The sugar sweetened beverage tax could be economic suicide for the Philippines

As the Senate considers a tax on sugar sweetened beverages (SSBs), the economics and trade implications are just now being realized.

A tax on SSBs will greatly displace the huge economies of both sugar and high-fructose corn syrup (HFCS) (a sugar substitute that is growing in popularity and consumption), in terms of consumption, exports, and imports. This would affect businesses large and small both within the Philippines and in countries doing business with the Philippines. The negative economic impact would be quite significant.

To illustrate the economic impact, look no further than China. The first economic impact on a tax or tariff on sweetened beverages would be significant price increases, which affect the poor more than any other socioeconomic group. For example, in May 2017, China imposed hefty import tariffs on foreign sugar in a move to protect its foreign industry; this will likely keep Chinese domestic sugar prices at a premium for years. This price increase will get passed onto both businesses and consumers, which will both suffer.

Ironically, the Philippines is the biggest buyer of China’s HFCS. Soda makers in China and the Philippines are using more high-fructose corn syrup now, according to industry experts.

There are two economic issues at play here: the banning or curbing of HFCS or sugar imports by countries, and the taxation of SSBs. Both types of moves hurt people and the economy. If the Philippines (or any country) bans HFCS, domestic producers of beverages and other products will suffer. Exporting countries would suffer too, and such a move would negatively affect trade.

The Philippines’ GDP is highly dependent upon foreign trade; a tax now on sugar sweetened beverages would be devastating. The tax would affect consumers (especially the poor), store owners, beverage manufacturers, and associated businesses, both domestically and internationally.

The SSB tax is really a huge tax increase on all of these businesses. Passage of the SSB tax will hurt the Philippines’ economy. While health activists may tout the tax’s supposed decrease of sugar consumption, economists generally agree that the tax would merely move sugar consumption to other products. After all, people who consume sugar or HFCS as a substitute do so willingly. They may consume less sweetened iced tea if it has the SSB tax, for example, but move their choice to candy bars or other sweetened snacks.

Banning or putting additional tariffs on the importation of sugar or HFCS would also make little sense. As a percentage of Asia’s total population, the Philippines accounts for 4% of sugar production. For HFCS, it is 0%. The beverage and retail industries, among others - and the people they employ - are dependent upon open trade of these products for their sales.

The Philippines is the largest importer of HFCS in Asia; its imports account for almost 50% of Asia’s HFCS imports. The Philippines imported 235,000 tons of HFCS in 2016, according to customs data. This is equivalent to around 352,000 tons of sugar.

As a result of the high import of HFCS, the country recently imposed curbs on corn syrup.

China is the largest consumer of HFCS in Asia, accounting for a little over 50% of the total consumption in Asia. China is also Asia’s largest exporter of HFCS with almost 70% of the total for all of Asia. A great part of its exports are consumed by Philippines, Malaysia, and Thailand.

This web of trade and domestic production of sugar and HFCS in the Philippines could experience turbulent times if the SSB tax is passed. In the end, people, their jobs, and the economy will ultimately suffer.