Malaysia sugar tax: Innovation and reformulation underway, but is it enough?
When the government announced the sugar tax implementation in the nation’s Budget 2019 back in November last year, its primary objective was stated to be ‘to address the issue […] of nearly one out of two Malaysians being obese’.
“The duty proposed will be at RM0.40 per litre to be implemented on 1 April 2019 for non-alcoholic beverages containing added sugars of more than 5gm per 100ml drink; and for fruit or vegetable juice containing added sugars of more than 12gm per 100ml drink,” said Finance Minister Lim Guan Eng.
The tax implementation date was later postponed to July 1 2019, citing ‘more time for preparation’ as the reason.
F&N Malaysia initially reacted by announcing that it was looking at a possible price increase for 90% of its products, which it later retracted and said that it would be reformulating some 70% of its products instead.
This appeared to be exactly what the government was aiming for with the sugar tax: Driving product reformulation to decrease sugar content and thus public consumption, which would supposedly also decrease local chronic disease rates. So can this be considered a definitive ‘good move’?
Research agency GlobalData appears optimistic about this, saying that local beverage companies would need to ‘innovate and adapt to curb the impact of sugar tax’, as well as meet consumer demand.
“Consumers are gradually becoming health conscious and with evolving consumer preferences, companies will need to up their ante in the battle against sugar. Nevertheless, indulgence needs to be core to their offering, that is, healthier options without compromising on the taste,” said GlobalData Consumer Insights Analyst Nabila Azmatulla.
She added that 65% of Malaysian consumers said that a product’s impact on their health always/often influences their product choice, reflecting consumer sentiment around health.
“[Beverage companies are] coming under pressure due to additional production costs, evolving consumer preferences and more stringent regulations, [and will] need to build a healthier product portfolio to stay ahead of the competition.”
She cited F&N as a good example, saying the company launched 13 new ‘healthier option’ products in 2018 with positive market response.
Nielsen Malaysia took a more on-the fence opinion, saying that Malaysians’ reactions would only be able to be seen ‘in a few months’ time’.
According to Nielsen Malaysia Managing Director Luca De Nard, recent research by the company showed that Malaysians are ‘very loyal’ to specific brands, but that ‘11% had said that they would completely stop taking these sugary drinks’.
“It’s an interesting claim before the implementation of the tax. I’m curious to see if they do what they say. This is something we will follow up in the next few months. If 11 percent say they will stop drinking, that’s actually a big number,” De Nard said on an Awani Review video.
He also highlighted some countries who recently implemented sugar taxes with ‘very distinctive results’, including Saudi Arabia and Mexico.
“Saudi Arabia taxes 100% for energy drinks and 50% on carbonated drinks - Manufacturers were able to adapt, they innovated and brought in new products [and it] worked out quite nicely, actually. The results were significant,” he said.
“[Mexico] not only implemented the tax but also forbid sugary drinks advertisements on television at certain times. [When the tax] was first introduced, the consumption of sugary drinks dropped [but] just after two years, consumption was back to its previous level.”
That said, so far the government has remained mostly silent on opposing views to the sugar tax, many of which claim that a more holistic, all-rounded strategy is needed to effectively combat chronic diseases.
Beverage manufacturers such as Coca-Cola, PepsiCo and F&N Malaysia reacted immediately with concern, claiming that this was ‘not an effective policy response’ to combat obesity and chronic diseases.
In addition, academics and experts individually voiced doubts about the efficacy of such a tax as well.
Universiti Putra Malaysia Putra Business School senior lecturer Dr Ahmed Razman Abdul Latiff advised that a study be conducted to determine the real cause behind diabetes rates in Malaysia.
“[Are sodas really] the main contributor towards diabetes in Malaysia, or is it sugar? Teh tarik, for example, also uses a lot of sugar,” he said.
“If yes, then this is a smart way by implementing tax. I am confident that a soda tax can help increase revenue for the government. However, if the people do not change their lifestyle, then medical costs will also increase and add to the burden.”
Many also said that it was likely for Malaysian consumers to simply switch to any of the other high-sugar beverage options available in the country.
“Malaysian consumers have a diverse selection of food and beverages to choose from. The beverages being taxed are but a small proportion of food and drink which are of poor nutrition and high in fat, sugar and salt,” said Galen Chief Executive Azrul Mohd Khalib
“The list is long and arguably more problematic than soda drinks as they are consumed by the majority of consumers. These beverages will unfortunately escape taxation.”
As mentioned by De Luca, time will tell how Malaysian consumers react to the sugar taxation, and in what direction the pendulum will swing.