Sugar taxes re-visited: An economic and nutritional analysis

Following an extremely successful Policy Workshop of the UCD Institute of Food and Health last Friday, I return to the issue of fat and sugar taxes. We had two economists and two nutritionists from UCD.  The main focus was a tax on sugar-sweetened beverages, which interests the Irish government, such that they have created a Health Impact Assessment exercise to explore this option.  Just under half or Irish adult males are overweight while the comparable figure for females in just under one third. The respective figures for obesity levels are one quarter and one fifth. So, we have a problem as has most developed countries. Anne Nugent presented data from the National Adult Nutrition Survey and used these data to examine various parameters across quartiles of calories from sugars (non-milk sugars). From the lowest to the highest quartiles, there were no differences in any measure of obesity or of fat distribution.  It could be argued that total non-milk sugars is a poor tracker of the intake of sugar-sweetened beverages so Anne made a comparison of obesity indicators cross thirds of intakes in sugary beverages and only among consumers of these products. Going from the lowest third to the highest third of intakes of sugar-sweetened beverages, there were absolutely no differences in any measure of obesity or fat distribution. One very important statistic is that only 40% of Irish individuals actually consume sugar-sweetened beverages on a regular basis. It is this 40% alone who would pay a tax on sugary beverages.  Moreover, a tax on sugar-sweetened beverages would ignore the obesity issues in the 60% of the population that doesn’t consume these products. The total contribution of sugar-sweetened beverages to caloric intake is 1.2% for the populations as a whole (consumers plus non-consumers) and this rises to 3.6% among consumers only. Even if a tax were to reduce intakes of these products by 50%, it would have reduced their contribution to caloric intake by 1.8%. It’s hard to see how that would have an effect since quite some of that would be compensated by the intake of other foods. Moreover, there is 60% of the population who are mere spectators in this charade since they don’t consume sugar-sweetened beverages.

The question also arises of alternatives to sugar-sweetened carbonated beverages – what could or should people consume instead?  Fruit juices represent the most commonly consumed beverage in Ireland after teas, coffees and waters and could be suggested as a ‘healthier’ alternative. If the 40% of Irish consumers of carbonated beverages were to switch to drinking fruit juice at the same volumes which they currently consume sugar sweetened carbonated beverages, the difference in calorie intakes between the two beverage types works out at a mere 10 kcal/d!

My own contribution ranged across the epidemiology of obesity, physical activity and the genetics of obesity but the most important points relevant to this blog are the policy issues presented. . Most of the studies linking sugar-sweetened beverages and obesity are based on observational studies, an example of which are the data presented by Anne Nugent. These data do not prove cause and effect. To do so, we need to construct very large multi-centre studies of sufficient duration to see any true effect. The Women’s Health Initiative on dietary fat, The DASH study on diet and hypertension, The DART and GISSI studies on fish oil, the MRC trial on folic acid are all examples of these large internationally approved intervention studies specifically design to test the true cause and effect hypothesis. As regards reducing or increasing intakes of sugar-sweetened beverages, no such study exists. In the EU, we demand multiple human intervention trials to sustain health claims on foods and clearly that bar is too high for public health nutrition policy.

Dr Kevin Denny of the UCD Geary Institute gave on over-view of some of the wider issues that economists would take into account with regard to taxes on foods or nutrients. Kevin pointed out that economists start with the view that the individual knows what is best for them personally. However, for some groups and in certain instances, this may not be the case. The information upon which a decision is to be made may be poorly available, too complex or because time and emotion defer an informed decision. Policy decisions in such instances therefore start with education and then move to regulation of some form, which might include taxes. Taxes that are designed to introduce enhanced social behaviour are referred to as Pigouvian taxes and it could be argued that food taxes fall into this category if we think that people’s consumption of food is not socially optimal for some reason.  But one needs to be clear about why people’s food consumption imposes a burden on society. The standard argument is that eating too much (& hence causing obesity) imposes a burden as the tax-payer will pick up most of the additional health costs (estimated at about €400 million p.a. in Ireland). In that context however, taxing nutrients such as calories should only apply to those calories that are consumed in “excess . If for example, people don’t consume many calories or they burn-off what they consume through exercise, there is no reason to tax such calories. Taxing calories for individuals in energy balance would be unfair. The taxing of nutrients is made more complex by the fact that foods contain multiple nutrients. Taxing the fat in cheese ignores the important contribution cheese makes to calcium intake among consumers of cheese. A key point made by Kevin is the sequence of steps the economist would look at always assuming the nutritionists really did have genuine target for taxation in the first instance: How much to tax? How does that affect price given that taxes are often not passed on in full to consumers? In turn, how does that influence consumption of the foods concerned? How the does that influence BMI and, of course eventually health costs? He went on to cite the work of Powell & Chaloupka who conclude that: “The limited existing evidence suggests that small taxes or subsidies are not likely to produce significant changes in BMI or obesity prevalence but that nontrivial pricing interventions may have some measurable effects on Americans' weight outcomes, particularly for children and adolescents, low-SES populations, and those most at risk for overweight. Additional research is needed to be able to draw strong policy conclusions regarding the effectiveness of fiscal-pricing interventions aimed at reducing obesity”. In other words minor taxes will have little effect and that effect would only be seen with quite considerable taxes.

This leads nicely into the paper by Professor David Madden of the School of Economics.  He used data from the nationally representative Household Budget Survey to examine the impact of possible fat taxes on poor households.  His results showed that pretty much any food-based fat-tax will have a disproportionate effect on poor households, reflecting the general tendency across all countries for poor households to devote a higher fraction of their budget to food.  However, a revenue neutral tax/subsidy package, with higher taxes on some foods combined with lower taxes on other foods would be neutral in its poverty impact, and could even be mildly beneficial to poor households.  In terms of a tax on sugar-sweetened beverages, the impact of a 10% tax on poor households would be relatively modest, given that sugar-sweetened beverages are a relatively small fraction of the budgets of poor households.  Depending upon the ability of government to accurately target poor households to compensate them for such a tax, the cost of compensation in 2005 prices would most likely be less than €10m.  However, this takes no account of the loss in welfare borne by non-poor households from such a tax.

So, in summary we have a proposal to tax sugar-sweetened beverages, which contribute 0% of daily calories among the 60% of the population who don’t consume them and which contribute a mere 3.6% to the caloric intake among consumers of these products. In doing so, we ignore the obesity issues of the 60% of non-consumers and, among consumers, we tax those who are lean and those with excess body fat. And we do all this with zero data from internationally acceptable randomised controlled intervention studies on the effects of sugar-sweetened beverages on medium term body weight regulation.  Whereas we insist that such studies govern health claims as regulated by the European Food Safety Authority, that doesn’t seem to apply to public health nutrition policy. Moreover, we do so knowing that food taxes that are small will be ineffective and to be successful they must be significant. And of course we do this knowing that it will hit the poorest in society with the greatest financial burden  unless we find some way to subsidize a healthy food eaten in significant quantities by poorer households. Simple, isn’t it?