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Health commissioner: A clean win for public health in the Philly beverage tax

When I see pictures of children learning in pre-K, I think of how Philadelphia paid for it - with a distribution tax that isn't hurting the retail business, but is fighting a major health threat even better than it was intended.

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For a pediatrician like me, it's heartwarming to see thousands of young children attending pre-K, courtesy of an expanded program funded by the Philadelphia beverage tax. Until now, though, we haven't seen hard data about how the tax is affecting consumers and grocery stores in Philadelphia.  Finally, the first solid results have appeared, and they bring even more good news: a win for health without collateral damage to retailers.

It's worth remembering that the idea of taxing the distribution of sweetened beverages originated with health experts trying to combat twin epidemics of obesity and diabetes.  Nationally, 38 percent of adults are now obese.  Type 2 diabetes, following in the wake of obesity, affects one in eight adults nationally and nearly one in five African-American adults in Philadelphia. Sugary drinks, while not the sole cause, are major contributors. The original rationale for the tax was to raise the retail price of sugary drinks and thereby discourage consumers from guzzling them.

For the last few months, we've heard many unverifiable claims that the tax is hurting grocery stores across the city.  But last week, for the first time, university researchers presented solid data at a scientific meeting on the tax's impact.  Researchers at the Universities of Pennsylvania, Harvard and Johns Hopkins analyzed electronic cash register data collected by an independent marketing firm from 737 chain supermarkets, mass merchandisers and pharmacies in Philadelphia and its neighboring counties.  Separately, the researchers did price-checks in small stores that don't have electronic cash register data. They compared their findings to retailers in Baltimore, which does not have a beverage tax.

The researchers found that the beverage distributors and retailers passed most of the cost of the 1.5-cents-per-ounce tax on to consumers with higher shelf prices.  About 100 percent of the cost of the tax appeared in increased beverage prices in small independent stores and about 75 percent in the chain stores. And consumers in Philadelphia indeed purchased fewer sugary drinks, reducing sales in chain stores by 46 percent compared to Baltimore.

That's a larger decrease than health experts had predicted.   Maybe it's because these large stores generally sell beverages in big containers – 2-liter bottles and 12-packs of cans – where a one- or two-dollar price increase was especially noticeable.  Some stores may have contributed by deliberately drawing attention to the price increase with signs posted on the display cases.  Regardless, it suggests that many supermarket consumers had second thoughts about their purchase after noticing the price change.

Before the tax was passed, a group of researchers at Harvard had estimated that a 1.5-cent-per-ounce tax would reduce sugary drink consumption enough over 10 years to prevent 14,000 cases of obesity, 350 deaths and save $77 million in health care costs.  The large decline in actual sales suggests the tax might do even better than that.

Then the researchers found that the tax had no discernible impact on total store sales.  How is that possible? The decline in soda sales may simply have been negligible compared to the sales of the many thousands of other items that large supermarkets sell, or consumers may have redirected the money that they didn't spend on sweetened drinks to food or non-food items, or a combination of the two.

Whatever the explanation, it's still good news for the grocery business.  The tax, after all, is on the distribution of sweetened drinks, not on groceries.  And the steady sales numbers are consistent with data showing growing payrolls in Philadelphia stores selling beverages in the six months after the tax began.  Together, these say we should be highly skeptical of claims that the tax is killing stores.

So now, when I see pictures of those children learning in pre-K, I also think of the benefits of how Philadelphia paid for it — with a distribution tax that isn't hurting the retail business, but is fighting a major health threat even better than it was intended.  It's a win all around.

Thomas Farley, MD, MPH, is the commissioner of the Philadelphia Department of Public Health.