Denmark is set to introduce a tax on food high in saturated fat. The levy, the Danish government claims, will improve the health of the population. The food sector has hit back, questioning that rationale and arguing that consumers will travel to neighbouring countries to buy the affected foods anyway. And, as Gerard O’Dwyer reports, the EU could rule that the tax breaks free trade rules.
The Danish government has turned its face against a storm of criticism with its plans to proceed with the implementation of a controversial saturated food fat tax.
Prime Minister Lars Løkke Rasmussen’s centre-right administration plans to bring in the levy in October despite widespread opposition from Denmark’s food industry.
The tax applies to meats, including chicken and pork, cheese, butter, edible vegetable oil, margarine and other foods such as potato-based snacks. The tax, imposed on domestic and imported food, is levied on the weight of saturated fat contained in these foods, and charged at the rate of DKK13.50 per kg of saturated fat.
However, the legal and commercial basis for the tax could end up before the European Court of Justice, following objections lodged by Margarine Foreningen (MIFU), Denmark’s central association of margarine producers.
“We have filed our complaint with the EU Commission. We consider it to be confusing, unfair, unwieldy and unwarranted,” says Mogens Nielsen, MIFU’s president.
That criticism is rejected by the taxation ministry. It holds that the new legislation, which has been altered on several occasions since it was first proposed in 2008, will have a positive effect on helping Danish consumers make better and healthier food choices.
“There has been a significant consultation around the new legislation, and broad input from many different industry and scientific quarters. We see no reason to amend it before it is introduced,” claims taxation minister Peter Christensen.
The tax was presented to the Folketing, Denmark’s national parliament, in January by Christensen’s predecessor Troels Lund Poulsen. Christensen took over at the ministry after a mini-Cabinet re-shuffle in March. The Folketing approved the tax law last month.
The law has been roundly criticised. The Danish Chamber of Commerce (DCC) estimates that the actual impact of the fat tax on shop prices could see the price for double cream increase by up to 15% to DKK10. A 200g carton of butter could rise by 12% to DKK17, while the price for half a kilo of cheese with a fat content of 45% is expected to climb by 8% to DKK40.
Research conducted by the Confederation of Danish Industry (CDI) since 2008 concludes that sugared and salted foods produced domestically, or imported and distributed, is the already the most taxed of any EU member state.
CDI research estimates that the cumulative impact of the existing taxes on confectionery and beverages and the planned saturated fat tax will add over 30% to the retail cost of foods in the affected categories, adjusted for inflation, compared to 2007 prices.
“The proposed new tax could spur more Danes to travel across the border to shop. The principal argument to introduce the new taxes is based on health, but one can wonder if it will have the desired effect when the price differential in price on confectionery and beverages between our neighbours Germany and Sweden and ourselves widens even further,” says Ole Linnet Juul, director of Fodevarer, the Danish food and drinks federation.
The DCC agrees, noting the DKK10bn Danes already spend each year on cross-border shopping for foods, beverages and other items will grow further on the back of the new fat tax.
“The tax will make Danish foods, and foods sold in Denmark, much less competitive,” Mette Feifer, an economics consultant to the DCC, says. This will reduce spending in Danish stores and negatively affect public revenues. Cross-border shopping is now a social problem in Denmark. The fat tax will encourage Danes to buy more butter, meat, and other foods south of the border in Germany.”
Meanwhile, Mejeriforeningen, the country’s dairy board, which has members including Arla Foods and Fayrefield Foods, questions the Government’s health-based rationale for launching the fat tax.
“The American Journal of Clinical Nutrition contends that there is no correlation between intake of saturated fats and cardiovascular diseases. The tax penalises people, such as the elderly and children, who have high nutritional needs,” claims Mejeriforeningen policy director Kirsten Holm Svendsen.
She agreed more cross-border trade would be fuelled, especially in “cheaper” neighbouring states like Germany “where products such as butter are already some 35 percent less expensive that in Denmark”.
However, while broadly unpopular in Denmark, the tax is unlikely to be a unique piece of legislation in Europe for long. Finland announced earlier this month that its National Nutrition Council supports a tax modelled on Denmark’s levy on food high in saturated fat. The NCC is the expert body under Finland’s ministry of agriculture and forestry. Sweden and Norway have also been examining establishing a similar tax since 2007.
“As a country we need to do more to promote healthier foods and diets. What Denmark plans to do interests us. During recent years Finland and Denmark have introduced taxes on sugared products such as soft drinks, ice cream and chocolate. A saturated fat tax is a logical next step,” says Jyrki Katainen, Finland’s finance minister.
But first, Denmark’s new tax has still to be vetted by the EU and Mejeri hopes the Danish government will postpone implementation at least until the European Commission pronounces on whether it thinks the tax complies with EU free trade rules. This could happen next year, with the European Commission yet to comprehensively study the tax, notes a Commission official.
If the EU rules the tax contravenes EU rules, Mejeriforeningen’s Svendsen says the Danish government faces a possible court case with Brussels. “This could lead to the claw back of monies paid in taxes,” she says.
And that could be expensive. The taxation ministry estimates that the Government will raise DKK1.5bn annually from the fat tax. Similar taxes on confectionery and soft drinks introduced between 2008 and 2010 already generate an annual tax intake of DKK1bn.