‘Fat taxes’ do work, EU report finds

Vending Machine at a Hospital in Maryland, USA on May 15, 2013. [Photo: Shutterstock]

Vending Machine at a Hospital in Maryland, USA on May 15, 2013. [Photo: Shutterstock]

Specific taxes on sugar, salt or fat do cause reductions in consumption, the European Commission found in a new report. But higher taxes may also merely encourage consumers to go for cheaper products, it warned.

The precise impact of such “fat taxes” on the competitiveness of the European agriculture and food sector still needs to be fully assessed, the report added.

The study, “Food taxes and their impact on competitiveness in the agri-food sector“, concluded that food taxes “in general achieve a reduction in the consumption of the taxed products”.

But consumers may put in place strategies to circumvent the higher taxation, cautioned the report, which was released by the Commission’s Enterprise and Industry directorate. For instance, they might purchase similar products that are less heavily taxed, or turn to cheaper brands.

The EU executive said that food taxes increase the administrative burden, notably if the tax is levied on ingredients, or if the rules defining the targeted products are complicated. Food and drinks taxes may also have a negative impact on employment and investment, the report noted.

Meanwhile, SMEs might be more directly affected by food taxes as consumers often switch to cheaper brands which reduces the competitiveness of smaller, premium brand producers.

A common argument against food taxes is that they raise the price of goods compared to the prices of the same goods in neighbouring countries, which don’t have the same taxes. This promotes cross-border shopping.

“However, the study found that increases in cross border shopping were rather limited and that other factors, in particular other taxes on food/drinks, are more important drivers for the cross-border shopping effect,” the Commission said.

Common practice

UNESDA, a trade body representing the soft drinks industry, said the Commission study, “finds hard evidence from a number of member states on the negative impact which food taxes can have on competitiveness and jobs, leading to an increase in administrative burdens.”

While taxes on alcohol and cigarettes have been commonplace for many years, taxes on specific unhealthy foods and drinks aimed at combating obesity have only recently been introduced by some EU countries.

One example is Finland where extra taxes on candies, chocolate, cocoa-based products, ice cream and ice lollies have been in place since 2011. A separate tax on soft drinks was increased and widened to also include other categories of beverages.

In September 2011, Hungary raised a tax on a series of products such as soft drinks, energy drinks, pre-packed sweetened products, salty snacks and condiments. At the same time, the health minister of Ireland, James Reilly, announced that he was considering introducing a tax on sugar-sweetened drinks.

In France, a tax on all beverages with added sugar or with artificial sweeteners had already been introduced in 2012. In October 2013, French parliamentarians also voted for a new tax on energy drinks, such as Red Bull.

FoodDrinkEurope, the EU trade group representing the European agri-food industry, said the research findings "show that indeed food taxes do damage the competitiveness of the agri-food industry and particularly affect SMEs."

"There is no conclusive evidence that taxing food and drink products for public health purposes is an effective way of changing consumer behaviour," it said, underlining the "substitution effect" where consumers switch to cheaper brands.

"FoodDrinkEurope believes these taxes to be discriminatory, as they target certain food products and ingredients and generate uncertainty for ongoing investment plans and trade agreements. They also distort the functioning of the EU internal market and generate unfair competition. This endangers the industry’s ability to provide jobs and growth for the European economy," it said in a statement, calling for "further research" into the matter.

Several European countries have introduced taxes on certain foods and drinks, justifying them on both health and economic grounds.

Taxes have been championed by some as an instrument to tackle rising obesity and as an attractive way to increase government revenue at a time of economic hardship.

Others argue that they are ineffective, drive down consumer demand and reduce companies' competitiveness.

European Commission


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