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 World Health Organization (WHO)’s Global Action Plan for the Prevention and Control of Non-communicable Diseases 2013-2030 recommends that countries consider the use of economic measures, such as taxes and subsidies, that are supported by evidence to improve access to healthy dietary options and incentivize behaviours that promote healthy eating.1
Specifically, the WHO advises that “taxing SSBs [sugar-sweetened beverages] can be an effective policy to promote healthier diets and improve population health.”1 Additionally, the WHO states that “systematic reviews of subsidy schemes show that they can increase consumption of healthier food options and improve health outcomes.”1 According to the WHO, there may be greater benefits to public health when subsidies on healthier items are combined with taxation of target unhealthy foods and beverages, particularly for low-income consumers.1
The effects of other price policies on dietary intakes have also been thoroughly evaluated. A systematic review of food taxes and subsidies (including taxes on 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) found they can be effective in promoting dietary change; however, SSB taxes and fruit and vegetable subsidies were found to be the most effective at changing consumption.2
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.3 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.3 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.3
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.