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  1. Business

Coke, Pepsi threatened by new 'junk food' taxes

NEW YORK — No wonder Coke and Pepsi are spending millions of dollars to fight proposed taxes on sugary drinks in California.

PepsiCo reported Thursday that its third-quarter profit rose 5 percent to $2.01 billion, but one weak spot was Mexico. The company said snacks sales volume declined 3 percent, hurt by a new tax on junk foods.

Recent declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in San Francisco and nearby Berkeley.

PepsiCo, which makes Frito-Lay chips, Gatorade and Tropicana, reported similar declines in its snacks business for the first half of the year, starting when the tax went into effect.

Coca-Cola, which reports its third-quarter results Oct. 21, has also reported beverage volume declines in Mexico for the first half of the year, citing the tax on drinks. Mexico has the world's highest per capita consumption of Coca-Cola drinks. The taxes in Mexico add 1 peso, about 7 cents, to the cost of a liter of sugary drinks and 5 percent of the price to foods with 275 calories or more per 100 grams.

It's not yet clear whether the taxes' impact on consumption will last or how significant it will be over time. And although PepsiCo monitors such tax initiatives around the world, chief financial officer Hugh Johnston said he doesn't expect them to become more common.

In the U.S., San Francisco and Berkeley are seeking to become the first cities to pass per-ounce taxes on sugary drinks in the upcoming November election. The measures are being closely watched because many say that defeats in the bay area, which is known for its liberal politics, would be a major blow to advocates of such taxes as a way to improve nutrition. Similar measures in other U.S. cities have failed.

During a conference call with analysts and investors, PepsiCo CEO Indra Nooyi addressed the measures in California and said she believes such "discriminatory taxes" are wrong.

"We will make our case and hope the voters are sensible enough to look at the right answer," Nooyi said.

Since the start of this year, the American Beverage Association contributed $7.7 million to defeat the proposal in San Francisco alone, according to a filing made this week.

That's far more than the $391,000 in contributions reported by supporters of the tax over the same time.

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