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Revista mexicana de ciencias agrícolas

versão impressa ISSN 2007-0934

Rev. Mex. Cienc. Agríc vol.8 no.3 Texcoco Abr./Mai. 2017 

Investigation notes

Simulation of the impact of the tax on soda in rural Mexican economies: application in a case study

Marco Andrés López Santiago1  §  

Sergio Ernesto Medina Cuéllar2 

Cesar A. Meza Herrera1 

Ramón Valdivia Alcalá3 

Ricardo David Valdez Cepeda1 

1Universidad Autónoma Chapingo-Unidad Regional Universitaria de Zonas Áridas. Carretera Gómez Palacio-Chihuahua, km 40. Bermejillo, Durango, México. CP. 35230. Tel. (872) 7760160. (;;

2Consejo Nacional de Ciencia y Tecnología (CONACYT)-Centro de Investigación en Geografía y Geomática. “Ing. Jorge L. Tamayo”, A. C. Contoy 137, Esq. Chemax. Col. Lomas de Padierna, Delegación Tlalpan, Cd. México. CP. 14240, (

3Universidad Autónoma Chapingo-División de Ciencias Económico-Administrativas (DICEA). (


This research shows the analysis of the effects of the simulation of the increase of $1 per liter to the price of sodas. The simulation was performed in a characteristic rural community of Mexico. The general computable rural equilibrium model was used under two scenarios: In perfect competition and in absence of markets. The main effect under the two scenarios was a drop of 14.29% in consumption; without consequences on the agricultural, livestock and factor markets. This drink behaved as an inelastic good in the magnitude of -0.85. The soda tax discouraged consumption; however, an effective reduction would require combined strategies.

Keywords: computable rural general equilibrium model; elasticity; rural households; taxes on sodas


En esta investigación se muestra el análisis de los efectos de la simulación del incremento en $1 por litro al precio de los refrescos. La simulación se realizó en una comunidad rural característica de México. Se utilizó el modelo de equilibrio general computable rural bajo dos escenarios: En competencia perfecta y con ausencia de mercados. El efecto principal bajo los dos escenarios fue una caída de 14.29% en el consumo; sin consecuencias en el mercado agrícola, ganadero y de factores. Esta bebida se comportó como un bien inelástico en la magnitud de -0.85. El impuesto a los refrescos desincentivó el consumo; no obstante, para una reducción efectiva se requieren estrategias combinadas.

Palabras clave: elasticidad; hogares rurales; impuestos a refrescos; modelo de equilibrio general computable rural

According to Basu et al. (2013), sugary drinks contain large amounts of refined sugar that give a high glycemic load as they have poor satiating properties, which may contribute to excessive weight gain, metabolic syndrome and insulin resistance.

Basu et al. (2013) analyzed data from several countries and showed that soda consumption is significantly associated with the global prevalence of overweight, obesity, and diabetes, even in low- and middle- income countries. On the other hand, in 2010 the per capita consumption rate of sodas worldwide was led first by Mexico with 119.24 liters, secondly the United States of America (118.10 liters) and in third Argentina (115.83 liters).

In this context, the taxes that came into force in 2014 were published in the Official Gazette of the Federation on December 11, 2013 (DOF, 2013). Among the main taxes were those on foreign transportation, alcoholic beverages, pet food, consumption of foods with high caloric content and sweetened beverages. In the particular case of sodas, the Mexican State warned that the objective was to discourage the ingestion of non-basic foods that contribute to the increase of diseases; also stresses the purpose of increasing the tax base and collecting taxes in those sectors of the population with high purchasing power.

However, due to modern socio-cultural conditions, alcoholic and sweetened beverages are consumed a lot during ceremonies or celebrations of small rural communities. Therefore, it is necessary to analyze the impact that the tax will have on the expenses of these communities and above all the impact on their economic activities. The concept of rural economies or farm households is rather complex; however, it can be understood as the survival of families living in marginalized rural regions which income depends not only on agricultural production but also on other types of income such as remittances, transfers between households and government transfers (López et al. 2013).

Therefore, the main objective of this paper was to simulate and analyze the effect of the tax at $1 per liter on sodas in a rural community. The ejido La Quemada was used as a case study, municipality of Cuauhtémoc, Chihuahua, Mexico. As a particular objective was to calculate the elasticity of demand of sodas in the community, in order to measure the behavior of consumers before a given percentage change in the price of the good in question.

One of the economic tools that facilitate the analysis of external policies and their impact on a given rural economy is the model of agricultural households (MHA) within the framework of the rural computable general equilibrium model. This model uses the social accounting matrix (MCS) as a database to perform the policy simulations. This rural MEGC has the strengths of MCS (studied by Sadoulet and De Janvry, 1995) and the microeconomic model of agricultural households (Barnum and Squire, 1979; Singh et al., 1986).

The main material used in this work was the database of the social accounting matrix applied to villages (MCSP) developed by Cuevas (2009) in 2006. After defining the database to be used, the next step in the methodology is the calibration of the parameters that will be used to model the general equilibrium equations. It is important to clarify that the equations presented in this part of the methodology were programmed in the general algebraic modeling system software (GAMS). The equations are modifications made in accordance with the conditions of this research. The original programming in GAMS is available in Taylor and Adelman (2003).

According to data from the social accounting matrix applied to villages (MCSP) of La Quemada community, Cuauhtémoc, Chihuahua, total household expenditure amounted $10 519 620.19.

Of this total expenditure, the largest component (49.22%) is the sum of the expenses incurred in the purchase of food both locally and regionally; the second element, with 12.04%, corresponds to the sum of payments for local services (electricity, water, gas and telephone); the third component, with 11.46%, corresponds to the sum of local and regional transportation costs; the fourth element, with 5.99%, is the sum of payments for medical services and traditional regional or local medicine (including payments for medical services, medicines, hospitals and traditional medicine); the fifth component, with 3.39%, corresponds to the sum of expenses for the payment of uniforms, books and regional school materials; the sixth component, with 2.46%, is associated with the sum of expenses for the purchase of beverages in the locality or region (soft drinks, beer and pulque); the remaining percentage consists of other expenses with interests less than 2%.

On the other hand, the community income comes essentially from workers who work in the nearby municipality or in the region, for this reason the third item of expenditure is composed of transportation expenses to the labor sources.

Simulation of the increase in the price of sodas due to the tax

Although taxes only imposed $1 per liter sold, the magnitude of changes in the studied area was greater in retail; for example, the presentation of 600 ml of cola went from $9 to $10.50 from 2013 to 2014, while the presentation of a liter went from $12 to $14 in the same period. Therefore, the percentage change on average was 16.67%. In the study community, approximately $259 256.67 was spent on the purchase of sugary drinks. In this way, the 271 existing homes were extrapolated and it was estimated that each household consumed 79 liters at the initial equilibrium with 2013 prices.

In order to determine how the community income, the production of agricultural goods, livestock goods and the factor market, changes as a result of the soda tax, the experiment was carried out under two scenarios: a) in the first one, perfect competition was assumed; and b) in the second scenario, the absence of both the agricultural goods market and the livestock market was considered.

Since marketed goods as sodas are not part of the production function of households, no significant effects were found in the production of agricultural or livestock goods. Consequently, the marketed surplus and the demand for factors showed no relevant effects.

The main effect observed was the decrease on the demand for soda consumption at 14.29%. This result was due to the 16.67% increase in own price. The results described were presented for the two scenarios raised because, although the agricultural and livestock markets do not exist in the locality, the commercial premises that commercialize sodas at local and regional level persist.

In this sense, and according to the findings in the experiment, the main purpose of the sodas tax was met, i.e. the decrease in consumption. It should be noted that this decrease in consumption may be due to the price and income effect.

Price elasticity of demand for sodas

Estimating the elasticity of a product is important for a producer because it allows to determine the magnitude of the amount of consumer demand that will change when the sale price is increased by a percentage unit. It is also very useful for policy makers. It helps to know the size of change in consumption due to an increase in taxes, as in this case sodas. Thus, with the data of the household expenses of the studied area and based on the percentage changes observed in the results of the general equilibrium model, the price elasticity of demand for sodas was -0.85. This means that it is an inelastic good so that in increments 1% of the price, the amount consumed will decrease 0.85%.

At the national level studies exist to compare the magnitude of the elasticity found. Fuentes and Zamudio (2014) calculated the elasticity of the sodas considering a model without differentiating the presentations, whereas in other three models they distinguished different sizes. They estimated a price elasticity of -1.22 considering soda as a homogeneous product. In the other three models, the elasticities were in the range of -0.13 to -0.37. In this sense, the main conclusion of the authors is that when differentiating the product it has a strange behavior since it can go from elastic to inelastic. However, since the results of this paper do not differentiate the presentations, the reference value to compare is -1.22. Also, Colchero et al. (2013) quoted by Fuentes and Zamudio (2014) estimated by two models an elasticity of -1.01 in the first and for the second of -1.29.

An extreme case in terms of elasticity magnitude is that reported by Valero (2006), whose estimate included sodas, soft drinks and natural juices. Concluding that price elasticity was -1.63 in 1992 and -1.39 in 2002; however, when considering the impact on rural populations (less than 2 500 inhabitants), the author states changes from -2.72 to -5.17, respectively, in the same period. According to this same author, for distribution reasons, the goods studied should not have taxes greater than 15% on the base price. Also, Aguilar et al. (2011), (0), inelastic (-0.5), unitary (-1) and elastic (-1.5) were estimated in four possible scenarios of elasticity of demand for sodas. They concluded that this product behaves with inelastic demand tending to unitary and recommend a tax of between $2.00 and $3.00 per liter to cover practically all the expenses generated in the treatment of diabetes mellitus in Mexico. The conclusion of these authors agrees with the elasticity estimated in the present paper because it is inelastic and tends to unitary.

At the international level, some studies that report soda elasticities are: Powell et al. (2012), through the review of the studies published between January 2007 and March 2012, found that the price elasticity of sweetened beverages is -1.21. Similarly, by an experiment in a hospital in the United States of America, Block et al. (2010) found that the drop in regular soft drink sales corresponded to a demand elasticity of -0.7, which was slightly inelastic.

Finally, this paper showed the changes in the total expenditure of a rural economy in response to the entry into force of the soft drink tax. The estimated effects could serve as a reference for decision-makers. Based on the estimated elasticity they will be able to have an idea of the consequences of increases or decreases in the tax. The reported elasticity presents strengths because it was estimated in a general equilibrium context. However, in order to have complete and convincing results, they must be validated in other rural communities in the country.


In the study population, the sugared drinks tax did not show a significant effect on the production of agricultural and livestock goods, nor in the factor market. However, in a peasant economy the family unit has the dual function of producer and consumer. In this way, in its role of consumer, the tax directly impacts on the proportion of household expenditure, decreasing the purchase of goods with the highest prices. This paper evidences the expectations of the decision makers regarding the decrease in the consumption of soft drinks due to taxes, however, the strategy to reduce consumption effectively should not be limited to just the price increase. For an effective reduction, it must be accompanied by complementary strategies.

Literatura citada

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Received: April 2017; Accepted: May 2017

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