AMLO Opposes Junk Food Tax, Silent on Banning Sales to Kids

(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador rejected a proposal by senators from his own party for substantial tax hikes on junk food and soda while saying nothing about their plans to ban the sale of both to children.

In a Wednesday morning press conference, the president said he doesn’t favor raising the taxes, and would prefer an information campaign to help reduce consumption. But he didn’t comment on the junk-food ban. In an earlier interview with Televisa, Finance Minister Arturo Herrera said that the middle of a pandemic was not a good time for tax increases.

“You can’t traffic in the health of the people,” Lopez Obrador said during the press conference. “The government should carry out nutritional information campaigns.”

The measure comes after lawmakers in the states of Tabasco and Oaxaca approved junk food bans for children in the past few weeks and stocks of companies selling those products have underperformed. Several other Mexican states have been considering crackdowns on snack sales as the coronavirus outbreak revealed the extent of obesity-related illnesses like high blood pressure and diabetes.

Lopez Obrador and Deputy Health Minister Hugo Lopez-Gatell have both said that poor diets have helped exacerbate the outbreak in Mexico.

The proposal by the president’s own Morena party, which has the support of 37 senators, includes an increase of the soda tax known as IEPS to 5 pesos a liter from the current 1.26 pesos, according to a document posted on the Senate’s gazette. It would also increase the tax for high-calorie, non-basic foods to 25% from the current 8%.

The bill, proposed by Morena Senator Salomon Jara, would require proof of age to buy junk food and would prohibit their sale inside schools. Jara, from the poor southern state of Oaxaca, said Lopez Obrador was concerned about the impact of higher taxes on the poor, but he insisted that companies needed to offer healthier alternatives.

“They have been the culprits of major health problems throughout our country for children and youth,” Jara said in an interview. “Our objective is not to increase the tax just to hike it. Our objective is for the industry to change the nutritional content of junk food.”

Both houses of Congress, where Lopez Obrador’s party and allies hold majorities, just launched their fall session, and Jara said he expected the bill would be debated in the coming weeks.

Despite the attitude from companies and sell-side analysts that the potential legislation wouldn’t have a significant impact, it seemed some stocks had seen selling pressure from investors, Santiago Arias, head of equities and a portfolio manager at Credicorp Capital Asset Management in Santiago, Chile.

Coca-Cola bottlers Arca Continental SAB and Fomento Economico Mexicano SAB, which also runs convenience stores, are down about 8% and 6%, respectively, since local bans were passed last month, while bread and snack cake maker Grupo Bimbo SAB is down nearly 5%. Femsa had no comment when contacted by Bloomberg.

”Mexican staples companies have become some of the most profitable in the world, but that success came with a very high cost in terms of the health of the Mexican population,” Arias said. “Unfortunately it makes sense for these companies to have more pressure from politicians and the society.”

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