I've been working on fat taxes now for about two years. I've been working on them with my colleagues in economic research at the U.S. Department of Agriculture. Of course, the U.S. has obesity issues as well, and they are basically the same as ours. There are obesity issues in the U.K., in Germany, and in particular, it's interesting that this committee is looking at childhood obesity, because that seems to be where the big concern is.
What I'd like to talk about today is the style of fat tax that we might think about imposing. If there is a call for fat taxes, basically we want to tax the food that is unhealthy so that will make us healthier. In other words, reduce the amount of unhealthy food we eat and, hopefully, reduce the obesity problem.
There are a couple of ways we might do it, and the previous two speakers have talked about that. We might actually tax the nutrient content of the food, based on what we believe are the unhealthy effects of that particular nutrient. That's what we call an excise tax, and that's one possibility. But that's not the one I'm going to talk about today and that's not the one I've actually been looking at, although I have some thoughts on that one as well, if you want to discuss it further.
The one I have looked at is basically the fat tax that taxes broad commodity groups because we believe they're unhealthy. For example, taxes on junk food or fast food or a food that's unhealthy are actually the kinds of taxes I look at.
You have to understand that if we tax a food group like that--for example, fast food--within that group there are all kinds of different foods, all of which have different fat content. So if we take that broad category and tax it at the same rate, what we're doing there is taxing the broad category by the same amount, whereas within that category there are several different levels of nutrients. There could be high fat or low fat within that group.
For example, if we're thinking about taxing cookies, if you go into the store and look, you'll see there are all kinds of different cookies, and it turns out that some of those cookies that have the lowest fat content could actually be the highest priced and they could be the highest-quality cookies from the point of view of the consumer. The low-quality cookies could actually be the high-fat-content cookies.
A colleague of mine once told me that he believed that putting fat into food was a cheap way to make it tasty. Once again, if you take the cookie as a tax example, you could think that perhaps the manufacturer will add a lot of fat to the cookie and then sell it at a very cheap price. If we take all cookies and we tax them, then what we're doing is taxing what we call the composite. We're not taxing the individual food group; we're taxing the composite. We're taking a rough swipe at taxing the cookies.
And if the high-priced, high-quality cookie is indeed the lowest-fat cookie, if you tax that, consumers will search for a way to avoid the tax. One thing consumers could easily do is lower the amount of tax they're paying by switching from the low-fat, high-quality cookie into the high-fat, low-quality cookie, because its price is less.
In fact, if you look at basic food groups--and I've spent a little bit of time looking around--it turns out that the lower-fat, healthier foods within a food group tend to be the highest priced. So it could easily be true that if you tax that whole composite, the consumers could switch from the low fat to the high fat. In other words, they could eat more of the unhealthy nutrient that we're trying to tax.
I'd like to talk about this switching among the composites, but it's also true that when consumers eat, they don't really eat a particular food group. They don't just sit down and eat cookies or ice cream or something like that. What they actually do is eat a meal. So if you start taxing one particular part of the meal, you could get effects going on in the other part of the meal.
For example, suppose we think of cookies as a dessert. Well, if a cookie is a dessert, and you tax the cookies, and the consumer doesn't want to have the cookies anymore, what they might do is just substitute ice cream. Ice cream might be higher in fat than cookies. So it's not just a case of the switch within the composite that could cause problems. There could be switching among food groups making up that meal that could actually make consumers eat more unhealthy food by switching to the ones that may actually have more fat or be more unhealthy.
So there are those two kinds of issues going on. There's the problem with the composite and there's the problem of switching among the food groups, so we might actually get a result that is kind of perverse. In other words, we might actually make people more obese by increasing the prices of those food groups.
I've spent a little bit of time looking at some numbers for the U.S., where I've gone through some of these things. What I'm finding when I look at the Americans is that basically, over time, the Americans have been shifting to lower-fat foods. They've just been doing it. So people are switching, as new information comes out, to the healthier foods.
Americans also consider the fat content of food to be a low-quality characteristic. When prices fall for American consumers, they switch to the lower-fat foods, and when prices rise, they switch to the higher-fat foods. Americans also consider the fat content of food to be an inferior. In other words, as their incomes rise, they will desire that characteristic, that fat in the food, to a lesser extent.
There's also a substantial shift between what I call quantity of food, measured in kilocalories, and quality of food, measured as fat content. Consumers seem to want to keep that thing constant, so if they increase one, they tend to lower the other. So they'll say to themselves, if they want to eat that fatty food, they won't eat as many kilocalories, and that's how they try to keep things relatively stable. Also, there are substantial shifts among the food groups in that meal that could cause very strange outcomes in terms of the amount of fat content people actually consume.
Those are what my results have shown. I would be happy to answer any questions you may have, and I thank the committee for inviting me.