Soft drinks in Mexico: Fizzing with ragel A once-omnipotent industry fights what may be a losing battle

Soft drinks in Mexico: Fizzing with ragel A once-omnipotent industry fights what may be a losing battle

Oct 19th 2013 | MEXICO CITY |From the print edition

LA MANSION steakhouse inside Mexico’s lower house of Congress has become the headquarters of a lobbying effort the likes of which congressmen say they have never seen before. There is so much wining and dining that one lawmaker, proposing a bill on October 15th to regulate the lobbyists, claimed he was talking to a half-empty floor because his colleagues were too busy being schmoozed at La Mansion.The lobbyists work mainly for soft-drinks companies such as Coca-Cola, PepsiCo and their respective Mexican bottlers Femsa and Cultiba. Their focus is a proposal currently under debate in Congress to slap an excise tax of one peso (about eight American cents) on to the price of a litre of fizzy drinks. Though the industry has faced down consumer activists in the past in Coca-Cola’s biggest market by volume outside the United States, this initiative comes directly from President Enrique Peña Nieto. The lobbyists may have blundered in their attempt to kill it.

The government’s argument is simple. Mexicans consume too many fizzy drinks (on average 40% more per person than people in the United States). The habit has helped make the country one of the most obese in the world, and obesity is a killer: Mexico’s mortality rates from diabetes are staggeringly high. The government proposed the “sin tax” to discourage soft-drinks consumption.

The industry’s reaction has been apoplectic. In full-page ads in national newspapers it has argued that the tax is regressive and “satanises” soft drinks, which it claims do not cause obesity. With a hint of xenophobia, the lobbyists call it the “Bloomberg tax”, because New York’s mayor, Michael Bloomberg, has also sought to tax fizzy drinks.

Bethany Gomez of Euromonitor International, a consultancy, says the industry is right to be worried. More than half the fizzy drinks sold in Mexico are in bottles of two litres or more, which is where the extra pesos would be most noticeable. A switch to smaller sizes would hit volumes. What is more, the tax may set a precedent. “Coca-Cola seems to be worried that whatever happens here could spread to the rest of Latin America,” says Javier Treviño, a ruling-party lawmaker.

The lobbyists have made some missteps, congressmen say. They have created enemies in other industries by proposing that the tax be charged on sugar content, not just on soft drinks. That angers companies like Nestlé, which makes sugary snacks, as well as Mexico’s politically connected sugar-cane producers. They have also been too overt in their lobbying, in a political system that is used to more subtle forms of collusion between lawmakers and business. One of Femsa’s main lobbyists, a former ruling-party bigwig, is said to have had a blazing row with the current head of the party in the lower house, who resented being bossed around.

So the soft-drinks lobbyists’ tactics may have backfired. As The Economist went to press there was still no final agreement on the soft-drinks tax—but congressmen appeared ready to approve the one-peso levy—as well as extending another tax to junk food.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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