Are sugar taxes the answer?

Two tools for putting direct financial value on what are otherwise societal costs are regulation and taxes. One example are taxes on sugar which seek to reflect some of the societal cost incurred by obesity: In France beverages with added sugar or sweetener have been subject to an excise duty since 2012 and added sugar in soft drinks has been taxed as part of the Public Health Product Tax in Hungary since 2011 [1, p. 18f].

The effects of these taxes were firstly the desired decrease in consumption. The Mexican soda tax led to a decrease of purchase of sugary drinks by 12% in the first year and most importantly, the biggest reductions have occurred among the poor [1]. 

On the other hand, profitability stayed mostly stable. However, in some case cases profitability also de- or increased [2, p. 30ff] – an indication that price sensitivities vary across products and brands. Thus, taxes appear to not be suitable universal tool. It can be useful to shift buying patterns for commodities, e.g. from cooking oils high in saturated fats to those lower in these fats, but consumers will continue to purchase what they consider indulgences, such as chocolates or high end ice cream, with a certain indifference to the price. Also the introduction of food taxes is highly controversial and usually limited to a small set of food products. In Hungary only 8% of the average total energy intake of an adult women come from added sugars in the taxed product groups (chocolate, sweets, soft drinks) [2, p. 46]. Added sugars in other common product groups such as cakes, biscuits, ice cream, preserves, condiments or fruit yoghurts are currently not subject to the tax. The difficulties in deciding where to draw the line highlight one of the key weaknesses of using taxes as a key policy option.

However, another important effect of these food taxes are that they accelerate reformulations already partially under way to respond to consumer demands for “lighter” or healthier products. An impact assessment of the Hungarian Public Health Product Tax found that 40% of manufactures reformulated their products. Of the reformulations, 30% completely removed the targeted ingredient and 70% reduced its quantities [3, p. 32]. However, the same effect can be obtained by setting clear standards and thereby creating a market for healthy: The Dutch Choices Foundation (cf. p. 7) was able to show that most products carrying their logo have been reformulated to meet their criteria, for example by reducing added sugar in sauces. Furthermore, new products specifically formulated to meet the choices criteria were developed following the launch of the logo [3, p. 10].

Passing regulation mandating healthier products is unlikely to succeed but indirect measures that shape markets in a way that align RoH with RoI are possible. For example current occupation health and safety reporting requirements could be expanded into employee health and the health impact of products and services. The latter creates more transparency for customers, who can use this information in their purchasing decisions. In this regard valuable lessons can be learned from the effect an increased emphasis on sustainability has had on consumer purchasing decisions and consequently the products portfolios of manufactures. Employee health reporting would allow reflecting better health in risk assessments, thereby increasing shareholder value. Other forms of regulations could be standards regarding upper levels of acceptable health impact and the possibility to buy health certificates from low impact companies, analogous to emission certificates.

(The views expressed in this piece are my own and do not reflect the WEF or Bain)

[1]        http://www.bloombergview.com/articles/2016-01-08/mexico-s-soda-tax-success

[2]        ECSIP consortium, “Food taxes and their impact on competitiveness in the agri-food sector,” 2014.

[3]        World Cancer Research Fund International, “Curbing global sugar consumption,” 2015.

Health at the Annual Meeting

Health featured prominently on the program of this year's WEF Annual Meeting. There were over 35 sessions on health in the official and the private program. The meeting started with US Vice-President Joe Biden's moonshot to combat cancer (video above) and later during the meeting the Forum launched health as its 10th Global Challenge. As the health team we had worked hard for the latter, so it was really great to see this become reality.

The new Global Challenge will on the one hand continue my work on how to keep people healthier for longer but also combine it with work on health security and how to handle and combat epidemics of infectious diseases. The idea behind the Global Challenge mirrors the insight from my work that these are issues that transcend healthcare and have to be addressed collaboratively across industry and sector boundaries.

Summary of my World Economic Forum/ Bain report

I am at Davos right now, where we will launch the report which I authored for the World Economic Forum. Below the summary - will let you know once the report goes live on the WEF website :)

"How to Realize Returns on Health" - Executive summary

This report focuses on the role of different stakeholders in shaping an ecosystem of health and how to use market forces to make such a system, and the associated returns on health (RoH), happen.

Maximizing Healthy Life Years (MHLY) are investments in preventing non-communicable diseases (NCDs) and mental ill-health. These investments can pay off and generate opportunities across all industries, not just typical healthcare players. All industries are becoming concerned about the health of consumers through the direct or indirect impact of products and services they use, the impact of corporate operations on communities, and the health of employees and the work environment.

An ecosystem of health is always specific to a particular issue, i.e. the RoH sought. Such an ecosystem can align stakeholders with different perspectives around a common goal about desirable returns. The fundamental architecture of an ecosystem of health is based on two roles: health shapers and designers/deliverers. Health shapers who are motivated by social benefits, such as government and non-governmental organizations (NGOs) or organizations from the private sector, can utilize a range of mechanisms to (re)shape markets in a way that ensures delivering on health outcomes is a viable business. By setting standards and norms, aggregating demand or catalysing behaviour change, these health shapers align RoH with return on investment (RoI) and enable positive business cases for a second type of stakeholder that designs and delivers offerings. This report illustrates these concepts of ecosystem roles (shaping, designing, delivering) and includes multiple examples from different sectors and industries.

In some cases, RoH and RoI are already aligned in the current environment, delivering a short-term payback for private ventures. If they are not, health shapers can strengthen the alignment either by decreasing barriers or by creating additional incentives, such as cost/benefit sharing.Cost/benefit sharing is a renegotiation of costs and benefits and can take either the form of spreading the cost of improved health among stakeholders, sharing the benefits, or both. It can unlock the value of healthy living when beneficiaries of good health and investors are not aligned. This is particularly critical if the project requires a large investment but benefits different stakeholders.

An ecosystem of health creates the foundation for market-driven solutions to tackle NCDs and MHLY. Because markets depend on customers, the individual must be at the centre to make these ecosystems happen. The engine to set MHLY in motion is to increase both demand and supply for healthy products and services. The behaviour of individuals and their underlying habits and social norms play an important role in creating demand and ensuring supply translates into demand. On the other hand, important levers to translate demand into supply include financial viability, either by providing a short-term payoff or through attractive cost/ benefit sharing. Supply can also be driven by an attractive long-term payoff, often a combination of direct financial returns and indirect returns, such as a competitive advantage. Long-term payoffs are more durable with innovative financing models, such as impact bonds, or stronger ties of health impact to shareholder value, e.g. through inclusion of health in stock market indices.

Looking ahead, key areas for action are laying the foundations for ecosystems of health, shaping an individual-centric environment for MHLY and providing the tools and platforms for multistakeholder collaboration and innovation.

WEF Secondees

So, the Annual Meeting of the World Economic Forum in Davos is about to start. As this means our WEF assignments are almost over, Bain & Company posted short profiles of my colleague Lyu and myself on their website.

Lyu is working on Future of Electricity:

"The Future of Electricity 2016 focuses on how to improve investment attractiveness of power markets in fast-growing countries. The countries need to attract $13 trillion of capital to power sector between 2015 and 2040 to be able to serve enormous new demand for electricity as their economies grow. During the assignment, the team developed eight recommendations for improving investment attractiveness of power markets in fast-growing economies that will help them to achieve social and economic objectives, including universal access to reliable affordable power and environment sustainability."

... and his take on the WEF is:

"Managing the Future of Electricity project in the World Economic Forum was invaluable experience. It combines in-depth industry analysis, its implications for the world and interaction with key stakeholders that shape global agenda in power: CEOs, other senior executives and policy makers. It was also very enjoyable to work side by side with people that live by the Forum's motto – 'To improve the state of the world.'"

My project has been looking at the "Future of Healthy":

"In the first year, the project established "Maximizing Healthy Life Years" as the new currency of economic prosperity and demonstrated that health can yield a positive ROI. The second year of the project focused on how to align multiple stakeholders across sectors and how to set up the right incentives for investments in health. "Ecosystems of Health," which are specific to a particular "Return on Health," align health value with economic value and are set up by shaping markets and supply chains accordingly. These systems harness the forces of demand and supply to improve health of individuals and populations, while also delivering a positive return on investment."

... and I also thought it was a great experience:

"The work at the World Economic Forum was an exciting opportunity to pursue my interest in healthcare. It also allowed me to link my work at Bain, focused at the business side of health, with the work around systemic change that I did for the English National Health Service prior to joining Bain. Being part of the Forum brought me in contact with some of the most inspiring people and working with global leaders really allowed me to have an impact on the global agenda. I truly believe that a problem on the scale of non-communicable disease can only be solved by collaborative action of stakeholders and by harnessing market forces."