Obesity ~ The McKinsey economic perspective

The McKinsey Global Institute produces a series of discussion papers funded solely by the McKinsey partners and very recently, they released a report entitled “Overcoming obesity: an initial economic analysis”. The report is divided into two main sections, one dealing with the economic burden of obesity and one dealing with the possible interventions to mitigate the economic costs of obesity. For anyone interested in the subject, I strongly advise accessing the PDF, which is available free[1].

The first point they note is that obesity does not appear to be correlated with a country’s wealth. Malaysia, Thailand and China have a much lower GDP per head of population than Hong Kong, Japan and South Korea and yet they have the same rates of obesity (5-15%). Equally, Japan, South Korea and Hong Kong have one-third the obesity rates found in Saudi Arabia, the US and UK (30-35%) and yet they share the same GDP/head/year. Developing countries have obesity rates that are just 25% that of developed nations but their rate of annual increase in obesity levels are much higher that developed countries (+90% v. +17%).

The report examines 14 major global problems which are largely man made or are amplified by human decisions. Top of the list is smoking with an annual cost of US$2.1 trillion. Armed violence, war and terrorism share joint first place with tobacco and in third place comes obesity with an annual cost which is just marginally less at US$2.0 trillion. The first two each occupy 2.9% of global GDP while obesity occupies 2.8%. Taking the UK as an example, the report shows that obesity costs the taxpayer a staggering stg £10 billion annually, which is 5% of the total National Health Service (NHS) costs. But they do express this figure differently with shocking effects. This stg £10 billion on obesity equals the combined costs of the UK police force, fire services, law courts and prisons!!!

In terms of tackling obesity, the report rightly argues at the outset of this section that: “Obesity is the result of a multitude of factors, and therefore no single solution is likely to be effective in tackling it. A range of interventions that encourage and empower individuals to make the required behavioural changes will be necessary. These interventions need to be systematic, not only aiming for an immediate impact on the net energy balance but also making sure that change is sustained”. Music to my ears! However, it is clear that despite the moanings and groanings of ministers about the terror of obesity, investment in prevention is abysmal. The report estimates that we would need a global investment of US$ 5 billion, which is just 0.25% of the global cost of obesity. The same percentage figure for road traffic accidents is 5 times that of obesity.

The report identified a total of 74 possible interventions, which they reduced into 18 groups and the list is as follows: Active transport; Health Care Payors; Healthy meals; High calorie food and drink availability; Labelling; Media restrictions; Parental education; Pharmaceuticals; Portion control; Price promotions; Public health campaigns; Reformulation; School curriculum; Subsidies, taxes and prices; Surgery; Urban environment; Weight-management programmes; Workplace wellness. The study examined over 500 research studies and they used the Level of Evidence System of the Oxford Centre for Evidence-Based Medicine. They have some caveats about their analysis and point out that this is the first in a series of reports on this topic. They word this reservation very nicely: “The conclusions we draw on an integrated response to obesity should be viewed as the equivalent of a 16^th-century map of the world; some islands may be missing and the shapes of continents somewhat skewed, but it is directionally correct.”

If the 16 responses that are amenable to economic quantification were to be enacted in the UK, they would expect that this would halt rising obesity and indeed reverse the obesity prevalence by 20% within 5 to 10 years. They rank the impact of each response in a cost effective way using the standard expression of Disability Adjusted Life Years (DALY). The top three are (1) Portion control with a DALY value of 2,126, (2) Reformulation with a DALY value of 1,709 and (3) High calorie food/beverage availability with a DALY value of 1,137. Interestingly, they also examine how these rankings are linked to media coverage using UK data. It makes interesting reading. Portion control with a DALY value of 2,126 had just 182 media coverage while a 10% tax on high sugar high fat products with a DALY value of just 203 had over 930 press citations.

Thus far in the McKinsey obesity journey, the map tells us where we get most bang for our buck but most importantly, it tells us that ALL areas need to be simultaneously acted on to have any benefit. The day will come when flesh has to be put on some of these responses and here I have a problem. The top ranked solution is portion control and in reading the report there is discussion of how companies are going to move in this direction: Do they all do it together or will there be “leaders”? Now, this morning, I had porridge for breakfast and I determined how much porridge to put in my bowl and how much and what type) milk and sugar I’d put on the cooked porridge. For lunch I had home made soup and bread and I determined the size of soup bowl, the quantity of soup to consume, the number of slices of bread and the amount and type of spreadable fat to use on the bread. This evening, I’ll dine with my youngest daughter and my eldest granddaughter in an Italian restaurant and while I’ll have no control, more or less on portion size, I myself will decide on how much to eat and how much to leave. Regulating the portion size of snack bars is easy. Regulating the portion sizes majority of the foods we eat at home is an entirely different challenge. We need somehow to create an environment where large portion sizes are anti social. Taxes have played a huge role in tackling smoking but this was associated with an aggressive and well funded public health single-issue campaign against smoking. New data suggests that the anti-social aspect of smoking was every bit as powerful as taxes[2]. Taxes will be lees effective in directing food choice but energy intake can be reduced by adopting new social norms to serving sizes and eating behaviour in general. How to achieve this is the massive challenge. Smaller plates? Let’s put a tax on plate size!!!!!! Well done McKinsey.

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[1]http://www.mckinsey.com/insights/economic_studies/how_the_world_could_better_fight_obesity

[2] Kevin Callison and Robert Kaestner, Do higher tobacco taxes reduce adult smoking? New evidence of the

effect of recent cigarette tax increases in adult smoking, NBER working paper number 18326, August 2012.