Price policies for food and beverages: an overview
Food taxes and subsidies can be effective in promoting dietary change. The pricing measures with the greatest effect on consumption are taxes on sugar-sweetened beverages (SSBs) and subsidies on fruit and vegetables. The economic rationale for taxes on unhealthy foods is that they create an “external cost” to society arising from increased illness and disability.
Key Evidence
Price policies provide incentives or disincentives for purchasing certain foods
The World Health Organization (WHO) recommends the use of economic tools to improve diets
The strongest evidence is for taxes on SSBs and subsidies on fruit and vegetables
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 WHO’s Global Action Plan for the Prevention and Control of Non-communicable Diseases 2013–2030 recommends that: “… as appropriate to national context, [countries] consider economic tools that are justified by evidence, and may include taxes and subsidies, that create incentives for behaviours associated with improved health outcomes, improve the affordability and encourage consumption of healthier food products 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 (SSBs)
- 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, taxes on individual nutrients had a smaller impact on reducing consumption of target nutrients. SSB taxes and subsidies on fruit and vegetables were the measures found to be the most effective at changing consumption.3
The 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 aimed at raising 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.
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 the point of sale.1 Foods high in sugar, salt and saturated fats can be inexpensive to produce and purchase, but are associated with an increased risk of overweight, obesity and related diseases such as type 2 diabetes, cardiovascular disease and some cancers. The increased illness and disability associated with excessive consumption of these products will likely result in increased health and social care costs to governments, as well as lost productivity.1 This has been described as an example of market failure, which justifies government intervention to increase the price of a product through taxation in order to reduce demand.15
Content for this page was reviewed and updated by Karen Hock, University of Waterloo, and reviewed by Gary Sacks, Co-Director at the Global Centre for Preventive Health and Nutrition at Deakin University. For more information about the approach to content on the site please see About | Obesity Evidence Hub.