks].”

Will Mexico's soda tax help to curb obesity, especially in children?

Will Mexico’s soda tax help to curb obesity, especially in children?

Higher taxes on heavily sweetened high-calorie snacks and drinks are part of the government’s campaign to combat Mexico’s alarming obesity levels. The World Health Organization, which supports the pro-tax advocates, reports that nearly 70% of Mexicans are overweight. Diabetes is one of the top killers in the country. Mexico is the biggest per capita consumer of Coca-Cola in the world.

The Wall Street Journal reported that out of concern for the landmark bill, Coca-Cola CEO Muhtar Kent recently called President Peña Nieto and Finance Minister Luis Videgaray, but Videgaray told him that Mexico would make decisions in its own interest. Galván Ochoa believes that Kent’s worries have more to do with Mexico setting a precedent for other countries to follow than the impact that it may have on Coca-Cola in Mexico.

Meanwhile, Daniel Servitje, Bimbo’s Managing Director, said that the company is studying ways to tweak their recipes of popular snacks, such as Gansito, which contains 392 calories per 100 grams, reported the Mexican daily Reforma. The proposed law will impose a 5% excise tax on products with 275 calories or more per 100 grams.

Mexican bottlers and food companies have launched an aggressive media campaign against the tax. “You don’t fight obesity with taxes,” said angry full page advertisements that ran in Mexican newspapers, paid for by the soft drink industry and its allies. They blamed the tax on “foreign influences,” in particular New York City’s billionaire Mayor Michael Bloomberg, who recently failed to impose a similar tax on sweet drinks in New York City.  Consumer Power, a group that lobbied for the soda tax, receives funds from Bloomberg Philanthropies. In a show of solidarity with his fellow Mexican billionaires, Televisa, Mexico’s largest TV network owned by billionaire Emilio Ascarraga Jean, refused to air pro-tax ads.

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax lawbusiness and transactional lawestate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.

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