Denmark’s recently introduced tax on food and drinks is driving shoppers to neighbouring Germany at an unprecedented level, according to a survey by the Danish Grocers’ Trade Organisation (DSK).
The survey shows that 60% of Danish households have bought beer or soft drinks in Germany within the past year. Only four years ago, 60% of the households said in the same survey that they “never” traded at the German border.
A large amount of the beer, which is bought in Germany, actually comes from Denmark. Last year Danish breweries exported 1.2 billion units to the German border shops. In 2011, Danish families on average bought 420 units of beer or soda in the German border shops, and the number is rising.
“This [the rise in the border trade] is due to the tax increases on specific consumer goods which where introduced by the Danish government at the start of the year. This is what we see the effects of now,” Claus Bøgelund Nielsen, vice president at DSK, told EURACTIV.
On 1 January, the Danish government introduced higher taxes on beer, wine, chocolate, candy, sodas, ice, cream, coffee, tea and light bulbs. The government also raised the tax on tobacco starting in April.
Higher taxes equal smaller packages
Various Danish governments have in recent years raised taxes on certain consumer goods in order to improve public health and balance the country’s budget.
In October 2011, Denmark became the first country in the world to introduce a fat tax on meat, dairy products and cooking oil.
The fat tax has already had an effect on the Danes’ consumer choices, according to DSK. “In January and February we clearly saw a rise in the amount of food products, the Danes bought at the German border,” Nielsen said.
Ever since the fat tax hit the country, there has been a heated debate among consumers and the food industry over prices and administrative problems have erupted.
Arla, the largest dairy producer in Scandinavia, has made its products smaller in order to keep the same prices for its products.
“We think there is a limit as to how big a price increase you can pass on to the consumer,” Marketing Director at Arla Jakob Knudsen told the newspaper Jyllands-Posten.
Many food producers have, like Arla, decided to shrink the content of their products, trying to avoid breaking a ‘psychological price cap’ which makes it impossible to sell a product.
”It does mean a lot if a product costs 19.95 or 21.65 crowns (€2.68 or €2.91). So it’s only natural that they try to fit the products to the prices the consumers want,” said Ole Linnet, branch director at the umbrella organisation Danish Industry.
New sugar tax likely to be dropped
Both the industry and experts predict that more food packages will become smaller if the Danish government from the beginning of next year introduces a new sugar tax.
The new tax should add an extra 1.3 billion crowns (€0.17 billion) to the state budget.
However according to the daily Politiken, the government has already realised that in practice, the sugar tax is impossible to implement.
According to the first draft of the law, the tax would have been added directly to a product containing sugar based on its overall weight. However, that would have made the price of, for example, a light yogurt rise dramatically whereas a sugar bomb like a cream cake would only become just a little bit pricier.
This model was discarded.
Another potential model was to put the tax directly on the sugar content of different products, but that would also have been problematic as there are many different types of sweetener within the food industry such as ‘fruit sugar’ and ‘added sugar’.
This model would have forced authorities to evaluate thousands of products individually, which would have been administratively impossible.
Jens Klarskov, the chief executive of the Danish Chamber of Commerce, said that it would be good news if the government decides to drop its sugar tax.
“We have had enough problems with the fat tax from last year. To have another one of these types of taxes which are troublesome, give us many burdens and encourage cross-border trade – it would almost be too much,” Klarskov said.
The Danish Grocers’ Trade Organisation thinks the government is getting to a point where its higher taxes will backfire. Some products will get so expensive that the border trade would make the state lose proceeds.
“This might end up being the case with beer, sodas and wine because those are the products that really cause the border trade,” Nielsen added.
Would the conclusions of the new survey by DSK on border trade prevent the Danish government from putting more taxes on food products?
“If only I could say ‘yes’,” Nielsen said. “But I don’t dare.”