In the framework of the activities of the High Level Forum for a Better Functioning Food Supply Chain, DG Enterprise and Industry commissioned a study on ‘Food taxes and their impact on competitiveness in the agri-food sector’. The study concluded that “Non-harmonised taxes on high sugar, salt and fat products such as soft drinks, sweet and salty foodstuffs do induce a reduction in the consumption of the taxed products, but the exact impact on the competitiveness of the European agri-food sector needs to be further assessed”.
While health effects of food taxes are not the primary focus of this study, it notes that health effects are critically important, as improved nutrition and health are the driving motivations for many of the implemented food taxes. Additionally, while the main focus of the study is on the food taxes as a policy instrument, the study also provides a discussion on food taxes in a broader context of alternative policy measures aimed at improving public health.
As a long-standing issue for the public health community, EPHA considers that pricing interventions do produce meaningful changes in patterns of food consumption and a reduction in diet-related diseases, particularly when applied to sugar, saturated fat and/or salt together (multi-nutrient approach). This may also lead to an increase in reformulation efforts, resulting in the wider availability of healthier options. Moreover, these days it is well established that consuming fruit and vegetables contributes to maintaining good health and reduces the risk of chronic disease. Low socio-economic groups that are more prone to overweight and obesity are also the most sensitive to changes in food prices. Therefore, applying a multi-nutrient tax to unhealthy food, as well as subsidising healthier food choices such as fruits and vegetables, can be seen as a solution to promoting their further consumption. Therefore, we encourage all EU Member States’ governments to employ food taxes together with other fiscal measures to make healthier options more widely available and affordable. This is a cost-effective governmental intervention that would benefit population health as well as to the economy in general.
Impact of food taxes on consumption
Overall, this study generally finds that food taxes achieve a reduction in the consumption of the taxed products and, in some cases, product reformulation aimed at reducing the sugar, salt and fat levels of the product. Introduction of a tax increases the cost of the product, which in turn may lead to a price increase; however, it has been demonstrated that factors other than the tax can have a stronger influence on price. A specific tax (on ingredients) provides a stronger incentive (compared to an ad valorem tax) to reformulate products as manufacturers may be able to lower the impact a tax has on their own costs by reducing or removing the taxed ingredient. However, it has been noted that there are limitations to product reformulation depending on the importance of the taxed ingredient to the taste expectations of consumers and composition of the product.
A price increase (after the tax introduction) has been seen to lead to a reduction in demand, with demand effects being potentially different among various groups of consumers e.g. low-income groups or users consuming a high amount of the taxed products. Likewise, a tax reduction or abolishment is associated with lower product prices, and more consumption of the taxed products. A common criticism of food taxes is that they are regressive, meaning that low-income households pay a greater proportion of their income on food taxes than high-income households. A consistent finding in the literature showed that food taxes are regressive but that the actual income impact is predicted to be very low. The study concludes that in order to draw more meaningful conclusions on economic and health impacts, segmentation (currently largely under-researched) should go further, for instance, analysing potential at-risk populations (mainly children and obese people).
Impact of food taxes on competitiveness and the internal market
On sector competitiveness, the study observed food taxes leading to an increase in administrative burdens, notably if the tax was levied on ingredients (specific tax) or the tax base was highly differentiated and complicated. Food taxes may negatively impact profitability, although changes in net profitability were dependent on a wide range of factors, including the impact of food taxes on substitute products and factors that were not influenced by food taxes. The impact of food taxes on investment is unclear.
Food taxes may lead to a decline in the need for labour inputs and thus employment, especially at local level. However, no clear impact of food taxes on labour productivity within a firm was observed, and it was noted that food taxes seem not to lead to strong increases in cross-border purchases.
Health outcomes of food taxes
Any alterations in consumption patterns, taking into consideration industry responses and the impact of product substitution, may potentially have an impact on public health. As health motivated food taxes are a relatively recent policy initiative and public health studies require long-term data to assess effects on diet, obesity and non-communicable diseases, impacts of food taxes on public health will need to be further researched and assessed over the longer term.