Junk Food Tax or Health Food Subsidy – Which Results in Healthier Food Purchases?

Reporting from the National Obesity Summit

I’m currently attending a fantastic session on the way that food policy and the media can help or hurt our efforts to curb the obesity epidemic at the National Obesity Summit in Montreal.  One of the talks (by Dr Sean Cash) included a great discussion of the role of tax policy, and made the point that regardless of their “purpose”, taxes always have 3 impacts:

  1. They increase government revenue
  2. They redistribute income
  3. The influence behaviour

Dr Cash also made the point that while taxes almost always influence behaviour, it is not always in the direction that we expect.  This reminded me of an interesting study that I discussed on the blog last year, which showed that taxes and subsidies may have unintended consequences far different than what we expect.  I have included the post below for those who have not read it.

Dr Yoni Freedhoff also has a phenomenal post this morning on the issue of “fat taxes” – taxes on unhealthy foods could have benefits for everyone in society, so why do we give these taxes labels that only serve to stigmatize obese individuals?  Yoni’s post can be found in its entirety here.

Image by Jeff Keen.

In the past few years several prominent researchers have argued for the adoption of taxes on junk food as a means of reducing their consumption.  Often, as in a recent editorial in the New England Journal of Medicine, the argument is made that money collected through the tax could then be used to subsidize healthier foods.  This is an idea that I’ve found very appealing – we make the bad foods more expensive, the good foods less expensive, and people will probably shift at least some of their purchases to those healthier options.  But a very interesting new study by Leonard Epstein and colleagues suggests that things might not be so simple.

The paper starts with some very interesting background information on the cost of food over the past few decades.  For example, relative to other goods and services, current food prices are 38% lower than in 1978 (although the absolute cost of food has increased due to inflation).  And while overall the absolute cost of food has increased, this increase has been far greater in healthy foods than in unhealthy foods.  The graph below shows the increased cost for various foods since 1983.  As you can see, the cost of fresh fruit and veggies has increased by nearly 200% – 3 times greater than the increase seen in sugars and sweets, and roughly 6 times the increase seen in carbonated beverages (For a terrific exploration of why junk food can be so much cheaper than healthier alternatives, be sure to check out The Omnivore’s Dilemma by Michael Pollan).

food prices.jpgBased on data published by Finkelstein et al., as cited by Epstein et al.

Epstein and colleagues point out that food prices have a strong influence on purchases, which makes it seem very reasonable that the relative changes in the cost of healthy and unhealthy foods over the past 25 years could be influencing food purchases, and therefore obesity rates. For this reason, changing the cost of food through the use of taxes and/or subsidies are obvious targets to curb caloric consumption at the societal level.  But they also point out that intentionally manipulating the price of food could have unintended consequences, especially with respect to subsidies for health foods.  For example, if health foods are subsidized, it is likely that people will buy more of them, which seems like a good thing.  But it is also very possible that people may use the money they save on subsidized health foods to buy even more junk food – an unintended consequence that I had never really considered.  Thus, the authors performed a small experiment to determine the effect of both fat taxes and health food subsidies on food purchasing behaviours.

Participants in the study included 42 mothers who were also the primary food shopper for their family.  The mothers were then placed in a laboratory fitted out to resemble a grocery store, and given $22.50 per family member and told to:

imagine that she had no food in her house and that the money she was given was to be used to purchase groceries for her family for the week“.

Participants were told to spend all of their money, and each participant went “shopping” 5 times – once with all foods priced accurately, twice with the cost of healthy foods lowered (by either 12.5% or 25%), and twice with the cost of unhealthy foods increased (again by 12.5% and 25%, respectively).  So, what happened?

As you might expect, as the cost of unhealthy foods was increased, the amount of total calories purchased was significantly reduced.  However, as the cost of healthy foods was lowered, the total number of calories purchased actually increased.  In other words, people were using the money they saved on healthy foods to purchase more unhealthy foods.  A health-food subsidy of 12.5% resulted in about an 800 calorie increase in total calories purchased, while a health-food subsidy of 25% resulted in an increase of about 1,500 calories.  So it seems that the health-food subsidy may not just increase the purchase of health foods – it may increase the purchase of all foods, regardless of their nutritional value.

Now there are obviously a lot of caveats to a study like this, and the authors are quite cautious in how they interpret their results.  For starters, participants were told that they had to spend all of their money during each trial, which makes it almost impossible for the health-food subsidy to result in anything but an increase in total food purchases.  So for that reason alone I’m pretty hesitant to take this study as evidence that subsidizing health foods is a bad idea.  But it is interesting, and I’m really curious to see if this finding is supported by studies looking at more “real world” settings.

The paper is published in the journal Psychological Science and it’s free to the public, so I’d really recommend you check it out.  Some of their graphs (which I couldn’t re-publish here due to copyright issues) are especially worth the download.

So what do you think – are taxes and/or subsidies a good or bad idea?

Travis

ResearchBlogging.orgEpstein, L., Dearing, K., Roba, L., & Finkelstein, E. (2010). The Influence of Taxes and Subsidies on Energy Purchased in an Experimental Purchasing Study Psychological Science, 21 (3), 406-414 DOI: 10.1177/0956797610361446

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8 Responses to Junk Food Tax or Health Food Subsidy – Which Results in Healthier Food Purchases?

  1. Devin Baillie says:

    But what happens to the calories purchased when the price of healthy food is lowered while the price of unhealthy food is increased at the same time?

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  2. Mike R says:

    Often an effect of subsidies is greater consumption which leads to higher prices, essentially negating the effect of subsidies while also making the subsidy a necessary part of the system. We already see this effect in agriculture and university tuition pricing.

    As for defining good foods and bad foods – I don’t even want to think about the politics and lobbying that will go into that one.

    It seems as if food policy people want to look to antismoking policy for inspiration. I’m not sure that’s the right approach.

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  3. Theo Bromine says:

    One a somewhat related note, one thing that has been bothering me is the potential unintended consequence of bottled water bans. While I generally count myself as an environmentalist, and completely agree that bottled water, especially “spring water” is certainly no healthier (and in some cases less healthful) than tap water, and that there is far too much waste associated with the consumption of bottled water, I note that the activists who object to the sale of bottled water in vending machines etc do not extend their objections to that same water if it has had a bit of sugar, flavouring and CO2 added to it. So, here I am, out for a walk or a bike ride, and sure, I should have brought my own container to refill at a public fountain, but I forgot, and now I want a drink to take with me. I guess the best solution is for me to buy a bottle of Coke, pour the contents out on the ground, and refill the bottle at the water fountain (should I get regular or diet?)

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  4. Neal W. says:

    I agree with Mike, what is going to be considered and unhealthy food and a healthy food? Low-fat proponents will say beef and pork should be taxed but low-carbers will object. Low-carbers might say spaghetti should be taxed but low-fatters will say no way. Will saturated fat be taxed? It’s health implications are clearly debatable. We’ve already seen legislation against saturated fat as the cause of trans fat – that was an unintended consequence.

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  5. Sara Colling says:

    I agree with Travis that, while worthwhile, the study has some flaws…

    People will probably approach their shopping list differently if it’s structured as a game – how much can I buy with this amount of money – rather than as a real life situation.

    And it seems like the real changes will happen over time. Unhealthy food being so cheap not only puts people in the situation to choose between their budget and their health – it also conditions people to eat junk food often and in large quantities.

    I still believe in subsidizing healthy food (definitely over unhealthy food – like it is now), but I appreciate seeing the different sides.

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  6. brtkrbzhnv says:

    Cabbage, rutabagas, carrots, onion, lentils &c. are dirt cheap, and anyone who can afford sweets can afford wholesome food. This whole “oh noes the paupers can’t afford fair-trade organic arugula we have to save them” thing is just *ick*.

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    • Mike R says:

      Brtkrbzhnv,

      Actually, the research cited above specifically points out that fresh fruits and veggies have increased in price the most followed by all fruits and veggies. I’ve never lived paycheck to paycheck so these increases have never affected me – but many people do. For some people a few hundred a year is a big difference.

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  7. Theo Bromine says:

    Agreed, I get annoyed with the people whose solutions to nutrition problems are recipes with quinoa and arugula cooked for hours in a clay tagine. Also agreed that veggies like lentils (and other legumes), rutabagas, carrots, onions, etc tend to be cheap. However, they can present a daunting challenge to low-income folks who may not have appropriate cooking and/or storage facilities, and may be lacking in preparation time (not to mention lack of knowledge in nutrition, cooking, and organizational skills).

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