Soft drinks not the only sector facing new economic pressures

Soft drinks not the only sector facing new economic pressures – Gavin Partington
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Soft drinks manufacturers and retailers have been taking action for several years to reduce sugar and calorie intake from soft drinks. Reformulation, increased availability of smaller pack sizes, investment in promoting low and no-calorie products – all these actions have helped reduce consumers’ sugar intake from soft drinks by over 17% since 2012. Just last year the soft drinks industry also agreed to a collective calorie reduction goal of 20% by 2020.

So for soft drinks to be singled out for a sugar tax in a childhood obesity plan that otherwise sets voluntary targets for sugar reduction by 2020 for other categories was odd.

According to the latest Government data soft drinks account for only 3% of calories in the average UK diet. Major producers and retailers are already cutting sugar in their products (including Lucozade Ribena Suntory and Tesco which recently announced that none of their products will be liable for the tax) which makes it all the more absurd. In fact, independent analysis shows that nearly 80% of products on the market will be exempt.

However, aside from the fact that this tax will have no impact on levels of obesity in this country – which we are led to believe is the desired outcome – it will be damaging to the UK economy.

An Oxford Economics report commissioned by BSDA shows the tax will lead to over 4,000 job losses across the UK, particularly in pubs, restaurants and smaller retailers and will wipe out £132 million of GDP. It will also cost the UK taxpayer £1billion to implement in year one.

These are astonishing figures for any economy to deal with but what is particularly extraordinary about the decision to introduce a tax is that following Brexit why is our Government implementing any additional economic burdens on UK businesses at all?

Soft drinks manufacturers along with our sector colleagues in the retail industry know how difficult the market has been post the European referendum. The month following the Brexit vote manufacturers’ organisation EEF warned recovery was under threat as business confidence had fallen in every region of England and Wales. Research by GfK showed the biggest slide in consumer confidence for more than 26 years.

It was thought that this uncertainty would pass and confidence will improve. I’m afraid to say it hasn’t.

Just last month sterling hit a new six year low against the euro and an astonishing 31 year low against the dollar. In fact, the fall in sterling exacerbates the impact of rising commodity prices.

A recent survey by the Food and Drink Federation shows that three quarters of companies are seeing ingredient prices increase largely as a result of the weak pound, with product margins falling for most respondents.

However, manufacturers are the not the only ones to be affected. Profit margins remain depressed for retailers too as the benefits of deflation have been entirely passed onto the consumer. Although worryingly this is also set to change. In recent weeks major grocery retailers and food producers are warning of price rises for their customers too. 2016 may well be remembered for the tax on our sector but it will also be remembered as the year that the whole food and drink industry faced an unprecedented and challenging future landscape.

BRITISH SOFT DRINKS

www.britishsoftdrinks.com