Effectiveness of a minimum pricing policy for the consumption of soft drinks in Mexico

The government of Mexico introduced the sugar-sweetened beverage (SSB) tax and energy-dense tax in 2014 to help addressing the overweight and obesity problem. The literature suggests that the tax has led to a 4–10% reduction in SSB consumption. However, noncommunicable diseases such as diabetes and ischemic heart disease are still the leading causes of death in Mexico, accounting for approximately 59% of deaths in 2021. In other sectors, such as alcohol and cigarettes, several studies have provided evidence that minimum pricing outperforms value-added and excise taxes. Such a policy, however, has not been applied in the food and non-alcoholic drinks sector. The aim of this study is to simulate the minimum price (post-SSB tax) required to achieve a policy target of a 20% reduction in soft drink consumption. For this purpose, an Exact Affine Stone Index demand model was estimated using the 2022 National Survey on Households Income and Expenditures (ENIGH in Spanish) to compute expenditure and price elasticities, which were later used to derive shadow prices for soft drinks. The results show that a policy target of a 20% reduction in soft drink consumption would require a minimum increase in the current price by 16%; however, the increase would be different for urban and rural households. Additionally, the policy would increase the demand for fruits, vegetables, fruit juices and fish and seafood. Finally, the results indicate that although both uniform excise taxes and minimum price policies are effective, the latter with a policy target in place would have a greater impact on soft drink demand than the former.