Recently the Mexican Government increased the tax on high-calorie food to curb the country’s high obesity rates. Could this tax rise spell yet another crisis for the already declining Mexican baked goods category? The answer is likely to be no. The average Mexican consumer eats 114 kg (251 lb) of bread, 6 kg (13 lb) of cakes and 12 kg (26 lb) of pastries each year, but these numbers have already been on a downtrend, indicating larger forces are at play. The success of government intervention here is also debatable, given the previous attempts to lift corn subsidies in 1997 and 2006, the latter of which led to ‘tortilla riots’ and ultimately resulted in a reversal of policy. So just how much of an impact will this high- calorie tax have? And what are the larger forces at play?
The low impact of high-calorie tax
In late 2013, the Mexican Government levied an additional 8% tax on high-calorie foods, defined as those having more than 275 Cal per 100 g. The new levy has implications for a number of food categories, such as cooking oils, dressings like mayonnaise but also baked goods which are widely consumed in the country. In theory, the impact will be most felt on pastries and cakes as these are typically higher in sugar and fat. In reality, however, many producers will evade the tax by either reformulating their products or absorbing the price rise temporarily (and thereby highlighting how ineffectual the tax is). If the high-calorie tax is likely to have a limited impact on Mexican baked goods, why is it that Grupo Bimbo, Mexico City, the largest producer of baked goods in Mexico and the world, reported a decline in its 2014 first quarter sales? And why has consumption of key baked goods, such as bread, been on a continuous downward spiral?
From tortilla to toast
There is more to the decline of Mexico’s bread sales than taxation and price. While per capita consumption of artisanal corn-based bread has fallen by a staggering 20 kg (44 lb) in the last five years, sales of packaged (predominantly wheat-based) bread have actually registered an increase. In fact, white wheat-based bread is the dominant variety within packaged bread, and this has definitely something to do with the growing influence of American culture on Mexican consumption habits. This is highly visible through the sheer number of US quick service restaurants that have opened in the Mexico. The convenience element and impact of advertising are also playing a noticeable role. Ultimately, the shift to packaged bread means a longer shelf-life for the product and less waste from a consumer perspective. The change in consumption habits might have a bigger impact than a tax increase that could well be absorbed by manufacturers.
Despite the top line performance of baked goods, packaged bread and bread substitutes are on the rise driven by new launches and innovation from Grupo Bimbo. The calorie tax will definitely change the direction of these innovations, possibly away from indulgent pastries and single-portion cakes toward value-added multigrain and thin variants. Distribution of baked goods will also change and might entail fewer artisanal tortillas selling through panaderias (local bakeries) and more packaged white bread through the country’s proliferating convenience stores. Ultimately, Mexico’s high-calorie tax is likely to make the baked goods category somewhat less attractive and might eventually change its internal dynamics. But the longer term sales declines are being caused by much wider influences.
For further insight, please contact Pinar Hosafci, food analyst at Euromonitor International, at firstname.lastname@example.org.