'Sin taxes' on unhealthy foods will work, says EU report

28-Jul-2014 - Last updated on 30-Jul-2014 at 14:28 GMT

A new EU report suggests taxes on fat, sugar, or other unhealthy foods can help to reduce consumption levels. However the report also warns that the issues are complex and that such levies can have unexpected effects

Taxes imposed on sugary, salty or fatty foods do lead to reductions in consumption, says the European Commission in a new report. But higher taxes could also encourage consumers to simply go for cheaper products, it warns.

The EU report, which was released by the Commission's Enterprise and Industry directorate, concludes that in general taxes on foods can ‘achieve a reduction in the consumption of the taxed products’ and in some cases will lead to product reformulation aimed at reducing the sugar, salt and fat levels of foods - however the report concedes that the precise impact of such levies on the competitiveness of the European agriculture and food sector still needs to be fully assessed.

Furthermore, it is likely that many consumers may use different strategies – such as switching to a cheaper brand – to evade the cost impact of any higher taxation, the report warned.

“Consumers may simply buy cheaper brands of the taxed products, thus potentially not lowering their consumption of the ingredient the tax aims to target (i.e. salt, sugar or fat),” said the Commission. “Equally, consumers may be able to buy other products with similar levels of sugar, salt or fat to those that are taxed.”

The EU executive also added 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, while 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, said the report.

“Food taxes may negatively impact profitability, although changes in net profitability are dependent on a wide range of factors, including the impact of food taxes on substitute products and factors that are not influenced by food taxes,” stated the report – adding that the impact of food tax on investment is ‘unclear.’

Food taxes

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

One example is Finland where a levy on candy, 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.

Hungary also raised a tax on a series of products such as soft drinks, energy drinks, pre-packed sweetened products, salty snacks and condiments in 2011, while in France a tax on all beverages with added sugar or with artificial sweeteners was introduced in 2012 and extended in 2013.

Will it make a difference?

“To what extent changes in consumption resulting from a food tax actually lead to public health improvements is still widely debated and evidence from academic literature is inconclusive and sometimes contradictory,” states the report. “As health motivated food taxes are a relatively recent policy initiative and public health studies require long-term data to assess effects on diet, obesity and non-communicable diseases, there are as yet no robust conclusions on the impact of food taxes on public health.”

Besides this lack of long term data, the report noted that interviewed stakeholders have pointed out that food taxes are so far only levied on products which represent a relatively small percentage of consumption of the targeted nutrients.

“This study demonstrates that food is not a single product but a complex bundle of goods with many substitutes, making it challenging to predict how consumers will alter their buying behaviour in response not only to the taxed good, but especially with respect to other related goods. In addition, food taxes are operating in a highly dynamic economic and legislative environment with many factors and variables changing and influencing prices and demand within the same period of the studied tax changes.