Welfare-Case Companies: Coke, Pepsi, and the Soda Industry

By Matthew Mallon  AUG 05, 2010 5:30 PM

One argument says that allowing people to buy sugary soda with food stamps creates an industry subsidy.

 


Care for a little social engineering with your sugar water?

This July, the American Journal of Public Health said allowing people who receive assistance from SNAP (the Supplemental Nutritional Assistance Program -- the new name for the Food Stamps program) to buy soft drinks with that money amounts to a $4 billion federal subsidy of multinational giants in the carbonated beverage industry, such as Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple Group (DPS).

SNAP recipients can’t buy cigarettes or alcohol with their funds, the argument goes, and the United States is in the middle of an obesity pandemic every bit as dangerous to American health as those two killers. Studies link heavy soda consumption directly to obesity, and SNAP users tend to consume more soda than other consumers -- 40% more, according to the authors of the report.

This week, New York City Mayor Michael Bloomberg joined the call to remove soda from the list of items that can be purchased with SNAP money. As part of his anti-obesity campaign, the mayor asked for permission from the federal government to block the city's $1.7 million food stamp recipients from using their SNAP coupons to purchase soft drinks and other sugary beverages. He'd like to test the program for two years to see if it would have an impact on soda consumption.

Other critics of the industry claim that its subsidies go way beyond SNAP funds, though. They argue that long before a bottle of Coke or Mountain Dew reaches a shop shelf, the industry’s manufacturing expenditures have been reduced below their real cost by large corn subsidies.

According to a recent study by the Global Development and Environment Institute at Tufts, Archer Daniels Midland (ADM), the grain-processing behemoth that produces the bulk of high fructose corn syrup used in the States, purchased its raw material -- corn -- at 27% below cost from 1997-2005, a savings of $2.2 billion during that period alone. It passed those savings on in the form of lower costs to Coca-Cola -- and Heinz (HNZ), Kraft (KFT), and other major purchasers of high fructose corn syrup.

Subsidies aside, the American Journal of Public Health article cuts to the heart of the current debate on how to handle the obesity issue, which costs the US an estimated $147 billion a year in medical bills alone. “The federal government should be doing everything it can to reduce the consumption of soda and other sugar-sweetened beverages, which promote tooth decay, weight gain, obesity, diabetes, and other diet-related diseases,” says Michael F. Jacobson, executive director of the Center for Science in the Public Interest and one of the co-authors of the report.

But should it? Critics of federal attempts to intervene in junk food and junk drink consumption say this sort of social engineering doesn’t work. They (the industry itself and its organization, the American Beverage Association) have successfully fought off recent attempts to impose a soft-drink tax, claiming first that the taxes would unfairly impact small businesses like local soda-selling pizza joints and regional bottling plants, and second that they would be an unfair fiscal burden on that segment of the population that tends to enjoy its products -- and that a tax on junk food would, for all intents and purposes, become a tax on the poor, who tend to consume more of it than higher-income earners.

And the question remains whether measures such as sin tariffs or the removal of soft drinks from SNAP-approved items would actually affect consumer behavior at all. In the fall of 2008, Gary Fayard, the chief financial officer of Coca-Cola, told a beverage industry trade conference that Coca-Cola raised the prices of its brands between 15% and 20%. It expected to see a drop in volume -- but that never came. The ever-growing American thirst for sweet carbonated drinks, it seems, is stronger than a few cents here and there.

Even Jacobson offers a carrot-like alternative to the stick of a soda tax or ban: A less controversial way to use the SNAP program to promote healthier diets, he suggests, would be to provide recipients with a financial incentive to purchase fruits, vegetables, and whole grains. One easy way would be to provide a credit of, say, 30 extra cents for every dollar spent on healthy foods.
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