1. European Week Against Cancer 2013
Jørgen Dejgård Jensen & Sinne Smed
Lessons to be learned
from the Danish food
taxations

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Main points
• General features and challenges regarding price instruments
in nutritional policy
• Taxation of sugar in beverages and confectionary in
Denmark
• The tale of the Danish tax on saturated fat in foods
• Background and design of the tax scheme
• Estimated effects of the fat tax
• Abolishment of the fat tax – what went wrong?
• Implications and perspectives to be drawn from the Danish
experiences so far

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Some general issues concerning price instruments
Are price instruments welfare improving?
Potential health benefits
Efficiency costs
Market challenges
Demand response to price changes?
Transmission of tax into consumer prices?
Border trade
Administrative challenges
Definition of products eligible for taxation
Enforcement and control
Political challenges
Resistance among stakeholders
Regressive effects on low-income households

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Danish Taxation of sugar in
beverages and confectionary

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Sugar taxation in Denmark
All foods are subject to 25% Value Added Tax
Additional taxes on luxury goods, including:
icecream, chocolate, nuts, confectionary
Additional tax on sugar-sweetened beverages ~
0.15€/liter
~ 6% price premium of brands,
~ 12% price premium of non-brands
Additional taxes are topped with 25% VAT

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The 2010 Danish tax reform and sugar taxation
• Tax on sweets, chocolate, sugar products and ice cream was increased
by 25%
• Tax on soft drinks (soda) with sugar increased by
25 %, and decreased by 37% on sugar free soft drinks, i.e. changes of
0.04-0.05 €/liter – or a couple of per cent price change
• Consumption effects of soft drink tax
o Estimated price elasticity: -1.2 (Adam & Smed, 2012)
o Pre-reform tax => about 10-12% lower consumption, compared to
situation without soda tax
o Reform effect => shift 2-5% of soda consumption from sugared to
sugar-free
o Beware of cross-price effects! Higher price on soda => higher
consumption of fruit drinks and other non-alcoholic caloric beverages

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Danish soda tax abolished from July 2013!
As part of a recent policy package to enhance economic growth,
the Danish tax on soda will be abolished from July 2013 –
and the tax on beer will be reduced.
Main arguments:
Cross-border trade was harmful to business in regions close to
the Danish-German border
Cross-border shopping per se generates excessive consumption
of soda and beer
Tax elimination/reduction reduces cross-border shopping
VAT on soda and beer remains in place

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The Danish tax on saturated
fat

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Background
Increasing concern for lifestyle-related diseases during the last
couple of decades – and for raising taxes to finance the
welfare state
First prospective estimates of Danish food tax reform in 2004
(e.g. VAT-reduction on fruits and vegetables, increased tax
on sugar, fat tax, tax on saturated fats etc.)
Disease Prevention Commission (Forebyggelseskommissionen)
established in 2008, including duty to investigate food tax
reform – report delivered in 2009
General tax reform, including saturated fat tax, agreed in 2010.
Decided in the Danish parliament in March 2011.
Saturated fat tax introduced by October 1, 2011

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The Danish 2010 tax reform
Reduced income tax rates
Increased tax on
• Energy, environment …
• Tobacco (€0.40 per 20 cigarettes)
• Sugar products (€0.48 per kg added sugar)
• Ice cream (€0.11 per litre)
• Sugared soft drinks (€0.04 per litre)
• Artificially sweetened soft drinks (-€0.04 per litre)
New tax on saturated fats in foods with saturated fat
content > 2.3g/100 g

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Tax on saturated fat
Tax paid on the weight of saturated fat in foods with content of
saturated fat exceeding 2.3 g/100 g: meat, dairy products,
animal fats, edible oils and fats, margarine and spreadable,
blended fats
Drinking milk was exempt from taxation
Tax rate: DKK 16.00 (€2.15) per kg saturated fat + 25% VAT
Example: Price of one 250 g package of butter (with saturated
fat content of 52%) increases by 2.60 DKK – an increase of
about 20%

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Administration of the fat tax
Tax was levied on
• Commercial manufacturers of food for consumption within Denmark
• Importers of foods for consumption within Denmark
• Food produced for export is exempt from tax
• Small producers (turnover<€7000) are exempt from the tax
Calculation of taxation rate for meat
• Specific documented content of saturated fat
• Publicly available food composition saturated fat content data
• Standard animal-specific average saturated fat content rates

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Tax rates and price changes for meat due to fat tax
Saturated fat
content
(g/100g)
% Price
change
Standar-
dized
Real Current
price
(€/500g)
Unified
tax rate
Differen-
tiated
tax rate
Minced beef (9-15%) 5.2 9.0-15.0 4.46 3.13 2.88
Tenderloin 5.2 2.7 12.44 1.12 0.23
Minced pork (9-15%) 6.5 9.0-15.0 2.68 6.52 4.80
Cutlet 6.5 6.7 4.2 4.16 1.06
Whole chicken 2.5 3.3 2.68 2.68 1.32
Chicken breast 2.5 1.0 5.59 1.20
Source: Smed (2012)

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Tax rates and price changes for meat due to fat tax
Saturated fat
content
(g/100g)
% Price
change
Standar-
dized
Real Current
price
(€/500g)
Unified
tax rate
Differen-
tiated
tax rate
Minced beef (9-15%) 5.2 9.0-15.0 4.46 3.13 7.53
Tenderloin 5.2 2.7 12.44 1.12 0.58
Minced pork (9-15%) 6.5 9.0-15.0 2.68 6.52 12.53
Cutlet 6.5 6.7 4.2 4.16 2.62
Whole chicken 2.5 3.3 2.68 2.68 3.53
Chicken breast 2.5 1.0 5.59 1.20 0.48
Source: Smed (2012)

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Preliminary effect estimates
Fat tax was implemented by October 1, 2011
GfK Household ConsumerTracking Scandinavia weekly
household panel (cohort) data, january 2009 - december
2011
Fats and oils: butter, mixed butter, margarine and vegetable
oils
Econometric analysis:
Compare purchased quantities and prices for September,
October, November, December 2011 with corresponding
months from the previous years

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Effect of DK fat tax on consumption of fats and oils -
preliminary estimates

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Hoarding effects prior to the introduction of the tax
Oct. 1, 2011
Fat products’ share of total purchased food quantities per week, 2009-2011
2009 | 2010 | 2011

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The fat tax has given food suppliers an opportunity for
new price structures
Change in fat product prices after tax

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Abolition of the fat tax – what went wrong?
In the agreement upon the Fiscal Budget 2013, abolition of the
fat tax from January 1, 2013, was decided. The tax got 15
months
The loss of revenue was compensated by an increase in the
income tax rate
What happened?

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Political processes surrounding the fat tax
Primary objective at introduction: Reduce
income tax and upward pressure on wages
Designed by Ministry of Tax
Limited involvement of stakeholders,
authorities, experts
Weaknesses in design and low commitment
Few advocates to stand up against critique
Change of cabinet, Sept 2011
Primary objective at abolition: Protect jobs
”… Heavy administrative
burdens…”
” … Consumers shop across the
border…”
”… Loss of jobs…”
”… Tax harms the poor…”
”… Tax doesn’t improve health…”

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Political resistance
SURVEY: ”A majority of Danes reject higher food taxes”
”Do you agree or disagree with the following statement?”
Source: Interresearch for Danish Grocers’ Association (DSK), March 2012 / Børsen, April 20, 2012

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Implications and perspectives
to be drawn from the Danish
experiences so far

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Some perspectives on the Danish food taxes
Effects of the Danish taxation of sugar-sweetened beverages
and other sugar products have not been evaluated, but they
are expected to have a reducing effect on consumption
The Danish fat tax generated revenues for the government
(about 1.2 billion DKK in tax revenues is expected from the
Danish fat tax in 2012)
The fat tax seems to have affected the consumption of fats
while in place
Administrative feasibility of the tax – for authorities as well as
for the industries - was found to be a critical issue
The tax opened a ‘window of opportunity’ for retailers to
restructure their price setting, product sizing, marketing

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Lessons learned about health-motivated food tax
schemes
It is important that
… a health-motivated tax is transparent
… a tax scheme is backed by experts and professionals
… potential health benefits can be understood and
recognized by the consumers and other stakeholders
… administrative burdens to the industries are kept at a
level that can be coped with.
… economic and political challenges related to the
scheme are dealt with

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References/contact info
 Contact: ss@foi.ku.dk and jorgen@foi.ku.dk
 Simulation studies on food taxation
 Smed S., J.D. Jensen and S. Denver (2007): Socio-economic characteristics and the effect of
taxation as a health policy instrument Food Policy. Food Policy, 32(5-6):624-639
 Jensen, J.D., and S. Smed (2007): Cost-effective design of economic instruments in nutrition
policy. International Journal of Behavioral Nutrition and Physical Activity 2007, 4(10)
 Danish academy of technical sciences (2007): Economic nutrition policy tools - useful in the
challenge to combat obesity and poor nutrition? Downloadable from
http://www.atv.dk/uploads/1227087410economicnutrition.pdf
 Holm A.L., Laursen M-B., Koch M., Jensen J.D. & Diderichsen F (2013) The health benefits of
selective taxation as an economic instrument in relation to ischaemic heart disease and nutrition-
related cancers, Public Health Nutrition, doi: 10.1017/S1368980013000153
 On the Danish fat tax
 Smed S., A. Robertson (2012): Are taxes on fatty foods having the desired health impact? BMJ
editorial, BMJ 2012;345:e6885
 Smed S. (2012): Financial penalties on foods - The fat tax in Denmark. Nutrition Bulletin. Vol. 37,
no 2. pp. 142-147
 Jensen J.D and S. Smed (2012): The Danish tax on saturated fat. Short run effects on
consumption and consumer prices of fats. FOI Working paper, no.14/2012
Downloadable from www.foi.dk

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jorgen@ifro.ku.dk

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Regression: Households’ annual fat tax payment
Sources:
Danish Ministry of Tax Affairs,
Statistics Denmark

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Households’ fat tax payment, relative to consumption