Food taxes and their impact on competitiveness in the agri-food sector, a study Published on: 16/07/2014, Last update: 19/06/2015
Non-harmonised taxes on high sugar, salt and fat products can affect the competitiveness of the agri-food industry, especially small businesses in the sector. Taxes on these products can reduce their consumption but not necessarily consumption of the targeted ingredients. The impact on the European agri-food sector needs to be assessed further.
These are the main conclusions of a study, 'Food taxes and their impact on competitiveness in the agri-food sector', commissioned by the Directorate-General for Enterprise and Industry.
Impact on consumption
The study found that food taxes in general achieve a reduction in the consumption of the taxed products and as a result, consumers may instead purchase similar non-taxed or less heavily taxed items. It also shows that consumers may simply buy cheaper brands of the taxed products, thus potentially not lowering their consumption of the ingredient the tax aims to target (i.e. salt, sugar or fat). Equally, consumers may be able to buy other products with similar levels of sugar, salt or fat to those that are taxed.
Impact on competitiveness
The study was able to confirm some of the impacts of food taxes on the competitiveness of the agri-food sector.
Food taxes lead to an increase in administrative burden, notably if the tax is levied on ingredients or if the rules defining which products are liable under the tax are highly differentiated and complicated. The exact impact on profitability, employment and investment needs to be further explored, but there are some indications that these may be negatively affected. No definitive conclusions are possible due to the limited number of available cases and the short time span between the introduction of taxes and the study.
The competitiveness of individual firms, especially of small and medium-sized enterprises (SMEs), within an EU country can be more directly affected by food taxes. When consumers switch to cheaper brands, it reduces the competiveness of premium brand producers. Likewise, substitution from taxed products to non-taxed products reduces the competitiveness of producers of the taxed products compared to producers of the non-taxed products. The degree to which individual competitiveness is affected is highly influenced by the product category that is taxed (as brand loyalty may be strong enough to prevent consumer switching) and by whether many similar products escape tax (which makes substitution to non-taxed products easier).
Impact on cross-border trade
A common argument against food taxes is that they raise the price of goods relative to the prices of the same goods in neighbouring countries where no such tax exists and thereby promote cross-border shopping. However, the study found that increases in cross-border shopping were limited and that other factors, in particular other taxes on food and drinks, are more important drivers for the cross-border shopping effect.
Food taxes and the consequences arising from their introduction are a highly complex and much-debated topic. While the study made some initial conclusions, it also found that further research is needed in order to assess more extensively the impact of these measures on the competitiveness of the agri-food sector.
The study was carried out by the ECSIP consortium led by Ecorys Netherlands, in the framework of the activities of the High Level Forum for a Better Functioning Food Supply chain.