Twinkie Tax Will Do Nothing to Reduce the Sweetness

Greetings! It is Friday again. We are getting ready for a week-long trip to the Disney World with our kids. This is the first time for them and I can tell they are excited. My daughter keeps saying “next week we will go to Mickey Mouse Clubhouse!” It should be fun and we are looking forward to this little time off!

I am taking a slightly different approach to my regular Five for Fridays this week. Instead of writing about 5 nutrition news of the week, I am going to cover just one news in more detail and try to look at it from 5 different ways.

The big news this week was a report issued by the Institute of Medicine (IOM) which urges local governments to take a decisive action in controlling childhood obesity. Reading the report brief, it is hard not to be impressed by many of the suggested recommendations from the committee. The media, however, picked on one of the most provocative idea that a “twinkie tax” be imposed on junk foods and sugary drinks to limit their consumption. A 10% tax on sugary beverages could reduce their consumption by 8-10% according to some experts.

To these experts, I say a better way would be to simply ban all junk food and sugary drinks. Seize the products from the stores, treat them as controlled substances and shut the manufacturers down! It has a better chance of working if that is the culprit behind childhood obesity.

Obviously no one will stand up for it because this would be considered so un-American.

Here are 5 reasons why I believe a “twinkie tax” will have no real effect on the obesity problem:

1. Tax is like using a spigot when a dam is needed- let us face it; consumers love sugary foods and drinks. There is a huge demand for them and as a result, there is a huge supply. Imposing a small tax will be like trying to control the flow of a river by a spigot when we need to build a dam. The real question is, how high the taxes should be before the resulting prices are simply prohibitive for most consumers to give up on these products?
2. Tax does nothing to the production cost – manufacturing junk food is cheap! Cheap raw materials and large scale production keeps unit cost at a very low level. What is not cheap is packaging, marketing and distribution of these products. It would be very easy to keep the same sticker price by simply reducing these costs by a small amount. It will take a lot to cut them to a level which can affect their availability on the shelves.
3. Tax will actually increase the desire for these foods – let us say the price does go up to a point that these products become out of reach for some consumers. Do you really believe that their desire for these foods will diminish? In fact, if they can’t have them as often as they would like, they will actually want more of them. They will find some other way to get them anyway.
4. Tax will do nothing to the consumption of healthy foods – those who favor taxes on junk foods justify their idea by suggesting that the money could be used to promote awareness of healthy options. This is absurd! It makes the assumption that those who will give up junk food because of high prices will actually be able to afford healthy foods if they become aware of them. Not true at all in my opinion. As long as the availability of healthy foods remains limited, the current demand from consumers with higher income will continue to keep their prices high. A lot of people eat junk food not because they don’t know it is unhealthy, rather because it is cheap, readily available and tastes good.
5. Tax will encourage producers to develop bad habits – dealing with taxes is like dealing with a strict teacher in school. You try to find a way around him rather than developing a desire for learning. This is particularly true if the producer is confident that the demand for his product is not going to be changed in a fundamental way. You can expect more lobbying, more promotion and even more products at a lower price point. Is this what we want?

By now, you might be tempted to believe that I am not a tax-and-spend kind of a guy! Let me clarify – this is not a political discussion for me. I am looking at this situation purely from a business perspective. In fact, if you are a proponent of taxes, I suggest the following ideas might work better:

1. Tax the raw materials, or lift the subsidies that result in low commodity prices. Now that is a touchy political issue, isn’t it?
2. Tax the machines that make these products. The trickle down effect on the manufacturing sector would be tremendous!
3. Tax the utilities used by producers of these products. Make their electricity, water and gas more expensive. I bet the utility companies will be delighted!
4. Tax the transporters of these foods by making them pay more for gas and use of highways and railroads. Maybe they will consider going after producers of healthy foods then!
5. Tax the retailers who stack their shelves with these products. Make them pay more for healthcare and unemployment taxes. Perhaps that will persuade them to opt for healthy foods instead!

No matter how you look at it, taxing these products is not a sustainable solution. In my opinion, we should rather focus on finding ways to make healthy foods cheaper and more readily available to consumers of all socio-economic backgrounds.

Another approach would be to change the demand patterns in a fundamental way. Businesses innovate in response to consumer demand, not necessarily in response to legislation. For example, the demand for soda in our household is zero. It is as if the soda aisle does not exist in the store. Not even offers like buy-one-get-one-free tempt us anymore. I am not saying that this has had an impact in the bottom line for Coke and Pepsi. But imagine, if just 1 in 5 shoppers bypassed the soda aisle in every store in America. That would certainly force them to find out what consumers like me want and develop products to satisfy this need. That is what drives innovation. Not taxes.

I hope the “experts” can exercise their brain cells to think about that for a while!

What is your opinion? I would love to hear your comments.

©2009 Littlestomaks.com

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Tagged as: Food Marketing, healthy eating, Innovation, Junk food, obesity, Sugar, Supply and Demand, Twinkie Tax