Policy Tools Affecting Health, Agriculture And Agri-food

A broad spectrum of government instruments exists for advancing public policies at the interface of health, agriculture and agri-food that promote healthy eating and sustainability in these sectors (Figure 7). Some common instruments are laws (statutes and regulations), economic instruments (including taxes, subsidies, and public expenditure), forms of self-regulation, standards, voluntary initiatives, information and education, and collaborative or consensual approaches (including formalized partnerships and less formalized networks). The complexity of addressing agriculture, agri-food, business, and diet-related considerations with a reasonable degree of convergence between health and economic issues clearly transcend government departments and jurisdictions. It also calls for the involvement of the private sector, non-governmental organizations, and communities and consumers.

Table 1 (Appendix 3) provides an overview of the most common policy instru-ments that have been used at the interface between health, agriculture and agri-food. A review of this table shows that many instruments are already in use at the health, agriculture and agri-food interface. Furthermore, these instruments represent the diversity of tools available to decision-makers. In terms of regulatory instruments, a recent CAPI report36 provides an overview of the legislative and regulatory landscape of the agriculture and agri-food sector in Canada. The report provides detailed information about the complexity of this legislative and regulatory landscape, and provides recommendations for a more effective regulatory policy framework for the agriculture and agri-food sector. The CAPI report outlines measures that could improve the regulation of the agriculture and agri-food sector and these include: “developing over-arching objectives for regulation; encouraging greater collaboration between departments and agencies; seeking industry input on the choice of regulatory instruments; and designing legislation that provides for more regulatory flexibility.”

Beyond legislative and regulatory instruments, the policy tools reviewed in Table 1 (Appendix 3) offer a rich diversity: economic instruments, such as taxation, subsidies, trade tariffs and public investment in research and development; mandatory and voluntary standards; information and education; as well as novel collaborative and consensual approaches that involve government working with a diversity of stakeholders. A broad conceptual framework used by the government of Canada in assessing, selecting, and implementing the best portfolio of instruments by which to pursue policy objectives is available at www.regulation.gc.ca/documents/gl-ld/asses-eval/asses-eval00-eng.asp.

At the interfaces of health, agriculture and agri-food, various policies can shape food supply and consumer demand in different ways (Table 2, Appendix 4). For example, policies may affect farm and agri-food input and technology costs, and thereby shape agriculture and agri-food products and services, by making some ingredients and/or methods cheaper or more easily accessible than others. Such policies include farm income and commodity-price support programs, trade policies such as quotas and tariffs, and public investment in R&D. Policies using taxation may affect consumer demand through similar economic mechanisms. Information policies affect consumer demand at the same time as they change the competition dynamics in markets. These policies include mandatory nutrition labelling, the Canada’s Food Guide, front-of-package labelling schemes such as the Heart and Stroke Foundation of Canada’s Health Check program, and the education campaign called 5 to 10 a day-For better health! Finally, policies that influence business practices have the power to shape both food supply and consumer demand. These include policies such as industry self-regulation and mandatory restrictions or bans on ingredients in processing or on advertising to children.

In the past decade, some progress has been made in developing an empirical basis on the health and economic impacts of the diverse policy options available. But much more analysis is needed of policies with the potential to support the development of an integrated health and agri-food strategy. It is beyond the scope of this discussion paper to conduct a systematic review of the impacts of these policy options. But this paper does review and discuss the current state of evidence between agriculture and food economic policy tools, vis-à-vis their impact on obesity and food consumption, with a special focus on evidence supporting the use of “fat” taxes to reduce the consumption of unhealthy foods.

The Impact of Agriculture and Agri-Food Economic Policies on Obesity

The impact of changes in agriculture and food economic policies on obesity or eating patterns is predicated on the power of economic motivation to drive individual and organizational choices and shape market forces (including consumer demand, production costs, relative prices, and new technologies). Economic policies in the agriculture and agri-food domains are typically designed to alter the structure of incentives and disincentives in order to shift the drivers of food supply and/or consumer demand in a targeted direction. These policies include subsidies, production and consumption taxes, supply-managed or tiered pricing, research and development tax credits, and import tariffs. In various countries, provinces/states, and municipalities (e.g. New York and Seattle), economic policies are emerging that include changes in taxation and agricultural subsidies that would not have been conceivable less than a decade ago (apart from the well-known exception of the North Karelia Project³⁷ and its nation-wide extension).

Economists have modeled, projected and more or less validated the economic impact of such policies for prices and production. Less evidence exists to support the thesis that these economic policies negatively impact dietary patterns or lead to obesity. Nevertheless, public opinion and a number of argument-based non-peer and peer-reviewed publications – in the U.S., Europe, Canada and many other countries – have suggested that agricultural economic policies, such as farm subsidies, have contributed significantly to the “obesity epidemic” by making high-caloric, nutrient-poor foods relatively cheap and ubiquitous. The need for changes in agricultural policy has gained popularity in the general public, with champions like Michael Pollan³⁸ and others making this issue popular and frequently discussed in the media.

Cash et al.³⁹ argued that current commodity price policies in Canada may have had unintended adverse dietary outcomes. But the authors did not directly test the hypothesized effects. Conversely, recent analyses of historical and cross-sectional agricultural, sales and food consumption country-level data from around the world provide little evidence of a direct relationship between farm policies such as price and income support and obesity. Alston et al.⁴⁰ examined historical data in the U.S. and other food prices to assess the impact of such policies in the U.S. They found that these policies have generally small and mixed effects on farm commodity prices, which in turn have smaller and still mixed effects on the relative price of low- vs. high-obesity prone food. However, this same study found that – in contrast to agricultural subsidies – variations in economic policies tied to investments in agricultural and agri-food R&D for low- vs. high-obesity prone food had a direct and significant impact on the relative prices of these foods. Beghin and Jensen⁴¹ found a similar superior impact of R&D investments compared to income support on relative price, examining sugar and corn as sweetener crops.

	Figure 8. Vertical price transmission in the EU 15. Data based on OECD and World Bank figures.

Schmidhuber moved beyond the relationship between agriculture and food policy and the relative pricing of food categories of different nutritional content and quality. He performed an economic and econometric longitudinal analysis of the relationship of these policies with food sales and the nutritional quality of diets in the European Union (EU).⁴² The results of an analysis of the European diet over the past 40 years show that the degree to which the EU’s Common Agricultural Policy (CAP) impacts diet patterns – and whether the impact is positive or negative – depends on the pricing and cost structure along the farm-to-plate value chain (see Figure 8). The author shows that corn subsidies have had little impact on the sugar and caloric content of diets. He suggests that this result came about because corn subsidies contribute little to the share of the final price of processed food that contain a high sugar content, due to the fact that these food products go through many steps along the food chain, where each intermediary adds and gains value. He did suggest, however, that a similar policy may have a more powerful impact on fresh fruits and vegetables, because for these foods the value chain between farmer and consumer is short. Indeed, the European Union has recently announced the creation of subsidy programs for fruits and vegetables.⁴³

In sum, in embarking upon the development of the Integrated Health and Agri-Food Strategy for Canada, policy-makers and business strategies in all sectors may want to combine forces to gather more scientific evidence on the health and economic impacts of past and present economic policies that may have encouraged obesity. They may also want to undertake small scale field experiments using policy options that could propel society in a healthier direction, accumulating evidence as innovative changes are brought to the field.

The Use of Economic Policies to Alter Food Consumption

A sustained interest exists in understanding how economic instruments, such as taxes or subsidies, could be used to better promote healthy eating in a sustainable manner for all sectors. The table below provides a brief synopsis of the range of agriculture and agri-food economic tools that have been used or proposed in Canada or other jurisdictions to alter diet or food consumption based on a review of “keystone” articles. Some of the nutritional outcomes are based on “real life” situations, while some outcomes are based on theoretical models.

A specific and sustained interest has been maintained in the media and in policy circles in Canada and abroad concerning “fat” taxes for unhealthy foods. A lower profile interest exists in the use of subsides to encourage healthy foods. There are reasons why a “fat” tax is an alluring concept to many stakeholders. Examples of Economic Approaches Used to Influence Diet or Food Consumption

A “fat” tax is an example of a Pigovian tax that is designed to take into account the social costs of externalities. It is used when private costs do not take into account social costs in the production process and thus result in a market failure. The tax incorporates the social costs into the private costs of the firm so that efficient decision-making can occur.⁵⁷ The advantage of a Pigovian tax is that it provides a socially efficient solution if the tax is set appropriately. This type of tax is similar to the “sin” tax that has been levied on such products as tobacco and alcohol. Several studies have indicated that the tax on alcohol and tobacco has had an impact on the consumption of these products. Moreover, some stakeholders suggest that the revenue that is generated from a “fat” tax can be used to promote healthy eating and lifestyles.⁵⁸

A disadvantage of using a tax is that certain information (such as the definition of “healthy food,” “unhealthy food,” or cut-offs for “healthy levels” of specific nutrients) is required to appropriately set the tax. Another disadvantage is that the transaction costs, such as monitoring and enforcement, associated with taxes must also be taken into account when evaluating the policy choice. For example, the transaction costs associated with taxes that target nutrient content directly are much higher than taxes that are levelled indirectly from food categories (i.e., snack food).⁵⁹ These transaction costs can play an important role in the cost effectiveness and the distribution of benefits and burdens on different segments of the population. Another disadvantage of a tax on food is that it would have to be adapted as the marginal damage and marginal benefit curves change over time.⁶⁰

Other disadvantages of a tax relate to costs to the consumer and to firms. A tax on unhealthy food is often considered a regressive tax because it affects low-income people more than high-income individuals. Low-income individuals spend a higher percentage of their income on food purchases. Typically, small to moderate taxes on unhealthy foods will not significantly impact the consumption of these foods.⁶¹ If a tax is applied to a specific nutrient (e.g. trans fat), it can increase the input costs to the firm unless healthier substitutes are equally priced. The cost of the tax on a particular nutrient will be transmitted through the price system and will result in higher end prices for that food product. While this higher price will provide an incentive for consumers to ration their consumption of that food product, a “targeted” approach will arguably be more cost-effective. Simulated results of taxes by Jensen and Smed⁶² indicate that a tax that targets particular nutrients is 10-30% more effective than one that targets them indirectly (e.g., a general tax on sugar). In their simulations, Jensen and Smed⁶³ found that targeting total fats versus only saturated fats had different effects on the consumption of food categories (e.g., milk, butter, cheese). Notably, a tax on a particular nutrient or food item may show cross-elasticity, with its impact on the quantity demanded of another good resulting in unexpected outcomes.

A tax can also be applied on a food category at the point of purchase, as with snack foods. A point of purchase tax creates an incentive for consumers to consume less of the food product because of its higher cost. Applying the tax at the point of purchase provides a different set of incentives than applying the tax on a particular nutrient. These different sets of incentives will have different impacts on the supply and demand of unhealthy food.⁶⁴

Subsidies are also thought to provide an incentive to generate a social benefit by decreasing the price of healthy food choices. This is the so-called “thin subsidy”.⁶⁵ As with taxes, how the subsidy is applied, either on the nutrient or food category, will have an impact on the incentives that are generated and on food consumption patterns. A subsidy on a particular nutrient decreases the relative price of that nutrient and creates an incentive for firms to utilize that nutrient in their food formulation. The input subsidy can be transmitted to the consumer in terms of lower food prices, thus creating an incentive to consume more of this food. How much of the subsidy is transmitted to the consumer will depend on a number of factors, but the level of competition in the food category is of particular importance.

Cash and colleagues⁶⁶ used a health risk production function to estimate the impact of providing a subsidy for the consumption of fruits and vegetables. They found that the cost per life saved from the use of subsidies to enhance consumption of fruits and vegetables compared favourably to other policies used to promote fruit and vegetable consumption. Jensen and Smed⁶⁷ used a simulation approach to estimate the impact of different subsidy scenarios. As with taxes, they found that targeted subsidies on nutrient content, such as fibre content, were more effective than targeting food categories (i.e., fruits and vegetables). How the policy instrument was designed – whether it was a subsidy on the nutrient content or food category – had an impact on the consumption of various food categories.

Other types of subsidy programs focused on particular healthy foods, within particular segments of society, seem to have encouraged healthy eating. For example, the Norwegian School Fruit Program,⁶⁸ which supplied free fruits and vegetables to students, found that they ate significantly more fruit and vegetables than students in schools that did not have these programs. The Canadian Food Mail Program,⁶⁹ which subsidizes the cost of transporting nutritious perishable foods to isolated communities, found a significant increase in the consumption of fruits, vegetables, and dairy products when the subsidy for transportation increased from 30 to 80 cents per kilogram.⁷⁰

In conclusion, sustained interest exists in the health and agriculture and agri-food sectors in understanding the effectiveness of taxes and subsidies on food sold at retail, as the means of affecting positive health outcomes. Additional research is warranted to better reveal the effects of these instruments on food consumption patterns, and consequently their role in reducing diet-related chronic diseases and the trend toward obesity and overweight individuals.

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