Poverty Footprint Study on how the Coca Cola - Oxfam America

Excise taxes
The Coca-Cola Company and Zambian Breweries
are developing an economic case to argue for a
reduction in the excise tax levied on their sparkling
beverage products. They argue that excise taxes are
discriminatory and with lower taxes they can grow
their business and deliver greater economic benefits,
including tax revenues, to the local economy. 68 Excise
taxes on sparkling beverages are added to the retail
price and increase prices faced by consumers.
In El Salvador, sparkling beverages have been taxed
since 1978. During years prior to this study, ILC
lobbied the central government authorities to remove
excise taxes. Their main argument was that excise
tax on local sparkling beverages causes a market
distortion in favor of imported sparkling beverages
and nonsparkling beverages and that its elimination
or reduction would lead to additional sales and thus
a general increase of tax revenue through direct
taxation (i.e. on profits). However, a full analysis
taking into account any social costs arising from
increased sales of Coca-Cola products and lessons
learned from other countries that have abolished
excise tax has not been performed.
Sugar prices
In Zambia, the government has established sugar
as a “sensitive and priority product,” which has put
regional prices ($650/ton) well above world market
prices ($300/ton). The Coca-Cola Company and
Zambian Breweries argue that being able to buy
sugar at the international market price would not
only reduce procurement costs for the Coca- Cola/
SABMiller value chain and value chain but also allow
reduced costs to Zambian customers, increased
volumes of sales and drive economic development
in the country. If the policy environment allowed,
The Coca-Cola Company and Zambian Breweries
would prefer to buy from lower- price producers of
sugar. Zambia Sugar argues that higher prices have
a direct, positive impact on poor agricultural workers
in Zambia. It argues that lower prices from other
countries are only possible due to higher levels of
mechanization and that Zambia’s more labor-intensive
sugar production techniques should be protected
rather than threatened.
The Salvadoran government does not currently
regulate the price of domestically produced sugar.
However, restrictions are placed on imported sugar,
which can only be imported if domestic demand
cannot be met with local supply—after a disappointing
sugarcane harvest, for example. In this case, the
importer must pay a 40 percent tariff plus VAT. ILC
sources sugar from its own mill in nearby Honduras
76 Exploring the links between international business and poverty reduction
and from local firms through the distributor, DIZUCAR.
DIZUCAR and ILC agreed on a fixed price for sugar
for a five-year time horizon. Since this time, the
international price of sugar has risen significantly
and DIZUCAR estimates that the losses for the
Salvadoran sugar sector from this contract amount to
$9.5 million per year.
Child labor in El Salvador
Child labor has historically been commonplace
in Salvadoran sugar harvests. In 1998, the sugar
industry established FundAzúcar, which has been
leading the effort to eradicate child labor in the sector
while improving access to education, health and
nutrition, and children’s rights. 69
In 2004, after the Coca-Cola/SABMiller value chain
became aware of the problem in its own sugar
supply chain, it began working with the sugar
industry, government and International Labor
Organization (ILO) to create a joint plan of action for
ending child labor in sugarcane harvesting. Together,
they agreed to communicate a zero-tolerance policy
for child labor. Central Izalco and El Angel, the mills
supplying ILC, enforced this zero-tolerance policy by
refusing to accept sugarcane from producers who
employed children.
Between 2004 and 2008, the ILO made multimillion
dollar investments in programs to combat child labor
in sugarcane harvesting. In coordination with the ILO,
the Salvadoran Sugar Association funded farm labor
monitors and social advocates for farm families, and
The Coca-Cola Company funded a pilot program
to identify safe, alternative income-generation
opportunities for teens living on farms. As a result of
these multistakeholder efforts, during that period the
incidence of child labor on sugar farms in El Salvador
dropped by 72 percent compared to incidence rates
in 2004 as tracked by the Salvadoran government’s
Ministry of Education.
Social initiatives linked to public policy
SABMiIIer’s bottling plant, ILC, and The Coca-Cola
Company regularly make social investments in El
Salvador. Between 2008 and 2010, The Coca-Cola
Company invested more than $1.3 million in social
programs in local communities, including programs
in local schools to fund environmental education and
the installment of waste and sanitation facilities. In
2009, The Coca-Cola Company spent $210,000 on
environmental protection and improved livelihood
projects for 400 families living around the San Antonio
River. The Coca-Cola Company also funds “Apuntate
a Jugar,” a program to promote active, healthy living
in schools that benefited over 3,000 Salvadoran
children between 2008 and 2010.