Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.
Mexico recently overtook the United States as the world’s most obese nation, with 70% of its population classified overweight and 32.8% classified obese. Mexicans also drink more Coca-Cola per capita than any other country in the world, according to Quartz. One of the Mexican government’s solutions is an 8% tax on junk food that passed this week — with a debate still going on about an additional 8% tax on “sugary soda”.
For a moment the sugar tax seemed to threaten Mexican Coke, a cult favorite in the US because it uses cane sugar, rather than the cheaper high-fructose corn syrup, as its sweetener (or, it claims to — lab tests suggest perhaps not). However, Amy Guthrie explains that the Mexican bottler produces a different product for the US, “part of a nostalgia project that began in 2005”. So while the Mexican version will likely start using corn syrup, the US supply won’t be disrupted.
Reuters charts Americans’ transformation away from high-fructose corn syrup and toward refined sugar. But Izabella Kaminska flags a new Credit Suisse report (summarized here) that’s bearish on sugar’s future. “Although a major consumer shift away from sugar and high-fructose corn syrup may be some years away, and outright taxation and regulation a delicate process, there is now a trend developing”, according to the report. It also points out sugar’s addictive qualities, which leads to a comparison with the tobacco industry. The report concludes that, in the short term, the best way to deal with the world’s obesity problem is to tax sugar.
It’s unclear how much sugar needs to be taxed to produce results. A 2009 paper by researchers at the University of Illinois at Chicago concluded that small taxes “are not likely to produce significant changes in BMI or obesity prevalence but that nontrivial pricing interventions may have some measurable effects on Americans’ weight outcomes”. A 2010 study by Duke professor Eric Finkelstein concludes that a 20% tax on sugar-sweetened beverages would decrease demand for them by about 16%. However, it also might just make people switch to different kinds of highly caloric food or drinks.
In an economic sense, says Kaminska:
global obesity is just another form of dark inventory accumulation in a time of excess. Call it the human edition of the commodity warehousing and hoarding problem, in which demand is stimulated not by passive speculators fearful about tomorrow’s scarcity and real returns, but unconscious over-consumption, to the detriment of society.
On to today’s links:
US adds 204k jobs in a generally awesome October jobs report – BLS
A great breakdown of the October jobs report – Calculated Risk
The “garbage in, garbage out” jobs report – Felix
An awesome interactive on US labor market trends since 1990 – Matthew Klein
SAC’s allocution: “This happened on our watch, and we are responsible for that misconduct” – SAC