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Wednesday, 13 November 2013

Fat Taxes and Mexico's quest to address growing obesity problem

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Mexico has just announced an 8% tax on junk foods to address the growing obesity concern in their country.  (Guardian Nov 1 According to the UN, 32.8% of Mexican adults are overweight or obese, exceeding the proportion in USA.

Taxation of unhealthy foods, often referred to as a “fat tax” have been a frequently considered strategy to combat the growing problem of obesity by influencing consumption patterns, particularly given the success of tobacco taxes on reducing initiation of smoking and increase in smoking cessation.  However, fat taxes are much more difficult to implement than tobacco taxes. 

Firstly, one must determine what is considered to be an “unhealthy food.”  These may be based on nutritional value (e.g. saturated fats, sodium, or sugar), caloric content, or categories of food (e.g. soft drinks, snack foods).  Each have their own limitations.  For example, taxation on fats may result in an increase in price for whole milk, despite it being a recommended food for young children. 

In addition, there are concerns that fat taxes may contravene international trade agreements, such as the WTO.  However, other taxes, such as alcohol and tobacco taxes, have not been contested and fat taxes may be viewed similarly as a “sin tax.”[i]

Importantly, fat taxes must be non-trivial to influence behaviour.  As a result, fat taxes have been criticized for its regressive nature.  Taxes on goods place a greater burden on the poor who will have to spend a larger proportion of their income on food.  Thus, poor people will be most sensitive to price changes.  However, this same group also has the highest risks of obesity and thus, the health benefits of a “fat tax” may be progressive but the effects on material well-being are likely to be regressive.[ii]  Tobacco taxes raise similar equity arguments.[iii]

One mechanism to mitigate the regressive nature of a fat tax is to use the revenue to subsidize healthy foods (i.e. a “thin subsidy”).  However, mathematical modelling has shown that even with a revenue-neutral fat tax/thin subsidy, people in the lowest income quintile would experience a 0.86% loss of income.   But, because the burden of disease is largest in this quintile, the same individuals would likely benefit the most from such a policy.[iv]

In 2009, Denmark introduced a similar “fat tax” strategy that taxed all foods containing more than 2.3% saturated fats.  It has been criticized for raising the prices of foods that may not be “unhealthy,” such as whole milk.  But, more importantly, the taxation led to a dramatic increase in cross-border shopping to neighbouring Sweden and Germany.  After 6 months, the tax was repealed due its high administrative costs and the increase in cross-border shopping.  Nevertheless, the “fat tax” may have had an effect on food consumption.  Early research from Denmark showed that there was a 10-20% reduction in fat consumption in the first three months after the tax went into effect.  It is difficult to identify the exact reason for this, but it does suggest that these taxation strategies may encourage healthier behaviours. 

Would Canada implement a similar “fat tax”?  One aspect of Canadian culture that could be challenging is classifying the diversity of ethnic foods as healthy or unhealthy. 

Mexico has taken a bold step to try and address the issue of obesity.  Mexico’s experience with this “fat tax” will be an important case study to evaluate the benefits and consequences of such a policy.   

[i] Leicaster A, Windmeijer F. The “fat tax”: economic incentives to reduce obesity. Institute for Fiscal Studies, Briefing Note No. 49, 2004. Available online at: http://www.ifs.org.uk/publications/1797.  Accessed November 30, 2009.
[ii] Marshall T. Exploring a fiscal food policy: the case of diet and ischaemic heart disease. BMJ 320:301-5, 2000.
[iii] Townsend J, Roderick P, Cooper J. Cigarette smoking by socioeconomic group, sex, and age: effects of price, income, and health publicity. BMJ 309:923-7, 1994.
[iv] Nnoaham KE, Sacks G, Rayner M, Mytton O, Gray A. Modelling income group differences in the health and economic impacts of targeted food taxes and subsidies. International Journal of Epidemiology 38:1324-1333, 2009.

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