Eurotrends: Unhealthy Food Tax: A Viable Solution?

By Joerg Gruenwald | January 2, 2012

Would taxation help consumers change their unhealthy eating habits, or would they simply circumvent the added cost?

According to a World Health Organization (WHO) report published in April 2011, non-communicable diseases (NCDs) (i.e., heart disease, strokes, chronic lung diseases, cancers and diabetes) are the leading killers worldwide. The report also found that around 80% of deaths caused by NCDs share four common risk factors: tobacco use, physical inactivity, harmful use of alcohol and poor diets.

In order to stem the incidence of NCDs, measures are in place to decrease alcohol and tobacco consumption; governments around the world are levying taxes on them, and have for a while. If it works for these unhealthy substances, why not do the same for the others as well? In some EU member states, governments are now considering (or have already passed laws on) taxation of other “unhealthy foods,” such as foods containing saturated and/or trans-fatty acids, or too much sugar or salt—the rationale being that such a measure will at best educate consumers on healthy diets and at least increase state earnings.

Also, there is discussion about reformulation of the so-called “unhealthy foods,” resulting in a number of new guidelines. For instance, one guideline states that the amount of salt per 100 grams of flour in bread should not exceed 2.1%. Other guidelines regarding salt are to follow in an effort to reduce the total salt uptake by consumers from currently 9 grams/day to 5 grams/day. Foods that rely on salt for taste—such as salted potato chips—and cannot be reformulated without sacrificing their integral characteristics, should be taxed. There are equivalent guidelines for sugar and trans-fatty acids under discussion.

In some parts of the EU, this is not theoretical anymore. France and Denmark have already implemented some of these guidelines and taxes, Hungary has had them for a while but is expanding them, and the U.K. and Ireland are currently considering them.

This is, of course, bad news for manufacturers of salted goods, confectioneries and even (trans-fat-heavy) pizzas. In many cases, reformulation is difficult if not impossible without sacrificing taste, and, as everyone knows, taste is still king and most often drives purchasing decisions. This only leaves higher end prices, and the question is, will consumers pay more money to eat chocolate, or will they eat less of it instead?

Clearly, governments have discovered taxation of certain foods as an easy way to raise money, but will it have the desired effect (i.e., educating consumers and getting them to change their eating habits)?

Of course, consumers have always found ways of circumventing taxes. Since the tobacco tax was introduced, tobacco consumption has not decreased, but smuggling has increased. Taxes on certain goods throughout Europe are not harmonized, and it is currently unlikely the EU Commission will weigh in on current debates regarding new taxes, leaving member states to decide individually. There is a tradition of travelling to other states to buy alcohol and cigarettes; is Europe now looking at chocolate smuggling offenses in the future?

Another question mark is the scientific basis for the assertion that, for example, too much salt will increase the incidence of NCDs. Is 5 grams per day too little salt? And isn’t eating too little salt at least as bad as eating too much? And what about sugar? Is it really to blame for people being obese, or is that the result of a combination of other factors, with sugar merely being one of many? There is scientific literature backing up all possible points of view, which makes it hard to agree with the stance some European governments are taking.

And what about consumer cooking behavior? Will the fact that there is less salt in food on the shelves prevent them from putting more of it onto their hard-boiled egg? Will less sugar in pre-made cakes prevent them from going heavy on the sugar with the cakes in their own ovens? Isn’t it much more likely the new guidelines and taxes will hurt the food industry while having none of the desired results as far as public health goes?

Some European states, Germany among them, are staying away from the guidelines and taxes, which are, so far, not mandatory throughout Europe. It remains to be seen which will be more compelling: the lure of taxes, or the increased turnover from consumers from other member states coming into Germany (and other tax-free states) to buy their chocolate there.

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