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Technical Paper 1:
Obesity in Australia: a need for urgent action

4.1 - Reshaping the food supply towards lower risk products and pricing

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Pricing is a crucial issue to consider in shifting consumer demand. Food prices have risen significantly in Australia recently, including large increases in the price of many fresh products.[52] The majority of Australians regularly obtain their grocery requirements from supermarkets. Around 12–14% of the average Australian household post-tax income is spent on standard groceries. In 2008 the Australian Competition and Consumer Commission (ACCC) examined whether increased grocery prices were related to the level or lack of competition between major supermarket chains and other retailers such as independent supermarkets, bakeries and greengrocers. Around half of all fresh product sales (such as meat, fruit and vegetables) are sold through Australia’s two largest supermarket chains, Coles and Woolworths (compared with around 70% of packaged groceries). No evidence was found to suggest that there had been broad, fresh produce price increases at the retail level by a greater margin than rises in prices at the farm gate. The ACCC found that food price rises could not be attributed solely to the market or bargaining power of the largest retailers, but were associated with a myriad of national and international factors.[52]

These include the drought, adverse weather conditions, increasing costs of raw materials and other products crucial to farm production such as petrol and fertiliser, as well as rising international food commodity prices. The ACCC recommended that mandatory unit pricing be introduced nationally (in-store and in print advertising) for all large supermarket chains and independents, to assist consumers to more readily compare product prices between different sizes, brands and stores. The ACCC considered that six to 12 months would be an appropriate timeline for implementation, and recommended an accompanying public education campaign to enhance impact and consumer understanding.

Since August 2008 the results of independent monthly surveys of typical grocery basket prices across Australia (involving around 500 products from 600 supermarkets) have been available through a dedicated website, allowing consumers to assess their cheapest locally available groceries (www.grocerychoice.gov.au).

Ensuring access to healthy food

There is evidence that economic factors may pose a barrier to the adoption of healthier diets and so limit the impact of dietary guidance.[53] Low-income Australians report lower levels of consumption of fruits and vegetables, often related to difficulties in accessing, purchasing and storing these foods.[54] People on lower incomes spend a higher proportion of their income on food,[55] and are less likely to meet dietary guideline recommendations for levels of fruit and vegetable consumption than higher income consumers.[56] They are more likely to consume energy-dense foods (high in fat and sugar) and lower amounts of plant-based foods (fruits and vegetables and wholegrain bread). Energy-dense foods are often perceived as being more affordable, more filling, more acceptable to family members and more readily available in disadvantaged areas.[57]

The introduction of policy-related economic instruments, especially in the form of taxes and price policies, may reduce food consumption, including high saturated fat and other energy-dense foods, and increase the purchasing of healthy products.[58]

A tax on unhealthy foods may encourage food manufacturers to produce healthier foods by reformulating existing products or developing new ones to maintain market share.[59] In addition, as consumers are responsive to price, taxes on unhealthy foods that increase the effective price to consumers may be effective in discouraging and lowering their consumption.[60]
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For example, UK research modelled the effects of several options for taxing unhealthy foods to estimate the likely impact of price rises on demand for a range of foods. Under one model, a wide range of food products would be taxed to reduce fat, salt and sugar intake to maximise health outcomes. This was estimated to prevent up to 3200 deaths from heart disease and stroke annually, and to increase food expenditure by 4.6%.[61] Further evidence on the demonstrated rather than predicted outcomes of economic policies like targeted food taxes is required, such as whether consumers’ buying habits would actually change and the magnitude of resulting health gains.[58, 60, 61]

In addition, targeted taxation on unhealthy foods is considered to be regressive as it would impact disproportionately on people and families on lower incomes who spend a larger proportion of their income on food than higher-income earners.[60, 86]

Subsidising healthy foods has an advantage in comparison with the potentially regressive impact of policies (such as taxes added to unhealthy food that are aimed at increasing prices) in that the greatest benefit would go to the most disadvantaged consumers: those with lowest incomes.[53] In addition, research supports interventions encouraging a greater intake of healthy foods rather than policies encouraging a decreased intake of unhealthy foods, as there may be more benefit in terms of weight loss in increasing the intake of healthy foods than in decreasing the consumption of unhealthy foods.[53]

Potential health benefits (reduced stroke and coronary heart disease) associated with subsidising healthy foods have been estimated by modelling consumption changes related to a hypothetical government subsidy on fruit and vegetables in the US:[60]

• Policies that lead to an ongoing reduction in the market price of all fruits and vegetables would result in a substantial decrease in the number of cases of stroke and heart disease
• A 1% retail price subsidy on all fruits and vegetables would result in an average saving of US$1.29 million per statistical life saved
• The most cost-effective policy would involve subsidies for both fruits and vegetables together.[60]

Recent reports suggested that the French Government was considering an increase in tax on unhealthy food items by increasing the existing 5.5% value-added tax to up to 19.6%, based on recommendations by the French tax and social affairs inspectorates. Items under consideration included extra-fatty, salty or sugary products such as pizzas, hamburgers and soft drinks, and possibly alcohol. Revenue was to go in part towards a large deficit in the state healthcare system.[62] However, subsequent reports have indicated that this plan has not been adopted by the Budget Minister, due to the current economic climate, including increases in the cost of living.[63]
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Promoting active living

While evidence of the effectiveness of subsidies for active living initiatives is still being developed, there are examples of new policies introduced in other jurisdictions that Australians can draw on in formulating policy. Since 2005, the government in Nova Scotia, Canada, has allowed a ‘Healthy Living Tax Credit’ to help with the cost of registering children and youth in eligible sport or recreation activities that offer health benefits.[59] This credit, based on a maximum annual spending of $150 per child when introduced, was raised to an annual maximum of $500 in January 2006. It is estimated that the tax credit costs the Nova Scotia Government $2.2 million annually.

In its 2006 Budget, the Canadian federal government introduced a similar economic incentive: the Children’s Fitness Tax Credit. Under this tax credit, starting in the 2007 taxation year, parents are allowed to claim a non-refundable tax credit of up to $500 in eligible fees for the enrolment of a child under the age of 16 in an eligible program of physical activity. It is estimated that the federal tax credit will cost approximately $160 million per year. Once sufficient data are available, evaluation of the effectiveness of such credits on physical activity and obesity will be possible.[59]

Australian research that examined modes of transport to work in New South Wales in 2003 found that the majority of people drove cars (69%), while less than one-quarter used public transport, walked or cycled. People who drove were significantly less likely to undertake recommended levels of physical activity than non-car users, and driving to work was associated with being overweight or obese.[64]

Proposals to encourage the use of active transport in Australia include encouraging workplaces to replace subsidies that promote private and company motor vehicle use (such as subsidised car parking and novated leases) with inducements that encourage employees to walk, cycle or take public transport to work (including fare rebates, shower and safe bicycle parking facilities, bicycle maintenance vouchers and bonuses for use of alternative forms of transport).

Under the current fringe benefits tax (FBT) system in Australia, private transport is encouraged, as cars of higher-income workers are subsidised. As the taxable value of the car and therefore the FBT payable is reduced with the number of kilometres travelled each year, there is incentive for people using the scheme to maximise car use during the FBT year in order to qualify for the greatest FBT benefit. Numerous groups and several parliamentary inquiries have called for this tax concession to be repealed.[65] There are no comparable financial incentives for people to use active transport modes such as public transport, walking and cycling. The introduction of similar tax advantages would encourage and support increased physical activity among Australian workers and is likely to have a subsequent beneficial environmental impact through a reduction in greenhouse gas emissions and urban traffic congestion.⁶
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Reshape the food supply towards lower risk products and encourage physical activity:

• Review the taxation system to enable access to healthier foods and active recreation (for example, increase tax breaks for fitness-related products and recreational activities, and for schools and workplaces to provide healthy foods).
• Provide disincentives for unhealthy foods by considering increasing taxes for energy-dense foods, as taxing unhealthy foods may provide an incentive to manufacturers to change their production processes to reduce the fat, salt or sugar content in order to maintain their market share.

⁶The fringe benefits tax will be raised by the Taskforce with Dr. Ken Henry, chair of the Australian Government’s review of the taxation system (Australia’s Future Tax System) announced in May 2008 and due in December 2009.

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