Price policies for food and beverages: an overview

The environments in which people make food choices have a significant influence on what they purchase and eat. Price policies that provide incentives or disincentives for purchasing certain foods are a key policy tool, and have been implemented by an increasing number of countries in recent years.¹

The World Health Organization’s Global Action Plan for the Prevention and Control of Non-communicable Diseases 2013–2020 recommends that: “… as appropriate to national context, countries consider the use of economic tools that are justified by evidence, and may include taxes and subsidies, to improve access to healthy dietary choices and create incentives for behaviours associated with improved health outcomes and discourage the consumption of less healthy options”.²

Review of food taxes and subsidies

A systematic review of food taxes and subsidies found they can be effective in promoting dietary change. The review considered a range of policy measures including:

• taxes on sugar-sweetened beverages
• subsidies on fruit and vegetables
• taxes on individual nutrients such as fat, sugar and salt; and
• taxes on products deemed unhealthy based on nutrient profiling.

Based on the available evidence, sugary drink taxes and subsidies on fruit and vegetables were the measures found to be the most effective at changing consumption.³

The World Health Organization (WHO) advises that “there is reasonable and increasing evidence that appropriately designed taxes on sugar-sweetened beverages result in proportional reductions in consumption, especially if they raise the retail price by 20% or more”.⁴ The WHO concludes that “there is similar strong evidence that subsidies for fresh fruits and vegetables that reduce prices by 10–30% are effective in increasing fruit and vegetable consumption”. According to the WHO, there may be greater effects on net energy intake and weight where subsidies on fruit and vegetables are combined with taxation of target foods and beverages, particularly for low-income consumers.

Other price policies were also considered as part of the systematic review. Taxes on individual nutrients such as fat, sugar and salt had a small impact in reducing consumption of target nutrients. Such taxes were complex, however, because they were likely to apply to a broad range of foods including core foods recommended by dietary guidelines (for example, a saturated fat tax may apply to cheese). Unhealthy food taxes were more straightforward because they targeted foods based on their entire nutrient composition, and were therefore less likely to apply to core foods than taxes on individual nutrients.³

Economic rationale for food taxes

The economic rationale for food taxes is that consumption of unhealthy products creates an “external cost” to society that is not factored into the costs borne by producers or consumers at point of sale. Foods high in sugar, salt and saturated fats can be inexpensive to produce and purchase, but are associated with increased risk of overweight and obesity and related diseases such as type 2 diabetes, cardiovascular disease and some cancers. The increased illness and disability associated with excessive consumption of such products is likely to result in increased health and social care costs to governments, and lost productivity. This is an example of market failure, which justifies government intervention to increase the price of a product through taxation and reduce demand.¹⁵