Own-price, cross-price, and expenditure elasticities on sugar-sweetened beverages in Guatemala

Background

The obesity epidemic is spreading rapidly in Guatemala, a low/middle income country still struggling with undernutrition. Sugar sweetened beverages (SSBs) consumption is strongly associated with overweight, obesity, and non-communicable diseases. In Guatemala, SSBs are readily available and consumption is high, particularly among adolescents. SSB taxes have been proposed as a cost-effective way to reduce consumption and generate revenues for public health, as has been demonstrated in several countries around the world.

Objective

To estimate the price, expenditure, quality, and cross-price elasticity of beverage demand using household survey data.

Method

We conducted a secondary analysis on the 2014 Guatemala Living Conditions National Survey that includes national representative household data on expenditure. Own price, expenditure, quality, and cross-price elasticities of milk, soft drinks, packaged juices, and bottled water were estimated using Deaton’s Almost Ideal Demand System (AIDS), controlling for goods’ quality. Household characteristics and beverage expenditure are summarized for urban and rural locations using descriptive statistics.

Results

Positive expenditure on soft drinks was highest (50.9% of households). Positive expenditure on bottled water was next for urban households (43.8%) and lowest for rural households (10.8%). Own-price elasticities for all beverages are negative and statistically significant. Own-price elasticity of soft drinks is -1.39, suggesting that with a 10% increase in price, consumption would decrease by 13.9%. Expenditure elasticity for soft drinks (0.99) suggests that a 10% household expenditure increase would result in a 9.9% increase in demand. Milk (0.07) and soft drinks (0.07) have positive quality elasticity implying that, as household total expenditure increases, the quality of these beverages, measured by their unit values, also increases.

Conclusion

Soft drink demand is highly sensitive to changes in prices, suggesting that SSB taxes could significantly reduce consumption, which, in turn, could contribute to curbing the overweight/obesity epidemic.