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

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).

Based 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 although it’s behind a paywall, 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.

UPDATE: My friend Laura has just posted on my Facebook wall that junk foods are an example of what economists call a “Giffen Good“, which is a good which people consume more of when prices rise, violating the law of demand.  From Wikipedia:

The classic example given by Marshall is of inferior quality staple foods, whose demand is driven by poverty that makes their purchasers unable to afford superior foodstuffs. As the price of the cheap staple rises, they can no longer afford to supplement their diet with better foods, and must consume more of the staple food.

“As Mr.Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it.”
—Alfred Marshall, Principles of Economics (1895 ed.)

I know next to nothing about economics, but I find this pretty interesting, and would love to hear the opinion of anyone who knows more about it than I.

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

Travis Saunders

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

  1. Benjamin says:

    I think it really all depends on what people do with the money they save on the cheaper healthy food.
    Maybe, during a short period, they might buy more unhealthy stuff. However, as time goes on, people may realize that they could use their money for other things (for instance a big flat screen TV, to spend more time in front of it… just kidding)
    and stop buying a lot of unhealthy food.

    It may be useful that the costs of unhealthy food rise more than they go down on unhealthy food. (but probably, the economy will do that anyway…)

    As long as poeple really don’t get the consequences of unhealthy food, this still might not change anything for a long while, though. Tabak costs also have been raised ove the last years, but still a lot of people are smoking.

  2. Martin says:

    Interesting article. What I found fascinating though was the reference to Michael Pollan’s book, which I went and had a look at.

    It seems his emphasis is that a big issue around food in the US is corn. As someone who is in the UK, I’m curious as to what extent this applies in Europe and specifically the UK, and if this is predominantly a US issue. Any suggestions on where I might find sources that examine this question?

  3. Travis says:

    @ Benjamin,

    It’s interesting you mention tobacco, as here in Canada tobacco costs have risen exponentially since I was a child, which is thought to be one reason why smoking rates have dropped (and the recent rise in popularity of bootlegged cigarettes is thought to be why anti-smoking rates have now stalled). Before reading this article I was very much in favour of health food subsidies, and I still think that is a promising approach, but it seems that it could have some undesirable consequences if not implemented properly.

    @ Martin,

    Great question. Unfortunately I have no idea how the situation differs in the UK, or if it makes a difference (I would presume that large corn subsidies in the the US would be enough to drive down prices for corn-based sweeteners worldwide, but that’s an uneducated guess on my part). If I come across anything of interest I will post it here, and if any of our other readers in the UK have any knowledge on this issue, please chime in.

    • Tara says:

      The US is the largest consumer of corn basaed sweeteners. Across Europe and Australasia, sugar beet or sugar cane tend to be preferred, including in candy (sweets/lollies) and processed foods such as cakes and biscuits.

      Corn is a far more staple product in the US than welsewhere in the westernised world.

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  5. Ian says:

    I don’t believe this is a classic economics issue. This study proved that the psychology of the human mind has a few more layers beneath the basic theory of “supply vs. demand”. I would say the other major player would have to be Food Advertising. For some godforsaken reason, we can’t get the images of fruit snacks and bright orange Doritos out of our heads. Thus we walk down the grocery aisles and automatically gravitate to the images we find familiar.

    Unfortunately, vegetables don’t have deep pockets for their advertising budgets. Also, the lack celebrity and athlete endorsement make them seem pretty boring to kids and parents. So until we have “Tony Hawk Carrots” or “Paris Hilton Humus” (low fat of course), healthy eating doesn’t stand a chance – no matter how affordable it is.

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  7. brtkrbzhnv says:

    An important fact that is often overlooked in these discussion is that healthful eating already is very cheap. E.g. cabbage, rutabagas, carrots and onions regularly sell for <$1/kg, whereas (dry) beans and lentils tend to cost about $4/kg (and then they triple in weight when cooked). For instance, I'm currently subsisting on a lentil–vegetable–coconut-milk stew with rice that cost me $1 per three 300-kcal portions (so $2/day for a normal diet), with prices inflated by high Swedish taxes. If people cannot afford that, the problem is not high food prices.

    I think the idea that healthful eating is expensive is one of those myths people keep repeating because they don't want to see individuals as responsible for their poor choices, instead preferring to view them as victims of an unjust economic system or whatever.

  8. WRG says:

    There are so many different factors at play here.

    I totally agree with respect to the advertising industry. Carrots just cannot compete with Doritos, despite similar colouring!

    There’s also the fact that we are hard-wired to love salt and sugar. While our societies have evolved immensely in a short period of time, our bodies are back in the stone age, craving calories to keep us padded with fat for the many months when little food was available. Salt is also necessary to human health, but again, we need much, much less than what has become the norm.

    As far as the cost of healthy eating goes, it’s more complicated than just dollars. “Healthy” food often requires much more preparation time than junk food. Making that great lentil and bean dish requires time and the truly poor amongst us (and make no mistake, there are many poor people out there) are sometimes working two or three jobs, just to make ends meet. They have just enough time to drop by McDonalds, but not enough time to soak the beans and cook them. They certainly don’t have enough money to buy a pressure cooker to make the process shorter!

    So truly, there are no easy fixes!

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  16. gclub says:

    This is a daunting task considering that the chemical fertilizer and pesticides companies have a head start of more than 4 decades coopting government, media, the academe and the general public to use their inorganic products (products that make plants grow but is actually killing the land that should actually nurture the plants).

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