Sugar Tax Impact on Soft Drink Industry

This assignment examines the effects of the UK sugar tax on the soft drink industry. It explores how increased prices due to taxation influence consumer behavior, leading to a potential shift towards healthier alternatives. The report delves into the economic implications for businesses, highlighting the need for strategic adaptations like reformulation and product diversification to maintain profitability and competitiveness in the face of changing market dynamics.

Business economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................3
Economic policies can
shape business strategy...............................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES ...............................................................................................................................6

INTRODUCTION
In economic term, the concepts that uses theory and quantitative approaches in support of
analysing business of an enterprises, factors contributing to organisations structure and
relationship with other elements such as capital, labour and market is known as business
economic (Sahut and Peris-Ortiz, 2014). In this report, explanation of market imperfection and
market failure that impact the entrepreneurship activity, labour and financial product are
discussed. Apart this, the interpretation of sugar tax of UK government help in business strategy
and decision made by management is discussed.
TASK 1
In business term, tax is one of the mandatory financial duty that is imposed by
government of a specific nation on organisations and individual so that funds can be raised to
meet the public expenditure. From the case study, it has been observed that there is important to
imposed sugar tax on soft drink as it would be beneficial for the country, people and overall
growth of economy. Overconsumption of sugar in soft drinks can lead to different health issues
such a obesity, diabetes, heart diseases and also reduces the productivity of labour and increasing
absenteeism for companies. In recent time, it has been observed that main market failure linked
with the consumption of sugar like in soft drink is overconsumption that is because of negative
externalities and imperfect information. In case if customer do not consider these negative
externalities than individual may underestimate the social cost of drinking soft drinks. In case of
market imperfect or imperfect information due to which customer might consume more and
more soft drinks as they are not aware about long term problems of drinking these drinks. It is
therefore for the UK government to imposed such a tax on these drinks that would reduces the
sales of fizzy drinks and help government to collect decent amount that can be spent on other
crucial activities of nations.
In economic, the market failure is a condition in which the distribution of product and
services by the responsibility market is not adequate and it also lead to social welfare loss
(Market failure, 2019). The main reason for these situation is due to individual are more obsess
to get result in favour of self leading to inefficient result to economy. In case of improper
information of market and sudden changes in the tax rate or imposition of any new polices it
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could lead to reduction of productivity and profitability of business. In case of UK sugar tax, it
will imposed on the organisations according to the volume of more soft sugar drinks they
manufacture and import. There are many companies that can be impacted badly with the sudden
impose of tax and are forced to make changes in their polices such as changing price, control in
production, changes in labour rate etc. For example smaller band like Fanta and sprite have a
sugar mixture of about 5 gram per ML, so it would add 6p to the price for 330 ml can. Similarly,
other upper set drinks like coca- cola are going to add 8 g/ml of sugar ingredients that will add
8p to the price of 330 ml bottle. When companies tries to cop up with the market failure than
they there are many other problem that are faced by individual, government but at the same time
there are some benefit also. In case if indirect tax of sugar are raised that it will hit hardest to the
low income group people because in UK, most of population prefer and consume lot of soft
drink on each occasion and children are more founded to have coke, Pepsi and other soft drink in
birthday parties, trips etc. So it is totally unfair to keep increasing burden on the low income
group people with such kind of tax.
The impact of market imperfection, will lead to increase in cost of manufacture and also
reduce the overall supply of sugar drink. For example if coca cola follows the concept of sugar
tax and add price on their each soft drink will reduce the entire sales of company by a decent
margin. This is because people will start buying healthier drink that is better option and prevent
them from different types of diseases (Salvatore, 2015). It could also impact the business of pub
chain such as continuously raising of soft drink will reduce the purchase of these drink from
manufacture. It is also observed that many companies would offer large quantities to small
retailer and group of consumer at a lower cost before imposing of tax so that more and more
profit can be earned. Market imperfection and market failure could influence the labour of
company because they are more focused to produce more and more quantity of goods making
their workforce to be more productive. They do so in order to reduce the impact of indirect tax
that is imposed by UK government and raise the price in future for their product. From example,
in order to increase the sales before imposition UK sugar tax companies like coca cola increase
the working hour of labour so that manufacture of soft drink can be increase in short period and
that help company to provide strength to their supply chain. It will helpful to increase the
financial income in that particular period which further can be used to recover the losses or less
sales after the period of implementation of tax.
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From the case, it is also observed that in case if manufacture do not impose the cost of
Sugar tax on customer than there can be better control in sugar consumption and market failure.
This is because government have added some incentive for manufacture those cut down the
sugar mixture from their drinks and the amount of tax to pay. Such as in case if higher brand like
Pepsi reduces the content of sugar of about 8 gram on every 100 ml than they have to pay only
6p and if the quantity is below 5g than they don't have to pay any tax. The overall tax revenue
collected from these companies would can be used by government for different financial purpose
and improvement in economic stability. Such as in case of UK sugar tax the total revenue
collected can be used to allocate funds for primary school sport.
TASK 2
Economic policies can
shape business strategy
In UK government have various economic reforms relate Sugar tax that must be consider
by the companies of soft drink manufacture so that timely and accurate decision are made for
better future (Schneider and Spieth, 2013. The tax rate are as follows:
 18p per litre for soft drink that contain more than 5 gram of sugar per 100 ml.
 24p per litre higher tax band to drinks containing more than 8 gram of sugar per 100 ml.
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As the government of United Kingdom has introduce the sugar tax which can affect the
business policies and strategies. Sugar is added in almost every soft drinks products and while
introduction of tax the purchasing power of companies will reduce because they have to pay
more taxes on it as a result their profits can be affected. Through this decision of government, the
companies will try to reduce the sugar content in their products and reduce the purchase. This
situation can hamper the business operations of corporation because prices of sugar will increase
than firms have to increase the price of their products and if prices will rise than willingness of
consumers will reduce to purchase the goods of corporation. So it is important for the
management to formulate effective strategies and policies and to produce in bulk so that cost of
production will reduce and price of products will not increase (Stanley and Doucouliagos,
2012). As a result consumers will not shift to other alternative and organisation will generate
higher profits. It is helpful for the firm to sustain in the market and the tax implication of
government does not influence the business of company.
There are crucial and strong economic, social and personal advantages from sugar tax
such as it will support businesses to manufacture on the production of healthier drink due to
which sales can be improved. The raised money can be used to deal with the continuous rise in
health costs associated that is because of obesity and excess sugar consumption. With the
implement of sugar tax will be only a drawback to the soft drink industry due to which there will
be some fall in demand. But at the same there are some major opportunities to companies
operating in soft drink market as they can now focus to produce healthier drinks as a
complementary option that avoid the usage of sugar and can raise their production and overall
profitability. Manager of soft drink manufacture would also take crucial decision while
producing goods such as they can introduce a can which contain sugar content of below 5 g and
add some natural flour for some new taste that are fit for health and gives customer a new
experiences. Production of healthier drink would beneficial for individual and good for national
health services with minimum economic disruption. Management of companies will also take
decision to increase job opportunities such as introducing new product line will require skilled
and professional staff member to run and manage new project of company.
CONCLUSION
From the above report it has been discussed that imposition of tax by government can
impact the business activities and increase the prices of product. UK sugar tax is beneficial
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because it help to reduce the overall consumption of sugar and raised price of soft drink would
lead them to switch on healthier drinks. It will also raise
tax revenue, which will be used to promote sport in schools. Economic policies, would be
beneficial for business to reform their strategies and make meaningful decision in order to
increase the level of production.
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REFERENCES
Books and Journals:
Sahut, J. M. and Peris-Ortiz, M., 2014. Small business, innovation, and entrepreneurship. Small
Business Economics.42(4). pp.663-668.
Salvatore, D., 2015. Managerial economics in a global economy. OUP Catalogue.
Schneider, S. and Spieth, P., 2013. Business model innovation: Towards an integrated future
research agenda. International Journal of Innovation Management.17(01). p.1340001.
Stanley, T. D. and Doucouliagos, H., 2012. Meta-regression analysis in economics and business.
Routledge.
Online
Market failure. 2019. [Online] Available through:
<https://www.econlib.org/library/Topics/College/marketfailures.html>
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