Budget & Tax, Agriculture

How soda taxes hurt farmers

May 8, 2017

Jayson Lusk

Proponents of sugar-sweetened-beverage taxes suffered a defeat on May 2 when 58 percent of Santa Fe residents voted against the proposed policy. Advocates of the so-called soda tax, which would have added a tax of about 25 cents to a 12-ounce soda, promised to earmark new tax receipts for use in education. Opponents of the tax, however, pointed to Philadelphia, where a recently enacted soda tax was said to have led to 100 job losses among bottling and distribution companies and significant price spikes for consumers.

There is another group which might also suffer economic losses from soda taxes: farmers. Sweeteners derived from farm products (corn, sugar beets, and sugar cane) are used to make soda. If soda taxes reduce beverage sales by, say, 20 percent (a conservative figure by some estimates)—and assuming sugar makes up 25 percent of the cost of a soda—a crude back-of-the-envelope calculation implies the value of sugar sales via soda would fall about five percent (20%*25% = 5%).

Data from the USDA suggests that about six percent of the sugar consumed in this country comes via beverages, implying that total sugar value would fall by about 0.3 percent (5%*6% = 0.3%). Using USDA data on the most recent value of farm outputs, this fall in sugar value could lead to a $5 million reduction in revenue to sugar beet farmers, a $2.8 million reduction in revenue to sugar cane producers, and (because about 5.4 percent of corn production goes to sweeteners) another $8.4 million in revenue for corn farmers.

These values could be higher or lower depending on how consumers, retailers, and farmers respond to the tax, but they do highlight the fact that whatever benefits are produced by these sorts of public health initiatives, they must be weighed against the cost. And some of those costs go all the way back to the farm.