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  1. Analysis
October 31, 2012

Nutrient taxes: European moves on nutrient taxes fuel debate

While fat taxes are being considered as policy options in countries as diverse as Canada, Peru, Australia and New Zealand, Israel and South Africa, it is significant that all three recent implementations of nutrient taxes took place within EU countries, namely Denmark, France and Hungary.

While fat taxes are being considered as policy options in countries as diverse as Canada, Peru, Australia and New Zealand, Israel and South Africa, it is significant that all three recent implementations of nutrient taxes took place within EU countries, namely Denmark, France and Hungary. 

Hungary introduced a tax on foods high in sugar, fat or salt and sweetened beverages last year, while France introduced a soft drinks tax earlier this year.

However, the measure which has attracted the most attention is the introduction in Denmark last October of a tax on meat, dairy products, animal fats and oils with a saturated fat content of more than 2.3% last October. This tax has been bitterly and apparently successfully opposed by the Danish food industry. While there had been plans to extend this policy to products high in added sugar, it now appears that the measure will be scrapped though the government, which is a three-party coalition which inherited the policy from the preceding administration, has not confirmed when this will be done.

The Danish Minister of Taxation issued the following statement earlier this month. “The government has a clear ambition to scrap the tax on saturated fat which the current government inherited from the former liberal government. However this demands a responsible and fair financing, and I look forward to see the former government parties to take responsibility in this case.”

The timing of the repeal of the legislation will therefore depend on discussions among the coalition parties and the Danish government says this is all it will say on the matter for the time being.

However, if as appears likely the tax is to be scrapped after a fairly short amount of time, this would undoubtedly represent a blow to advocates of nutrient taxation.

It would also represent a blow to those seeking a clearer understanding of the effects of such taxes. As mentioned in the first section of this briefing, natural experiments of the health impacts of such taxes are few and far between, so researchers were keen to monitor what happens in these countries. If the taxes in all three countries were to remain in place there would at least be the chance to gather a significant body of actual anecdotal evidence which may help to answer some critical questions around the issue.

Dr Oliver Mytton, lead author of a paper on fat taxes published in the British Medical Journal (BMJ) in May, believes it is important that the Danish tax remains in place and still holds out hope that this will happen. “I think it’s important that Denmark gives it a proper go and properly evaluates it so we can understand what really happens,” Mytton tells just-food, adding that he is optimistic that “we will see some more objective evidence coming out in the next six to 12 months”.

At a European level, the food industry has been extremely critical of the idea of fat taxes. Indeed, the European trade body, FoodDrinkEurope, issued a strong response to the publication of the Mytton et al. paper.

“When the whole of the food industry is focused on continuing to give hard-pressed families great tasting food at an affordable price in tough economic times, the discussion of adding 20% to food prices seems fanciful and likely to be unpopular with citizens,” FDE stated. 

This view is echoed by Terry Jones, director of communications at the Food and Drink Federation (FDF), which represents food producers in the UK, who described a 20% tax on certain foods in the UK as “a ludicrous suggestion”, particularly at a time “when you’ve got hard-pressed families struggling with incomes declining and food prices rising”.

Jones also made the point that many of the food products which concern public health advocates are already subject to standard rate VAT of 20%, in comparison with healthier products which would be zero-rated. This is also the case in Ireland where they would be subject to 23% VAT. 

Jones says there are three primary reasons the FDF opposes the imposition of fat taxes, namely that they are regressive in nature, hitting poorer families hardest, and they are not “an appropriate public policy instrument to tackle obesity” which is a “really complex multi-factoral problem”. Thirdly, Jones adds, that food and drink is the UK’s largest manufacturing sector capable of delivering “sustainable growth that taxation could jeopardise”.

As industry associations in individual countries have articulated, the FDE critique focused both on the potential economic impacts and the lack of strong evidence of health benefits. “While the economic impact of food taxes is most likely going to be a negative one, it is highly questionable if they can actually have a positive impact on public health.”

In the context of the European Single Market, the effect of increasing cross-border shopping by Danish consumers is particularly relevant. While some public health advocates suggest that the Danish food sector has overplayed the impact of cross-border shopping, it is clearly a salient factor within the European Union.

According to FDE, cross-border shopping, particularly in smaller countries where a large percentage of the population lives close to border, could more than offset expected fiscal revenues while putting local producers at a competitive disadvantage. FDE estimates that the average Danish family could currently save up to EUR400 a year (excluding travel costs) by making a single food shopping trip to either Sweden or Germany. “This could have a negative impact on the competitiveness of industry and could even lead to job losses in the countries where such taxes are imposed,” an FDE spokesperson tells just-food.

The FDE, along with the FDF and Food and Drink Industry Ireland (FDII), stresses the need for an integrated portfolio of measures. In May it stated: “Causes of obesity are multifactorial and solutions require a holistic approach.”

However, in this regard the industry associations are perhaps not as far away from the author of the BMJ paper as they might appear. Mytton, unlike the food industry, believes fat taxes can be part of that portfolio but he recognises the need for such taxation to be integrated with other measures. 

In particular the Mytton paper concludes that taxes on unhealthy foods should ideally be accompanied by subsidies on more healthy food products such as fruit and vegetables.

While the idea of instituting fat taxes in tandem with other policies, around public education for example, is not in itself problematic, linking simultaneous subsidies on certain products appears far more complicated.

Indeed, FDII head of consumer foods Shane Dempsey suggests organising such subsidies would take any obesity strategy into “the realms of administrative fantasy” in terms of how it would be organised. Terry Jones also believes it would “fraught with difficulty” from an administrative standpoint. It would also take the policy close to hypothecation, where taxes are earmarked for certain purposes, an area which is viewed very sceptically by economists, and even more so by government economists. 

Mytton himself concedes there would be administrative hurdles to be overcome in instituting complementary subsidies. Interestingly, however, there is some compelling modelling evidence for the effectiveness of such subsidies.

Research led by Richard Tiffin, director of the Centre for Food Security and Professor of Applied Economics at the University of Reading, who has expressed a generally sceptical view towards nutrient taxes, suggests subsidies on healthier products are actually more effective than punitive fiscal measures on unhealthy ones. 

In a paper published in the European Journal of Clinical Nutrition last year, Tiffin concludes that a policy based on a tax on saturated fats, coupled with a subsidy, would be effective in moving diets in the UK in a direction consistent with improvements in diet-related health. However, while a subsidy approaching 15% of the price of fruit and vegetables was shown to be effective in moving the average intakes to within the recommended ‘five-a-day’ region, the fat tax element did not result in intakes of fat moving to the recommended amounts.

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