South Africa’s sugar tax is pitting job losses against national health

Image: Reuters//Lucas Jackson
We may earn a commission from links on this page.

Short-term losses for long-term gains are often a hard sell, especially in times of crisis.

South Africa’s unemployment rate remains stubbornly high, and now the country’s rates of diseases like diabetes are also rising. The two rates are now pitted against each other, as a tax aimed at reducing the consumption of sugary drinks and improving citizens’ health in the long-run, is said to be leading to short-term job losses.

First tabled in 2016 and implemented in 2018, the sugar tax increased this year with inflation. South Africa’s treasury department based its tax on international standards to deter consumers, settling on 20% or 2.29 cents per gram of sugar, becoming the first African country to implement the tax. Sugar-sweetened beverages that would be taxed included sodas, fruit drinks, energy drinks and vitamin water that all contain sucrose, high-fructose corn syrup, or fruit juice concentrates.

The tax is part of the department of health’s strategy to reduce obesity by 10% by 2020, which further forms part of a broader public health strategy to reduce non-communicable diseases. By December last year, the tax had raised 2.3 billion rand (nearly $160 million), which the government plans to use on public health campaigns. The national treasury conceded jobs would be lost, but that it would even out.

The price is too high for the sugar industry though. South Africa exported 40% of its processed sugar in the 2017/2018 season, but the industry will likely increase that to 47% of the total this year, selling nearly half of it at a lower price on the global market. The South African Canegrowers Association said that translated to a loss of 1.3 billion rand for the 2018/2019 season, with the industry calling it a crisis.

“This revenue loss will no doubt translate into severe job losses which could put up to 10,000 jobs at risk–in the cane-growing sector alone,” Graeme Stainbank, the association’s chairman, told Quartz via email. “This does not even include potential job losses in the sugar milling and non-alcoholic beverage industries.”

But critics of the industry’s calculations say a drop in international prices and dumping has led to the perceived crisis in the sugar industry.

Health experts, who prefer to refer to the tax as “the health promotion levy,” have accused the sugar industry of exaggeration. Sue Goldstein, a researcher with Priority Cost Effective Lessons for System Strengthening South Africa (Priceless SA) at the University of the Witwatersrand, argues that the 7% loss to GDP caused by healthcare requirements and missed work due to illnesses like diabetes, which will be the leading cause of death by 2040.

Coca-Cola South Africa said the new sugar tax will lead to the loss of more than 1,000 employees. Along with “economic headwinds,” and lower consumer spending, Coca Cola South Africa reported lower volumes (paywall) that it will only recover from in 2021.

The beverage giant said it will cut sugar in its drinks by 20% and it had to increase prices due to the tax, hurting its growth. Coca-Cola South Africa could not be reached for comment. Coca-Cola has enjoyed growth in South Africa’s development, with the per capita consumption of Coca Cola products rising from 132 servings in 1991 to 254 in 2010, according to Priceless.

While even a 10% increase in the price of sugary drinks led to a 12.1% reduction in consumption, it isn’t enough to change behavior. Massive advertising budgets that equate soft drinks with family, friends, and fun compete for consumers’ headspace, Priceless SA found. What’s more, energy drinks, which contain the highest amount of sugar, have seen a surge in sales, rising from 98 million liters consumes in 2009 to 168 million in 2014.

Sign up to the Quartz Africa Weekly Brief here for news and analysis on African business, tech and innovation in your inbox