Mexico to tax soft drinks and junk food

Mexico has passed the US in terms of obesity, with seven of 10 adults now categorized as overweight or obese.  President Enrique Pena Nieto is proposing a series of tax increases to fund increased spending.  WSJ reports part of the package is a one peso tax on sugary drinks.  LA Times reports that there also is a five percent tax on packaged food which has more than 275 calories per 100 grams.

Predictably, the tax is already getting slammed both by citizens upset with the higher cost of simple pleasures and by the companies whose products are being taxed.  From an economic perspective, taxing food to combat obesity is similar to the logic behind taxing alcohol and tobacco.  It would make more sense to have a generalized calorie tax combined with rebates to help the less fortunate.  However, such a tax would have all food companies up in arms, so there is a certain divide-and-conquer element to the government's strategy.  Also many of the leading packaged food and soft drink producers are companies headquartered outside Mexico, e.g., Coca-Cola and Nestle.

Denmark tried a similar tax in 2011 but repealed it after one year after there was no change in eating habits and a lot of junk food smuggled across the border.  Other countries will be keeping an eye on how the junk food taxes work in Mexico.  

How do customers respond to calorie data in restaurants?

Suppose you walk into a Panera craving a salad on a hot summer day.  Suppose also you are either trying to lose weight or maintain your current weight.  You see that your choices range in calories between 375 (strawberry poppyseed with chicken) and 970 (chopped steak and blue cheese).  Which choice do you make?  The real low-cal option would be to take the strawberry poppyseed and drink water.  But maybe you adjust your order to include the chocolate chipper cookie as well (440 calories) since you saved so many calories on the entree.  Add a bag of chips or a smoothie and your calorie savings go poof!

Last week WSJ ran a piece summarizing recent research on how customers react to calorie information when dining out.  As a general rule, dishes you select in restaurants will have more calories than if you fixed comparable items at home because chefs add more oil and butter to make them taste better. 

Two recent studies find that calorie counts have modest effects on behavior.  One study found that only 1 in 6 customers paid any attention to the calorie data and that group consumed 96 fewer calories per visit.  Another found a 6% calorie drop overall. 

Some restaurants are starting to change their recipes as well.  Cheesecake Factory has reduced the sauce on each serving of Bistro Shrimp Pasta so that the calorie count drops from 2980 to 2440.  Applebee's now has an under 550 calorie menu with steak, chicken and pasta options.  But not everyone has jumped on the calorie moderation bandwagon; we still have Hardee's and the 2/3 pound Monster Thickburger (1290 calories). 

Bottom line: People eat more food away from home now than ever before.  I am convinced that this is contributing to the our obesity epidemic.  Calorie counts appear to give customers a small nudge toward moderation. 

Food prices and obesity

Fascinating study by three economists affiliated with NBER concerning how food prices are linked to obesity.  They looked at a national sample of 12 to 18-year-olds and examined how clinical measures of body mass index and percentage body fat related to food prices in their county.  The key findings were that

1. Youths who lived in counties with expensive calories were less obese than those who lived in counties with inexpensive calories.  This applied to both calories associated with foods purchased to be consumed at home and calories purchased at fast-food restaurants (McDonald's, Pizza Hut and KFC, to be precise). 
2. Obesity was lower in counties with inexpensive prices of fruits and vegetables than in those where fruits and vegetables were more expensive.

Over the last 30 years, food prices -- both overall and for fast-food in particular -- have been falling, making them a prime suspect as a cause of rising obesity.  Prices of fruits and vegetables have been rising, so this re-enforces the overall trend.  

Over the centuries, falling food prices have proven to be a blessing, freeing much of the world's population from the most fundamental concerns about subsistence.  This may no longer be true as our society adopts more sedentary lifestyles.  Expect to see more discussion of calorie taxes in the future, along with exercise credits. 

Bye bye to supersized beverages in NYC

There is an obesity epidemic in the US.  There are numerous causes, including sedentary lifestyles, more meals eaten away from home, creative innovations that make food fatter and tastier (why not a Doritos shell on my taco?), and lower prices for processed foods.  

How to turn things around?  One would do well to look at how we have dealt with tobacco products.  Through a combination of taxation and education, the percentage of people who smoke in the US has dropped from 44 to 21 percent over the last 60 years.   Textbook economics would indicate that a calorie tax combined with exercise subsidies would be the way to go.  Food retailers could make information about caloric content more accessible so that consumers could make more informed choices.  Examples: Panera Bread posts calories on menus; Cheesecake Factory introduced a Skinnylicious menu with all entrees below 590 calories.

How not to do it?  Consider NYC Mayor Michael Bloomberg’s proposed ban on large sugary drinks.  It fails every conceivable benchmark of economic rationality.  It will be hard to enforce; anyone who wants 32 ounces of soda will still have plenty of options, albeit with slightly increased transactions costs.  It singles out beverages while ignoring chips, ice cream, ribs and all the other goodies that help us gain weight faster.  A tax on large drinks would do just as much to discourage their consumption and, as a bonus, give the good mayor more money to serve his constituents.  No wonder a food industry group ran a full-page ad in NYT depicting Mayor Bloomberg as Nanny Bloomberg, with the text asking "What's next? Limits on the width of a pizza slice, size of a hamburger, or amount of cream cheese on your bagel?"

Obesity econ

Worthwhile WSJ op-ed today from U of Chicago's Tomas Philipson and Richard Posner on the basic economics of obesity.  They attribute the obesity epidemic to two forms of technological change: one in agriculture that has greatly lowered the price of food in well-off societies and one in the workplace that has reduced the number of calories needed to subsist.  In a nutshell, we are eating more when we need to be eating less. 

Philipson and Posner think education and food labeling are not going to make much difference.  They also are skeptical about taxes, which would be hard to administer and would have a greater impact on the poor.  They appear to be most optimistic about medical innovation, which would focus on dealing with the side effects of obesity (e.g., diabetes, knee replacements) and less with the problem itself.  They do not mention any role insurance companies might play via increasing deductibles and copays for those with body mass indices beyond a healthy level. 

Can behavioral economics really help solve big problems?

Great NYT op-ed today by Carnegie-Mellon's George Loewenstein and Duke's Peter Ubel titled "Economics Behaving Badly."  Behavioral economics is a fairly hot area right now, given the seeming irrationality of the housing bubble or the rise in obesity.  (For a good overview, I highly recommend Richard Thaler and Cass Sunstein's Nudge, which I read last week.)  Loewenstein and Ubel argue that the tools of behavioral economics are being applied to problems that are not well suited to such an approach.  For instance, behaviorists argue that if people had better nutritional information, they would make better eating choices.  Recent studies show labelling does have an impact, but it is pretty small.  Loewenstein and Ubel argue that to get big changes, we will need to do something to increase the price of calories.  Finding a way to get supermarkets with real produce to locate in tough neighborhoods would help too. 

Taxing fizzy beverages

Yesterday we all learned of a proposal for a one cent per can tax on sodas and other sweetened beverages (Raleigh N&O version; NYT version). This would generate as much as $15 billion in revenue; you decide for yourself whether that is a lot of money by today's Washington standards. Needless to say, Coke, Pepsi and their customers are less than pleased.

I am no obesity expert by any means, but two aspects of this proposal strike me as less than well-thought-out. First, why single out sodas and not tax Doritos, Haagen Dazs, and the eight ounce burgers at Raleigh Times as well? Just as many economists have suggested a carbon tax as the best way to deal with global warming, a more generalized calorie tax levied at both restaurants and groceries would make more sense if we were to use taxes to address this issue. Second, many of the obesity scolds also tend to be on the left end of the political spectrum and worry about the impact of any new policy on those near or below the poverty line. But do they really want to introduce what surely would be a highly regressive tax? Obesity is concentrated much more among the poor than the rich, presumably a reflection of the difference in educational attainment between the two groups.

Economic research on obesity has focused on the role of falling food prices (as evidenced by the larger consumption of super-size servings) and the shift in dining from food prepared at home to food prepared away from home. A recent NBER study by Dana Goldman and two colleagues at the RAND Corporation did find that a "fat tax" on selected foods (McDonalds, you're next) would have at best a modest impact on obesity.

Here's another idea, borrowed from reality TV: let's have a national weigh-in and give tax rebates to those who lose the most weight. Of course then we would need another scheme to make sure the weight loss is not temporary. Incentive design is tough.