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Taxing Matters

Hardly a week goes by without yet another NGO or academic institution proposing the introduction of a ‘food tax’ of some sort or other, as one of the obvious solutions to tackling the rising obesity epidemic across the world – not to mention, saving the planet into the bargain.

To name but a few, a recent report from theWHO advocated a ‘sugar tax’ and reports from Chatham House and the UN International Resources Panel supported the introduction of ‘meat taxes’.

During 2015, Jamie Oliver campaigned vociferously for the introduction of a tax on ‘sugary drinks’. Both he and his fellow campaigners were overjoyed when Chancellor, George Osborne announced, in his March Budget, the introduction of a ‘sugar tax’ on soft drinks to take effect from 2018. There will be two rates of tax – a higher rate for drinks with more than 8g of sugar per 100ml and a lower rate for those with 5 to 8g – but pure fruit juices and milk-based drinks will be exempted.

Needless to say, the beverages industry was dismayed by Mr Osborne’s announcement, pointing to their existing commitments to reducing sugar levels in many of their products and indicating their preference for strategies linked to better education and more transparent provision of nutritional information.

The issue of ‘food taxes’ has also been a live one in Denmark since 2011, when the then Danish government introduced a ‘fat tax’ on all products with a higher saturated fat content than 2.3%, which included a wide range of meat and dairy products. The tax was levied at the rate of DKK 16 (c.£1.60 per kg).

Its introduction was bitterly opposed by the food and farming industry, which saw the measure as a revenue raising instrument rather than part of a considered approach to improving public health. It was also by nature a ‘regressive’ financial measure, with a proportionately higher impact on lower income groups.

In the event, the tax was scrapped in January 2013, but a recent report, jointly prepared by the Universities of Copenhagen and Oxford, suggested that the tax had a “small but positive” effect on the nation’s health. These findings were questioned by the Danish Agriculture and Food Council (DAFC) and others pointing out that, because the tax was in place for a very short period, it would be virtually impossible to make any reliable assessment of potential longer term health benefits. In addition, there was evidence that many consumers significantly increased purchases of meat and dairy products in the weeks before the tax was introduced, with the result that the lower levels of purchasing of these products during the period under review could not be simply translated into lower consumption trends.

A recent report from Denmark’s Ethical Council (Det Etiske Råd) advocated that a ‘climate tax’ on meat should be introduced to reduce the country’s meat consumption and its environmental consequences. The report was given significant coverage in the media here - Daily Mail IndependentTelegraph.

While the DAFC accepts that a simple analysis may point to beef and dairy production having a high level of emissions, this does not represent the whole story by any means.

Denmark’s geography and climate is ideal for beef and dairy cattle production and, in relation to most of its competitors, it has a highly efficient livestock industry. One should also acknowledge the interdependence between the two sectors – in fact, 80% of beef consumed by Danes comes from the dairy industry.

The challenges of climate change are global – a unilateral tax in Denmark would have an impact on industry competitiveness. The tax would result in a loss of share on the home market and would also damage exports. This would mean, in effect, exporting production to countries whose geography and climate are less suited to beef and dairy production and to lower cost countries, with less efficient and more environmentally damaging production.

The Ethical Council report focused on taxing beef in order to reflect the external costs arising from its production but excluded other external ‘benefits’ from their assessment.

The Danish meat industry can demonstrate proficiency in optimising all parts of the animal – for example, ox tongues are exported to China, blood is used for medical products and fat for biofuel production.

The report also failed to account for the positive contribution to nature conservation and biodiversity benefits brought by grazing cattle.

Little emphasis was given to the nutritional benefits provided through consumption of meat and dairy products, which are recognised as a provider of protein of high biological value and a bioavailable source of essential vitamins and minerals.

An industry that is already efficient must be motivated and allowed to develop and achieve further reductions in its environmental impact. An undifferentiated tax would penalise both the efficient and less efficient and send the industry in the wrong direction.

Denmark has a major R&D programme examining further reductions of environmental impact. A recent example is the promising work involved in adding oregano to cattle feed. Early results suggest this can reduce the amount of methane in the cows’ digestive system by up to 25%.

If any ‘food tax’ results in consumers replacing consumption of the more highly priced foods with those that are high in salt or refined carbohydrates, then this will actually have a negative effect on public health.

During 2011 and 2012, when the ‘saturated fat tax’ was in place, it was reported that shoppers crossed the Danish border to Germany in much larger numbers to stock up on cheaper meat and dairy staples – perhaps another useful case study of ‘the law of unintended consequences’.