Mexico's soda companies fear junk-food tax

By Joshua Partlow, Published: October 26

OAXACA, Mexico — Sweet tangerine sodas and strawberry kiddy drinks have been good for the Guzman family.
Over 60 years and three generations, their Gugar soda company has offered them hard-won prosperity in one of the poorest states in Mexico. It’s allowed the youngest to study at the University of California at Berkeley and vacation in Las Vegas, and enshrined the eldest in a bronze bust with a nameplate that reads: “Creator of entrepreneurs.”
But for Mexico, the vast appetite for sodas, chips, snacks, sweets — all manner of what they call here “comida chatarra,” or junk food — has helped inflate an overweight nation to obesity levels ­rivaled only by those lumpen gringos to the north.
These two forces have now collided in a sumo-style conflict that is testing the power of Enrique Peña Nieto, Mexico’s svelte new president. With his proposed tax hikes on sugary drinks and snacks, Peña Nieto has angered an industry led by junk-food barons with global reach and political muscle. Four of Mexico’s 15 biggest public companies, as ranked by Forbes — including No. 2, Femsa, which makes and distributes Coca-Cola and owns the ubiquitous Oxxo convenience stores that stock it — sell the drinks and snacks that could be made more expensive by the taxes.
America’s largest baking company is actually now Mexican: Grupo Bimbo, the Mexican food empire, owns well-known brands in the United States, such as Sara Lee, Entenmann’s, Boboli and Thomas’ English Muffins, and has about 25,000 employees north of the border. Mexico has the highest per-capita soda consumption in the world, and among the highest rates of diabetes, according to academic studies and industry consultants.
“Mexico is the world champion of consuming sugary beverages,” said Juan Rivera Dommarco, head of the government’s Center of Investigation in Nutrition and Health, which supports the tax increase. More than two-thirds of Mexican adults are overweight, he said.
The lower house of Mexico’s National Congress passed the president’s tax increase this month, ratcheting up the pressure for junk-food companies. The Senate is expected to vote in coming days.
The junk-food taxes — 1 peso per liter, or the equivalent of 8 cents, on sugary drinks, and 5 percent on high-calorie snacks — are part of a larger fiscal reform package by Peña Nieto’s government intended to boost revenue. The portion related to soda taxes is intended to raise some $950 million annually. But the larger mission “is to try to change people’s behavior,” said Christopher Wilson, an associate at the Mexico Institute at the Woodrow Wilson Center in Washington. “The goal should be to make Mexico a healthier country.”
On the president’s side in this struggle is Michael Bloomberg, the billionaire who is mayor of New York. He has tried, and so far failed, to ban oversize sodas in his own city. Bloomberg Philanthropies has spent million to lobby in favor of the Mexican soda tax and fund research organizations to study issues related to obesity.
Dueling full-page newspaper ads are now daily fare. Stirring up some nationalist fervor, the main soft-drink industry group in Mexico has been paying for red, white, and blue ads trumpeting “No to the Bloomberg Tax!” and saying the mayor is behind a campaign to “demonize sugary drinks.”
“Señor Bloomberg has apparently found in Mexico more fertile terrain than in his own city,” the group’s director general, Emilio Herrera Arce, said in an interview. “His millions could have been better spent.”
“The pressure is very great,” said Alejandro Calvillo, director of the nonprofit group Power of the Consumer, which has received Bloomberg Philanthropies donations and has been pushing for a 2-peso-per-liter tax on soda. “The soft-drink industry isn’t only trying to stop this because of the impact on the market” but to avoid international precedent, he said. “These are huge, global companies.”
The Guzman family soda company, headquartered on the outskirts of this cobblestone colonial jewel, is neither huge nor a global power. Since Jesus Guzman Aguirre began selling Moctezuma Beer under these green mountains in 1954, the company has grown slowly and added new beverages. Their fruity drink for children, Friko, took off in the city, and they later became the first bottled water producer in the state.
As the company passed to six of Guzman’s sons, including Mario Guzman Gardeazabal, they opened new soda plants in neighboring southern states. They now have about 2,000 employees and 400 delivery trucks. Their fizzy Gugar soda, in flavors such as tamarind, grapefruit and tangerine, is cheaper than brand-name sodas and caters to the area’s poorer residents.
In the company’s plant, as pineapple sodas whirred by on conveyor belts, the face of the third generation, 29-year-old Juan Pablo Guzman, Mario’s son, walked into a side storeroom and pointed at piles of 200-pound white sacks of sugar. “This is what the tax is all about,” he said.
Juan Pablo and his relatives feel their medium-size regional company will bear an unfair proportion of the tax burden if the law passes. Gugar sodas tend to be cheaper than other major brands, so the peso-per-liter tax would hit the Guzmans’ products disproportionately hard.
The Guzmans are expecting a 30 to 40 percent drop in demand for their sodas. The three daily shifts that produce different flavors — each with its own batch of employees — will contract to one or two. Delivery routes will constrict. Other companies, and possibly their own, will close.
“We’re going to have to fire people,” Mario said.
There are better ways, to raise tax revenue, the Guzmans insist, even on soda: a tax as a percentage of the price, a tax proportional to sugar content. “We are at a big disadvantage,” Juan Pablo said.
Mexico can offer an endless array of problems for a small business, and Gugar has known many of them. Oaxaca’s rugged mountains and bad roads have hindered deliveries. The company built a factory in the violent southern state of Michoacán two years ago but hasn’t been able to produce soda there because drug-traffickers are demanding protection payments. In Oaxaca’s historic town square, thousands of impoverished banner-waving teachers are camping out and blocking roads to protest the government’s education reform, and schools haven’t been open in two months.
“Oaxaca’s a very poor place,” Juan Pablo said. “In whatever category you look at, we’re always at the bottom.”
But the business has provided well for the family. Mario wears Izod dress shirts and rimless glasses. Juan Pablo drives a Brazilian-made Volkswagen CrossFox and texts his wife on his iPhone 5. The couple love watching “Homeland” and have been planning a trip to the World Cup soccer showcase next year in Rio de Janeiro.
“To achieve what we did, you have to work nights, weekends and holidays,” Mario said.
At the moment, the specter of the soda tax has halted all their plans, including an attempt to export Friko, the children’s drink, to Los Angeles — their first foray into the United States.
“All our investment, all our work, is at risk,” Juan Pablo said.
“We are very concerned about this,” his father added. “This isn’t the work of a few years, it’s the work of three generations.”

Gabriela Martinez in Mexico City contributed to this report.