Thursday, 28 January 2016

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)

[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.

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