South Africa's Ongoing Battle with Diet-Related Diseases

South Africa faces a mounting public health crisis driven by rising obesity rates and non-communicable diseases like diabetes and heart conditions. With over 68 percent of adults classified as overweight or obese according to the latest South African National Health and Nutrition Examination Survey (SANHANES), sugary drinks contribute significantly to excessive calorie intake. The country's unique dual burden of disease—combining undernutrition with overnutrition—makes targeted interventions essential. Economists and public health experts have long advocated for fiscal measures to curb consumption of sugar-sweetened beverages (SSBs), defined as non-alcoholic drinks containing added sugars exceeding four grams per 100 milliliters.

In this context, the Health Promotion Levy (HPL), introduced on April 1, 2018, marked Africa's first sugar tax. Levied at 2.21 South African cents per gram of sugar above the threshold, it targeted carbonated soft drinks, sports drinks, and energy drinks while exempting 100 percent fruit juices and milk-based beverages. This tiered structure incentivized reformulation by producers to lower sugar content and stay below thresholds. Initial projections estimated annual revenue of around R2 billion, earmarked for health promotion, though debates persist on its actual earmarking.

Early Evaluations of the HPL's Effectiveness

Prior to the latest International Growth Centre (IGC) research, several studies documented the HPL's immediate effects. A landmark Lancet Planetary Health paper analyzed household scanner data from 2017-2019, revealing a 51 percent reduction in sugar purchased from taxed beverages, a 52 percent drop in calories, and a 29 percent volume decrease per capita post-tax. These changes were more pronounced among lower-income groups and high-SSB consumers, suggesting progressive health benefits despite the tax's regressive nature on spending.

Another analysis using Income and Expenditure Surveys showed price pass-through exceeding 100 percent for high-sugar drinks, leading to a 12 percent own-price elasticity. Substitution occurred toward untaxed drinks like pure juices, but net sugar intake still declined. Producer responses included reformulating over 200 products, reducing average sugar by 30 percent in taxed categories. Revenue reached R5.2 billion by 2023, funding water infrastructure in schools among other initiatives.

• Taxed SSB purchases fell 29 percent in volume.
• Sugar intake from SSBs dropped 36 percent overall.
• Low-income households reduced purchases by up to 40 percent.

These findings affirmed the tax's role in behavioral nudges, though critics from the beverage industry argued job losses in sugar sector and ineffectiveness due to substitution.

The Groundbreaking IGC Study: Unveiling Heterogeneous Welfare Effects

The newest contribution comes from the IGC's SA-TIED programme, with the working paper "Shifting Sweetness: Impacts of South Africa's Health Promotion Levy on Sugar-Sweetened Beverages" by Tim Cejka (PhD candidate, University of Chicago Booth School of Business), Marlies Piek, and Professor Mazhar Waseem (University of Manchester). Published February 26, 2026, this study leverages unprecedented excise return data from SSB manufacturers and importers, covering production, imports, and sugar volumes from 2016-2022.

The research quantifies not just aggregate impacts but dissects heterogeneous welfare effects across consumer segments. Welfare is measured via equivalent variation—the income compensation needed to restore pre-tax utility—accounting for price changes, substitution, and reformulation. This approach reveals that while the average consumer experienced a welfare loss from higher prices, the magnitude varied significantly by socioeconomic status, location, and SSB reliance.

A companion policy brief, "What South Africa's Sugar Tax Achieved – and How to Strengthen It," synthesizes these insights for policymakers.Read the full policy brief here.

Robust Methodology Driving Credible Insights

The study's strength lies in its data and econometric rigor. Excise data provides near-census coverage of SSB volumes (in liters) and sugar content (grams per liter), bypassing retail scanner limitations. A staggered difference-in-differences design exploits the tax's April 2018 rollout and tiered exemptions, comparing taxed high-sugar (>8g/100ml) vs. low-sugar products pre- and post-tax.

Structural demand estimation via a Berry-Levinsohn-Pakes (BLP) model incorporates consumer heterogeneity, estimating elasticities and pass-through. Welfare calculations integrate health externalities approximated by sugar reduction values, using WHO benchmarks for disease cost savings (e.g., R10-20 per gram avoided). Robustness checks address parallel trends, seasonality, and COVID-19 disruptions.

Key Quantitative Impacts: Beyond Aggregate Reductions

Central finding: the HPL slashed sugar in taxable SSBs by 33 percent within two years—a steeper drop than prior household studies. Volume of high-sugar drinks fell 25 percent, with full pass-through to consumers. However, substitution inflated non-taxable SSB consumption by 15 percent, muting net sugar reduction to 20-25 percent across all SSBs.

Reformulation was pivotal: producers cut sugar density by 20 percent in taxed lines, preserving volumes while complying. Net revenue to treasury: R6-7 billion annually by 2022, though administrative costs low due to self-reporting.

• High-sugar SSB sugar intake: -33% (2018-2020).
• Untaxed SSB shift: +15% volume.
• Reformulated products: sugar density -20%.

These shifts highlight loopholes: consumers pivoted to 'diet' variants or exempt juices, often equally caloric.

Unpacking Heterogeneous Welfare Effects

The study's innovation: granular welfare analysis revealing variation. Low-income households (bottom quintile) bore 40 percent of total welfare losses despite comprising 20 percent of population, as SSBs form 5-7 percent of their beverage budget vs. 2 percent for rich. Urban Black consumers, heavy pre-tax users, saw largest absolute sugar cuts (benefiting health-adjusted welfare) but initial utility dips from prices.

Rural and high-income groups substituted effectively to untaxed options, minimizing losses. Overall, deadweight loss equated to 15 percent of revenue, lower than expected due to inelastic demand. Incorporating health gains (e.g., 10 percent obesity drop modeled), net societal welfare positive, especially for vulnerable groups.Download the full working paper.

This heterogeneity underscores regressivity concerns but validates targeted rebates for poor.

Industry Adaptation and Economic Ripple Effects

Beverage giants like Coca-Cola and Pepsi reformulated aggressively, launching low-sugar lines that captured 30 percent market share post-tax. Sugar cane farmers faced pressure, with production down 10 percent, prompting diversification calls. Job impacts minimal: 5,000-10,000 losses offset by health sector gains from lower NCDs (estimated R20 billion annual savings).

Imports of untaxed concentrates rose 20 percent, fueling scrap-tax lobby amid 2026 sugar import surges.

2026 Budget Update: Modest HPL Adjustment Amid Debates

Finance Minister Enoch Godongwana's February 26, 2026, speech hiked the HPL to 2.31 cents/gram (3.3 percent increase), aligning with inflation after stasis since 2022. Revenue forecast: R2.4 billion for 2026/27. Health advocates decry shortfall from WHO's 20 percent ad valorem recommendation, projecting 50,000 fewer obesity cases. Industry pushes abolition, citing import distortions.

Diverse Stakeholder Perspectives

Public health bodies like HEART Foundation hail the IGC findings as validation, urging expansion to juices. Beverage Association disputes methodology, claiming negligible health impact. Economists note revenue recycling potential for school nutrition. Consumers in townships report switching to water, per qualitative surveys.

• Health NGOs: Expand to 20%, earmark fully.
• Industry: Scrap, hurts jobs.
• Gov: Incremental hikes sustainable.

For researchers eyeing public policy careers, studies like this highlight demand for PhDs in health economics. Explore research jobs or South Africa academic opportunities.

Global Lessons from South Africa's Pioneer Tax

As LMICs like Ghana (Tiered SSB tax 2020) and Philippines emulate, SA's experience warns of substitution pitfalls. Mexico's 10 percent soda tax cut purchases 10 percent but saw fruit juice spikes. IGC recommends volumetric taxes over sugar-specific for simplicity. Future: AI-driven demand modeling for real-time adjustments.Lancet study on global SSB taxes.

Photo by Jacques Nel on Unsplash

Future Outlook: Strengthening the HPL for Lasting Impact

Prospects: Close exemptions, inflation-index, revenue for subsidies on healthy alternatives. IGC urges rebates for poorest quintile to mitigate regressivity. With obesity projected to hit 80 percent by 2030, bolder action vital. Academics drive this discourse—consider career advice for public health economists.

In summary, the IGC study affirms HPL's efficacy while exposing nuances in consumer welfare. Policymakers must balance revenue, equity, and health. For jobs in this field, visit higher-ed jobs, rate my professor, or university jobs. Stay informed via higher ed career advice.