Food consumption and the CAP: How and to what extent does the Common Agricultural Policy affect food

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Food consumption and the CAP How and to what
extent does the Common Agricultural Policy affect
food consumption patterns in the EU?
WHO Regional Office for Europe Consultation in
collaboration with FAO How can agriculture and
trade contribute to a healthy diet? Rome 17-18
May 2006 Josef Schmidhuber Senior
Economist Global Perspective Studies Unit ESDG
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Overview

• Part I How healthy is the EU Diet?
• Part II How important is the CAP and how do its
  instruments affect food prices?
• Part III How efficient and effective are food
  taxes in general?

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http//www.fao.org/docrep/005/ac911e/ac911e00.htm
1. How healthy is the EU Diet?
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1. How healthy is the EU Diet?
Free sugars refers to all monosaccharides and
disaccharides added to foods, plus sugars
naturally present in honey, syrups and fruit
juices
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http//www.fao.org/docrep/005/ac911e/ac911e00.htm
1. How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
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How healthy is the EU Diet?
TDGL Total Dietary Glycemic Load per Person per
Day GIi Glycemic Index of Food Item i gCHi g
Carbohydrates of Food Item i Ci Consumption of
Food Item i
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Are EU diets converging and how to measure
convergence?

• The Consumption Similarity Index (CSI)

where i1 to 95 food items of FAOs SUA data
base Calij and Calik are the calories from
individual products i in country k and j Calj
and Calk is the total calorie availability per
person in country j and k.
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Towards an increasingly homogenous EU Diet?
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Overview

• Part I How healthy is the EU Diet?
• Part II How important is the CAP and how do its
  instruments affect food prices?

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Agricultural policies and overweight
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Principal policy effects of the CAP2001/03
Source own calculations (JS) based OECD
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Price tax effect of the CAP by Commodity (main
commodities only)
Source own calculations (JS) based OECD
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The CAP distorts relative prices both
vis-à-vis world markets and within the bundle of
consumption goods
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Consumer subsidies through the CAP
Source own calculations (JS) based OECD
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CAP Consumer subsidies for milk
Source own calculations (JS) based OECD
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Overview

• Part I How healthy is the EU Diet?
• Part II How important is the CAP and how do its
  instruments affect food prices?
• Part III How efficient and effective are food
  taxes in general?

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Vertical price transmissionThe impact of the
CAP with high margins
US/t
450
400
PconsumerT
Pconsumer-2
T
T
3410
350
Pconsumer
Pconsumer
300
M1
M2
250
Pincentive
Pincentive
200
PmarketT
Pmarket-2
T
PSE-R
PSE-R/CSE-R
T
3420
Pmarket
Pmarket
150
PSE-M
PSE-M/CSE-M
Pborder
Pborder
100
Source Schmidhuber and Britz, 2002
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Vertical price transmission the empirical
evidence
Food value chain in the EU
EU-15, 1996, 1.25 / x-rate
(Data based on OECD and World Bank, own
calculations)
1400
Value of final food expenditure
US 1014 billion
1200
1000
800
Margin/value added for marketing, processing, etc
US 780 billion
billion US 1996
600
400
200
CAP - CSE tax on consumption
US 48 billion
Value of consumption at world prices, primary
products US 139 billion
0
Year1996
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How elastic is food demand?
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Impacts of an (ad valorem) tax on food with
elastic and inelastic demand
Inelastic demand
Elastic demand
(Rich consumer)
(Poor consumer)
Si
P1
T
P1
Sd
Po
T
Po
Dd
Dd
Di
Di
q1
q0
q1
q0
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Policy instruments Taxing Output (obesity)?
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Impacts of a tax on food on overweight/obesity
body weight (output)
Food (input)
Rich consumer (IC)
BMI0
Si
P1
BMI1
T
Po
Di
Di
Q1DES1
DES0
DES1
DES
QoDES0
DES
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Food taxes some pros and cons

• Higher farm prices ineffective means to change
  final consumer prices (high margins in vertical
  price transmission).
• Low price elasticities for food demand make food
  taxes in general ineffective in reducing
  consumption.
• Regressive on consumers with high calorie needs.
• Difficult to implement, VAT rates in the EU, need
  for non-discriminatory taxes.
• Untargeted unfair all consumers bear the price
  of higher food prices while only the
  obese/overweight cause the external costs
  (violates the polluter pays principle).
• But low elasticities mean high tax revenues which
  could be used for nutrition education,
  prevention, and other measures.
• Food taxes can be effective, where there are
  healthy substitutes (e.g. low-sugar soft drinks)
  high elasticity of substitution would require
  only a small tax on unhealthy food of a small
  subsidy on the healthy food.
• Part of a policy mix but not a stand-alone
  measure.

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Conclusions and outlook

• EU diets have become increasingly unhealthy, the
  quality of the Mediterranean Diet is gradually
  deteriorating.
• The EU diets are too rich in calories, fat,
  sugar, cholesterol and saturated fats.
• Dietary fibre as well as fruit and vegetable
  consumption have increased over time, but some
  countries still show deficits.
• Consumption of polyunsaturated fats has
  increased, but largely through a widening of the
  ?-6/?-3 ratio.
• The total glycemic load of the EU diets has
  increased with carbohydrate consumption, but
  remained low compared to NENA countries.
• There has been a growing convergence in diets,
  new member countries move towards EU-15 diet,
  albeit some country specific features remain.
• Overall, CAP provides a net tax on food
  consumption, albeit some subsidy elements are
  important.
• As a tax on primary consumption, the demand
  curbing effects of the CAP remain limited CAP
  effects are to be seen against (i) low vertical
  price transmission (ii) high margins for
  processing and marketing and (iii) low demand
  elasticities.
• Taxes on final consumption can be more effective,
  but only where healthy substitutes exist.
• Food taxes on inelastic demand can be used as a
  revenue source for more effective measures
  (education, etc.)
• No single policy measure likely to be sufficient,
  need for an appropriate policy mix.