The Ministry of Health is currently considering measures to reduce Singaporeans’ consumption of sugar which is a factor in obesity and diabetes here. These include a total ban on the sales and advertising of high-sugar drinks, mandatory labelling as well as a tax.
A sugar tax on drinks may not work due to potential unintended consequences. The demand for sugary foods and drinks tend to be price inelastic, which means that taxes may not significantly affect their consumption habits. Consumers may instead respond to cheaper brands of the product or shop in cheaper shops. They may also find other cheaper alternatives instead, which may be as unhealthy.
A study by the Institute for Economic Affairs in the United Kingdom surveyed sugar taxes implemented in both American states and some European countries and found mixed evidence on its efficacy in reducing obesity or improving health outcomes. Additionally, it was found that sugar taxes may be regressive, since drinks and food generally take a greater share of income from the poor than rich, an effect exacerbated by low income consumers being less responsive to price changes.
The Singapore government may have to enact a tax that covers a broad number of sugary products or enact a blanket ban on these products in order to achieve its intended effect. The tendency towards such a comprehensive policy may itself lead to other side-effects. A total ban does nothing to change the underlying demand by consumers even as it restricts supply and thereby raising prices. Consumers may persist in obtaining these products through informal means.
Whilst achieving health outcomes is important, the Singapore government will also need to balance this against other important values as well, such as consumer choice and business competitiveness. A ban or heavy taxes on sugar products, and ad restrictions will hurt F&B businesses in the industry, which may translate potentially into higher prices for consumers and job losses.
A more market-friendly approach may be to provide incentives to businesses to innovate healthier alternatives for consumers without necessarily hurting their bottom line. Just as some tobacco companies have responded to public pressure and innovated e-cigarettes, a healthier alternative to traditional products, the F&B industry may similarly produce such alternatives (such as Coca-Cola Stevia No Sugar).
Industries respond to consumer choice and economic incentives, and thus the most sustainable approach will require a combination of market-friendly approaches and also educational initiatives to change underlying tastes and preferences, rather than top-down command-control solutions.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Bryan Cheang is the Director of the Adam Smith Center, an independent, non-profit organization based in Singapore dedicated to promoting the values of market competition, choice, free exchange and permissionless innovation in academia, public policy and wider society. Bryan is previously a graduate of the National University of Singapore and also holds an MA in Political Economy from King's College London, where he is completing his PhD research program. His research interests center around the political economy of development, and specifically state-market relations in the Asian context.