Final Report Summary - FOODOB (Food consumption and obesity: Public policy measures)
Obesity prevalence is a major public health concern in most developed countries. Numerous policies aimed at stemming the rise in obesity, ranging from informational campaigns on diet and nutrition, to policies that aim to change the relative prices of certain foods using the tax system, as well as regulation on how food is produced, packaged and retailed. We aim at providing a deeper understanding of the impact that taxation policy interventions are likely to have on the diet-related outcomes. The objective of this project was to carry out ex ante analyses of the impact of price changes or tax on sugar consumption.
A first part of the project focused on the relationship between obesity and food purchasing behaviour of households. We first evaluated the impact of the reform of the Common Organisation of Sugar Market which consists in a 36% decrease of the sugar price in the EU. Whereas levels of sugar consumption are already high in the EU, this reform may lead to increase them, which could be detrimental for health. On the French soft drink (SD) market, we show that the reform of the EU sugar policy would lead to a decrease in regular SD prices by 3% and this decrease varies across brands. This price changes would lead to a rise in market shares of regular products by 7.5% and to substitutions between brands to the benefit of products with the highest sugar content. On the whole, it would raise consumption of added sugar by 124 grams per person per year, this increase being larger in households composed of overweight and obese individuals. The quantitative changes in sugar consumption might be considered to be small or even negligible. However, it should be acknowledged that the SSB consumption in France is lower than in the rest of Europe. For example, consumption in UK is larger than 100 litres per person and per year which are 2.5 times the consumption in France. As the sugar policy reform applies to all EU countries, the impact on sugar added consumption is likely to be significantly higher. Moreover, the sugar policy reform will affect the markets for all sweetened products while here we focused on a specific market. So the impact on consumption of added sugar is likely to be larger. From a health perspective, the reform goes in the wrong direction. Finally, if one considers that SSBs play a significant role on the epidemic of obesity, our results suggest that taxing SSB could help combat obesity and a tax should be set in relation to sugar content in order to avoid substitutions in favour of products with high sugar content.
On the other hand, the most empirical analyses of the impact of food price taxation on food consumption assume no strategic reaction of firms. The second objective of this project is to fill the gap and analyse the impact of excise tax and ad valorem tax taking into account strategic behaviours of the food and the retail industry in the price transmission of that tax. The price changes due to taxation induce significant substitutions among products and firms do not perfectly transmit the tax to consumers. Integrating strategic pricing in the evaluation of the impacts of taxation is thus important. Indeed, with ad valorem taxation, tax would be not completely transmitted to consumers, the industry then bears a part of the tax through the reduction of margins while an excise tax would be over transmitted. Our results indicate that ignoring strategic pricing by firms would lead to misestimate the impact of taxation by 15% to 40% depending on products and the tax implemented. We also conclude that an excise tax based on the sugar content would be the most efficient way to limit soft drink consumption. Such a tax is equivalent to a taxation of the input (sugar) and is thus easy to put in place. From the welfare impact point of view, we find the excise tax would have a larger negative impact on consumer surplus while it would penalise to a lesser extent the industry.
A first part of the project focused on the relationship between obesity and food purchasing behaviour of households. We first evaluated the impact of the reform of the Common Organisation of Sugar Market which consists in a 36% decrease of the sugar price in the EU. Whereas levels of sugar consumption are already high in the EU, this reform may lead to increase them, which could be detrimental for health. On the French soft drink (SD) market, we show that the reform of the EU sugar policy would lead to a decrease in regular SD prices by 3% and this decrease varies across brands. This price changes would lead to a rise in market shares of regular products by 7.5% and to substitutions between brands to the benefit of products with the highest sugar content. On the whole, it would raise consumption of added sugar by 124 grams per person per year, this increase being larger in households composed of overweight and obese individuals. The quantitative changes in sugar consumption might be considered to be small or even negligible. However, it should be acknowledged that the SSB consumption in France is lower than in the rest of Europe. For example, consumption in UK is larger than 100 litres per person and per year which are 2.5 times the consumption in France. As the sugar policy reform applies to all EU countries, the impact on sugar added consumption is likely to be significantly higher. Moreover, the sugar policy reform will affect the markets for all sweetened products while here we focused on a specific market. So the impact on consumption of added sugar is likely to be larger. From a health perspective, the reform goes in the wrong direction. Finally, if one considers that SSBs play a significant role on the epidemic of obesity, our results suggest that taxing SSB could help combat obesity and a tax should be set in relation to sugar content in order to avoid substitutions in favour of products with high sugar content.
On the other hand, the most empirical analyses of the impact of food price taxation on food consumption assume no strategic reaction of firms. The second objective of this project is to fill the gap and analyse the impact of excise tax and ad valorem tax taking into account strategic behaviours of the food and the retail industry in the price transmission of that tax. The price changes due to taxation induce significant substitutions among products and firms do not perfectly transmit the tax to consumers. Integrating strategic pricing in the evaluation of the impacts of taxation is thus important. Indeed, with ad valorem taxation, tax would be not completely transmitted to consumers, the industry then bears a part of the tax through the reduction of margins while an excise tax would be over transmitted. Our results indicate that ignoring strategic pricing by firms would lead to misestimate the impact of taxation by 15% to 40% depending on products and the tax implemented. We also conclude that an excise tax based on the sugar content would be the most efficient way to limit soft drink consumption. Such a tax is equivalent to a taxation of the input (sugar) and is thus easy to put in place. From the welfare impact point of view, we find the excise tax would have a larger negative impact on consumer surplus while it would penalise to a lesser extent the industry.