Jose M. Gil, Ana M. Angulo and Nadhem Mtimet

Transcription

1 The Impact of Prce Interventon Polces to Improve Detary Qualty n Span By Jose M. Gl, Ana M. Angulo and Nadhem Mtmet Presented at the 2009 Pre-Conference Workshop, August 16, 2009, Det and Obesty: Role of Prces and Polces August 2009

2 1 The Impact of Prce Interventon Polces to Improve Detary Qualty n Span José M. Gl CREDA-UPC-IRTA Parc Medterran de la Tecnologa, Edfc ESAB Av. Canal Olmpc, s/n; Castelldefels (Barcelona Span) Phone: ; Emal: chema.gl@upc.edu Ana M. Angulo Departamento de Análss Económco Unversdad de Zaragoza (Span) Nadhem Mtmet Ecole Supéreure d Agrculture de Mograne (Tunsa) Abstract The objectve of ths paper s to assess the effectveness of prce nterventon polces to modfy food demand n Span as well as the Spansh detary qualty. The methodologcal approach s based on the estmaton of a food demand system based on consumers maxmsaton of an utlty functon, whch depends on, both, food quanttes and the level of health reached by consumers, subject to two restrctons: a budget constrant and a health producton functon. From the estmated elastctes two alternatve scenaros are consdered: 1) decreasng taxes on Fruts and Vegetables; and 2) ncreasng taxes on Meat. Results ndcate that taxes (subsdes) would not affect overall detary qualty of the average consumer. However, ths polcy can be used to get addtonal publc funds to fnance educatonal campagns or complementary health polces. Key words: Detary qualty, Food demand, taxes, Span.

3 2 The Impact of Prce Interventon Polces to Improve Detary Qualty n Span 1. Introducton Durng the last few decades, food dets have transformed substantally as a result of multple factors from whch techncal change along the food chan has played a pvotal role. In fact, the modernzaton of the food chan has ncreased productvty and resulted n three major consequences: 1) ncreasng excess supply and decreasng real food prces; 2) a deep ndustralzaton of agraran socetes helpng them to accumulate captal, free up labor and provde more nutrtous and value added food; and 3) a substantal transformaton of ctzens lfestyles as a consequence of rsng ncome, urbanzaton and changes n food sector (globalzaton of the food ndustry and retalng sectors, fast-food, e-commerce, ). These changes have generated two mportant consequences on food demand. On one hand, as Gl et al. (1995) show, declnng real food prces has generated not only an ncrease of total calore ntake but also a shft towards a hgher calore densty det that s rcher n cholesterol and saturated fats (.e. hgher consumpton of meat, eggs, dary products and sugar). On the other hand, the ncreasng sedentarness has made calores expendtures to declne. As a result of both trends, food dets n most developed countres are clearly mbalanced havng generated a rapd ncrease of the prevalence of overweght, obesty and related non-communcable dseases. The World Health Organzaton (WHO) estmates that worldwde there are 1 bllon overweght adults and, at least, 30% of them are obese (WHO, 2005). Although the WHO characterzes overweght and obesty as dseases, t s also well known that both (together wth smokng) are key determnants n the ncdence of the most mportant contemporary chronc dseases, such as cancer, cardovascular problems, certan types of dabetes, etc. Obesty accounts for 7% of total health care costs (WHO, 2005) wthout consderng other economc externaltes, whch, on the other hand, are dffcult to estmate.

4 3 Wthn the EU, Lu et al. (2002) estmated that, n the Unted Kngdom, costs assocated wth coronary heart dseases were 7.06 bllon pounds, where 24.5% corresponded to health care costs, 41.2% to nformal treatments and the rest to productvty losses. However, calculatons dd not nclude how much was due to obesty. In Germany, Kursched and Lauterbach (1998) estmated that ndrect costs assocated to obesty represented around 4% of total health care costs. In Span, the Spansh Socety for the Study of Obesty (SEEDO) estmates that drect and ndrect obesty costs account for 7% of total health care costs (2.5 bllon Euros/year). Whle there exsts n Europe an ncreasng concern about rsks assocated wth mbalanced dets and obesty as well as ther economc mpacts, the polcy response has been developed rather slowly and does not seem to have had a sgnfcant mpact on market trends (Mazzocch and Trall, 2005). Although there s not currently a common health polcy, there are some broad gudelnes and acton plans that can gude natonal nterventons. As a result, the pcture s dfferent among EU countres. In general terms, northern countres have mplemented more effectve polces than southern countres, who have underestmated the problem by clamng the advantages of ther tradtonal Medterranean det. Nutrton polces n the past have concentrated on nformaton and educaton strateges, whch have been shown not to be very effectve n rebalancng dets durng the last decade. The objectves of health polces are often at odds wth those from more consoldated food polces, such as agrcultural and trade polces. Moreover, food habts are the result of a complex mxture of dfferent factors (soco-economc and envronmental factors, lfestyles, culture, tradtons, ), whch, n many cases, are very dffcult to change wth non-coercve measures. In the Unted States, some researches and health polcy advocates have started to demand more prescrptve measures to tackle food dets (Kuchler et al., 2005). Among these measures, prce nterventon polces are becomng very popular. Prce nterventons consst of taxng unhealthy products and subsdzng healthy products n order to drectly nfluence consumers det and health or, f they are not effectve, at least, to fnance nformaton programs to help consumers to choose a healther det. The objectve of ths paper s to assess the effectveness of prce nterventon polces amed at modfyng food demand and det qualty n Span. To acheve ths objectve, prce elastctes are crucal to forecast potental mpacts of changng prces.

5 4 A food demand system s specfed and estmated assumng that consumers maxmze a utlty functon, whch depends on food quanttes and the level of health reached by consumers, whch s subject to two restrctons: the tradtonal budget constrant and a health producton functon. Household data from the Spansh Quarterly Household Natonal Expendture Survey are used to tackle ths ssue. Ths paper s structured as follows. In the next secton, some trends on food demand n Span and the prevalence of obesty are outlned. An overvew of publc polces addressed to reduce obesty and mprove det qualty s provded n Secton 3. Secton 4 deals wth the methodology used n ths paper. The descrpton of data used s presented n Secton 5. Estmated parameters and calculated elastctes are shown n Secton 6. The assessment of prce nterventon polces s carred out n Secton 7. The paper ends wth some concludng remarks. 2. Food consumpton n Span and the prevalence of obesty The structure of Spansh food demand has stablzed n the last few years. Accordng to data from the Quarterly Household Natonal Expendture Survey for 2003, the average budget shares of dfferent food groups n relaton to total food expendture were: cereals and potatoes, 16.2%; meat, 24.5%; mlk and dary products, 13.8%; fruts and vegetables, 20.4%; fsh, 13.9%.; and, fnally, vegetable ols, 11.13%. However, mportant famly dfferences appear n relaton to certan household characterstcs, as shown n Table 1. In larger towns, households spend a relatve hgher percentage n fsh, fruts and vegetables and meat, whle the consumpton of cereals and potatoes, dary products and vegetable ols are lower. In relaton to the educaton level, t s nterestng to note that as the level of educaton ncreases, the relatve mportance of the consumpton of cereals and potatoes and vegetable ols dmnshes, although more sgnfcantly n the frst case. On the opposte sde, hgher educaton levels are assocated wth hgher budget shares allocated to meat, fsh and fruts and vegetables. In general, households wth chldren have a hgher budget share for cereals and potatoes, meat and dary products. On the other hand, the percentage allocated to vegetable ols and fruts and vegetables s hgher n one-person households and n households wthout chldren. In relaton to the age of the head of the household, there

6 5 exsts a postve relatonshp between age and the consumpton of fruts and vegetables and vegetable ols, whle younger households are assocated wth hgher budget shares allocated to cereals and potatoes, meat and fsh. Fnally, no bg dfferences are found when accountng for the sex of the head of the household. The extent of the obesty problem n Span s convergng to that n most EU countres (Table 2). Around 13.4% of males and 15.75% of females are obese (Body Mass Index (BMI) above 30). Surprsngly, the problem s more severe n females. On the other hand, the overweght populaton n Span (BMI between 25 and 30) ncludes 44% of males and 32% of females. The average obesty rate covers sgnfcant dfferences among socodemographc groupngs of the populaton. For example, Aranceta et al. (2003) show that there exsts a drect relatonshp between age and the prevalence of obesty, reachng 21.6% and 33.9% for males and females over 65 years old, respectvely. Also sgnfcant dfferences have been found takng nto account geographcal locaton, urbanzaton, and ncome and educaton levels. The prevalence of obesty s more mportant n Galca, Andaluca and the Canary Islands, n rural areas and n groups wth lower educaton and ncome levels. Although fgures for adults are not very dfferent to that for other countres, the key concern seems to be the potental rse n obesty whch can be forecasted by evaluatng the rates of overweght chldren n Span. The prevalence of obesty among the populaton between 2 and 24 years old s 13.9%, whle the overweght rate reaches 26.3%. Moreover, the prevalence of obesty n chldren between 6 and 12 years old s 16.1%, whch s one of the hghest among EU countres. 3. Publc polces to mprove det qualty and reduce obesty The ncreasng obesty problem has now become a publc health problem that deserves attenton from publc authortes n order to mplement polcy measures to have an mpact on food consumpton and the qualty of det. Market nterventons are tradtonally justfed to correct for market falures (.e. externatltes assocated to ncreasng publc health costs,...). A recent body of lterature also justfes market nterventon from the noton of paternalsm snce ndvduals may have potental selfcontrol problems or tme nconsstent preferences underlyng the consumpton of

7 6 unhealthy food, thus not behavng as fully ratonal (O Donoghue and Rabn, 1999; Cutler et al., 2003; and Aronsson and Thunström, 2005). The underlyng dea s that ndvduals, at any tme, when solvng potental tradeoffs between present and future utlty, may apply a hgher utlty dscount rate than that they would apply to smlar tradeoffs n the future. In other words, ndvduals derve mmedate gratfcaton from food consumpton wthout recognzng the health costs of over-consumpton that takes place only n the future. Fnally, Cawley (2003) also justfes market nterventon based on nformaton asymmetry: ndvduals have a lack of knowledge about the potental consequences assocated wth certan dets. In spte of the need for market nterventon, the role of publc authortes n Span to manage obesty has been so far restrcted to nformaton campagns whch have not been very effectve n reducng the hgh prevalence of obesty among chldren. However, n the last Spansh legslature, Spansh health authortes demonstrated a wllngness to get nvolved by settng explct polces to address the problems and causes of obesty. Table 3 shows a wde range of potental nstruments avalable to publc authortes (Mazzocch and Trall, 2005). Polces are classfed n four groups accordng to ther expected mpacts on economc agents: 1) polces addressed to change consumers preferences; 2) those amed at a better-nformed choce wthout affectng consumers preferences; 3) market polces addressed to affect actual choces; and 4) supply-sde polces affectng avalablty. As can be observed the number of potental alternatves s very large and, at the same tme, they are very heterogeneous n nature, whch, on the other hand, merely reflects the complexty of the problem and the number of factors nfluencng detary habts and ntakes (ndvduals socoeconomc characterstcs and lfestyles). Moreover, t s also true that food polces addressed to the emergng nutrton challenges need to coexst wth agrcultural and trade polces, whch have tradtonally regulated the agrofood actvtes wth very dfferent objectves. Such coexstence may reduce the effectveness and complcate the mplementaton of some of the nstruments shown n Table 3. Snce any sngle nstrument can not be effectve by ts own, Nestlé (2002) suggest fve smultaneous changes n publc polces ntended to mprove the qualty of det and to reduce obesty: educaton reforms, food labelng and advertsng reforms, health care and tranng requrements, transportaton and urban facltes requrements,

8 7 and tax polcy reforms (ncreasng taxes for unhealthy foods and subsdes for healthy ones,...). Among these suggested changes, the analyss of the potental mpacts of the last one deserves specal attenton wthn emprcal lterature (Marshall, 2000; Battle and Brownell, 1996; Kuchler et al., 2005; Schroeter et al., 2005; Smed and Denver, 2005; among other) and s also the man objectve of ths paper. In general terms, tax reforms can adopt the followng two formats: Measures addressed to change the relatve prce of foods, makng healthy foods cheaper relatvely to unhealthy ones. There exst two ways of dong ths. The frst one s reducng the Value Added Tax on some healthy products and/or ncreasng on unhealthy ones. The second s modfyng taxes for healthy/unhealthy components of food (saturated fat, cholesterol, fbers, etc.). Among the two alternatves, as food tems typcally contan a group of dfferent nutrents, a tax on a food tem rather than on a nutrtonal component could generate undesred sde-effects. For nstance, Guo et al. (1999) concluded that ncreasng pork prces n Chna would reduce the energy calore ntake of rcher consumers but would also reduce the proten ntake by the poor. However, Jacobson and Brownell (2000) and Schmdhuber (2004) conclude that n practce such a tax/subsdy would have to be mposed on foods tems rather than on nutrents as the second one would be poltcally unfeasble as legslators would prefer to establsh tax rates for entre classes of foods rather than taxng an attrbute. A tax on excess body weght (a tax on obese people) based on the socal costs that obese people cause to socety. Although t can be thought to be a poltcally ncorrect measure, t s also true that we have many stuatons n real lfe n whch ths knd of dsncentves already exsts. In USA, health and car nsurances have started to offer dscounts on premums for clents wth normal body weghts (Schmdhuber, 2004) or fast food chans are ntroducng mplct taxes on overweght people by rejectng obese job applcants (Greenhouse, 2003). Even though there s a consensus that a tax on excess body weght would be more effectve than prce nterventons, t may not be wthout ptfalls. Frst, ths measure, to be effectve, needs a substantal reducton of the nformaton asymmetry

9 8 between consumers and the food ndustry. Second, a reducton n the Body Mass Index, may not lead drectly to a reducton of health problems as the way ndvdual have chose to lose weght can generate other health sde-effects. Fnally, and probably the most mportant, these type of measures stll are polemc and generate a lot of socal controversy. Manly for ths reason, n ths paper we are gong to concentrate on the potental mpacts of prce nterventons on food consumpton and the qualty of the det. Prce nterventons could be at the producer or at the consumer levels. In ths paper we focus on nterventons at the consumer level for two man reasons. Frst, nterventons at the producer level have been subject to controversal polcy debates (nterventon prce systems, export subsdes and border protecton). In ths context any nterventon for the sake of possble health benefts would generate hard negotaton wthn the World Trade Organzaton. Second, nterventons at producer level requre perfect prce transmsson along the food chan, whch s the excepton (see, for nstance, Meyer and von Cramon-Taubadel, 2004, for a lterature revew on ths topc). The next sectons wll focus on the extent prce nterventons, at the consumer level, are effectve n mprovng the qualty of det and modfyng food demand to healther products n Span. 4. Methodology 4.1. Theoretcal framework As mentoned n the ntroducton, the man objectve of ths paper s to assess the potental mpact of prce nterventons on a better balanced det n Span. Ths objectve s acheved through smulatons from estmated prce elastctes. Thus, as a frst step, we have specfed and estmated a food demand system. To obtan such a system we have consdered that consumers maxmze a utlty functon whch depends on both food quanttes and the level of health reached by consumers: Max U = U q, q,..., q, ) (1) ( 1 2 n H where q represents the quantty consumed of the th good and H s the level of health reached by consumers, subject to two restrctons: H = h(i, u) (2)

10 9 n m = q p = 1 (3) Expresson (3) s the tradtonal budget restrcton where m represents food expendture and p the prce of the th good. Expresson (2) denotes the health producton functon dependng on several nputs where I s a measure of the qualty of the det and u ncludes non-observable determnants of health 1. Furthermore, the qualty of det (I) can be consdered constraned ( producton technology ) and expressed as: I = WP q, where WP s a matrx of weghts that represents the mechansm to obtan the qualty of det from quanttes consumed. Maxmzng (1) subject to (2) and (3) generates, on one hand, the food demand equatons: q = g (m, p1, p2,..., pn, I, u) = 1,..,n (4) and, on the other, the demand for health: H = f m, p, p,..., p, I, F, ) (5) ( 1 2 n u However, for the purposes of ths paper, we wll concentrate on food demand equatons expressed n (4) Functonal form In ths paper, we have chosen a Generalzed Addlog Demand System (GADS), ntally proposed by Bewley (1986) and Bewley and Young (1987) based on Thel (1969). The GADS model assumes that budget shares (w ) have the followng structure: g(x, β ) e w = = 1,..., n (6) n g(x, βj e ) j= 1 where: g(x, β ) = α + β 0 n ln m + β j= 1 j ln p j + γ ln I and x s the vector of explanatory varables: food expendture (m), prces (p j ) and health nputs (I); β are parameters to estmate; and n s the number of goods. 1 H can also depend on other factors non-drectly related to food as medcal care, physcal, exercse, etc. However, as data sources used n ths paper do not nclude nformaton on these varables, we have excluded them n the theoretcal framework to make the emprcal secton consstent wth ths one.

11 10 Model (6) s dffcult to estmate, however, by takng logs and makng some transformatons (Bewley and Young, 1987) we get the followng lnear verson of the GADS model, whch allows us to more easly estmate the parameters and test and/or mpose theoretcal restrctons (homogenety, symmetry and negatvty): q m n w ln( ) = a + θ ln( ) + sj ln p j + k W P j= 1 ln I (7) where: θ = w η (beng η the ncome elastcty) and sj = w εj (beng ε j the compensated prce elastcty) are the margnal budget shares and the Slutsky parameters, respectvely; k = σ (beng σ the health nput elastcty) and ln P s the lnearzed w Stone prce ndex. In (7) parameters θ and s j are assumed to be constant. However, there s no strong a pror reason for such restrctons. An alternatve parameterzaton s based on Workng s Engel model: w = c b ln m (8) + from whch t s possble to derve the margnal budget shares, θ, by multplyng (8) by m and then dfferentatng wth respect to m: ( p q ) m = + c + b (1 ln m) or θ = w +b (9) Expresson (9) mples that, under the Workng s model, the th margnal budget share dffers from the correspondng budget share by b. As the budget share s not constant wth respect to food expendture, nether s the assocate margnal budget share. Substtutng (9) n (7), and acknowledgng that ln Q = ln m ln P + ln w, we get the GADS-CBS model for the purpose of ths paper: q m n w ln( ) = a + b ln( ) + sj ln p j + k Q P j= 1 ln I (10) The soco-economc characterstcs of households have also been ntroduced n (10) by modfyng the ntercepts, as proposed by Pollack and Wales (1981). Fnally, from estmated parameters, the followng elastctes wll be calculated: Expendture elastcty: b η = 1+ w

12 11 Compensated prce elastctes: ε j sj = w Uncompensated prce elastctes: µ j = ε j w jη Elastcty of the qualty of the det: k σ = w 5. Data Data come from the Spansh Quarterly Household Natonal Expendture Survey, whch provdes quarterly nformaton on the expendture and quantty of varous classes of food products consumed by a stratfed random sample of 3,200 households. Each quarter, nformaton s collected from every selected household durng one week. Theoretcally, one household stays n the survey for eght quarters. However, n practce, only a few households stay n the sample for the maxmum perod. So, for ths study, we have only ncluded those households that partcpated along the year n queston, Moreover, we have elmnated those households wth no expendtures n all good categores or where food expendtures are lower than 2% of total expendtures. Ths strategy has led us to a fnal sample of 1,657 households, where consumpton s aggregated over the four quarters. The followng food groups 2 are consdered: 1) cereals and potatoes; 2) meat; 3) dary products; 4) fruts and vegetables; 5) fsh; and 6) vegetable ols. Snce prces are not explctly recorded, unt values for each group are calculated by dvdng expendtures by quanttes. These values may reflect not only spatal varatons caused by supply shocks (.e., transportaton costs, cost of nformaton, seasonal varatons, etc.) but also dfferences n qualty whch can be attrbuted to brand loyalty or marketng servces among other factors. Then, unt values have been adjusted followng Gao et al. (1997). The qualty-adjusted prce s defned as the dfference 2 Data on expendture was avalable for all tems wthn each food group or category. However, data on quanttes was not avalable for all tems. Wthn each group we were able to account for quanttes that correspond to the followng percentage of total expendture for that group: cereals and potatoes, 58.63%; meat, 58.61%; fsh, 60.52%; dary products, 72.56%; vegetable ols, 83.09%; and fruts and vegetables, 76.24%.

13 12 between the unt prce and the expected prce, gven ts specfc qualty-related characterstcs 3. The expected prce s calculated by the followng hedonc prce functon: U j = + + ϑ j ιs V js ε j s where U j s the unt value and V js are the varables affectng the consumer choce of qualtes, such as ncome and household characterstcs, whch are used as proxes for unobservable household preferences regardng the qualty of the good. Regonal and seasonal dummy varables are not ncluded because although they reflect systematc supply varatons, ther average effects are reflected by the ntercept ϑ k. Puttng all ths together, the qualty-adjusted prce s then: p = U ˆ j - ι s V js = ϑ j + ε j j s The survey also gathers nformaton on a lmted number of household characterstcs ncludng the level of educaton and man actvty of the head of the household, household ncome, household sze, age and sex of famly members and town sze, among others. In relaton to vector I, the survey does not nclude nformaton on health factors not drectly related to food. Thus, we have restrcted our analyss to the qualty of det. 6. Emprcal results 6.1. The Qualty of Det Index In ths paper, we have assumed that a det wll be of hgher qualty f t contrbutes to strength the consumer s health status. In ths context, we have measured the qualty of det as a weghted average of devatons between the consumers overall ntake and the WHO and experts recommendatons for fve nutrents: 1) carbohydrates; 2) lpds; 3) protens; 4) fber; and 5) cholesterol, followng a smlar approach than n Varyam et al. (1998). As the avalable data set only provdes nformaton at the 3 In those cases where unt values do not exst, as when households do not buy the specfc product, these values have been estmated usng a regresson on the observed unt values of households whch actually buy the product on dummy varables reflectng household characterstcs such as regon, season and ncome. The estmated parameters are then used to predct unt values for a specfc household.

14 13 household level, per capta ntake has been obtaned by dvdng total household ntake by the number of adults equvalent. The ntake of carbohydrates, lpds and protens are measured as a percentage of total energy ntake. The other two are measured n grams and mllgrams, respectvely. Two man sources of recommendatons have been used. Frst, we have consdered the FAO/WHO/UNU(2004) recommendatons, whch provde desrable ntake levels for the dfferent nutrents consdered n ths paper. Second, we have used the recommendatons made by nutrtonsts who defne lower and upper ntake threshold levels, outsde of whch health problems can be serous. As we are dealng wth the Spansh populaton, we have chosen for ths purpose a study made by a group of Spansh nutrtonsts (Matax, 2002). Table 4 shows the recommended values from both sources. Such recommendatons lead to constructng the Index whch has been bult for each nutrent and for each household: 20 ponts are assgned f per capta (adult equvalent) ntake les between the WHO recommended values 0 ponts are assgned t per capta ntake s out of the thresholds suggested by nutrtonsts Proportonal values between 0 and 20 are assgned dependng on how far /close s per capta nutrent ntake n relaton to WHO recommendatons and nutrtonst thresholds Fnally, values for the fve nutrents are aggregated. As can be observed, the Det Qualty Index (DQI) les between 0 and 100. Hgher values ndcate a better det. Table 5 shows the contrbuton of each nutrent to the ndex and aggregated values for dfferent soco-economc groupngs. For Span, the DQI s In general terms, the Spansh det s adequate n terms of cholesterol (16.1 out of 20) and, to a certan extent, protens (13.0). However, t s clearly mbalanced n terms of carbohydrates (4.6), lpds (5.6) and fber (7.4). In relaton to soco-economc characterstcs, t s qute nterestng to note that the stuaton n Span dffers from that exstng n other EU countres. In Span, people lvng n smaller towns (rural areas), wth lower educaton levels and wth larger famles show a better det qualty. The tradtonal Medterranean det seems to persst n rural areas and lower welfare households whle more developed socetes have converged towards the more unhealthy northern European countres dets.

15 Model estmaton The food demand system has been estmated assumng endogenety of the Det Qualty Index. As a frst step, alternatve specfcatons have been tested for the DQI. We have not found any evdence of non-lneartes between the Det Qualty Index and food expendtures. Then, the Box-Cox transformaton has been used to choose among alternatve functonal forms. Results ndcated that the sem-log functonal form better ftted the data. As a second step, the food demand system has been estmated by Three- Stage Least Squares usng the estmated ndex as the nstrumental varable. The fnal estmated equatons are gven by 4 : n 3 3 I = χ + b ln m+ s ln p + φg+ ω H + ζ J + ν L+ ϖ M + υ N + ρ R 0 j j r r s s j= 1 r= 1 s= 1 q m w ln( ) a b ln( ) s ln p k ln I n = + + j j + Q P j= ' ' ' ' ' ' ' G H J L M r Nr s Rs r= 1 s= 1 + φ + ω + ζ + ν + ϖ + υ + ρ (11) where: G s the percentage of chldren wthn the household; H, s the percentage of teenagers; J, s the percentage of adults; L, s the percentage of males; M, ndcates the household sze; N r, are dummy varables whch take the value 1 f the head of the household has a level of educaton r, and 0, n other case (r= prmary, secondary and unversty) 5 ;, are dummy varables whch take the value 1 f town sze s s, and 0, n R s other case (s= 10,001-50,000, 50, ,000, > 500,000 nhabtants) 6 ; and the rest of the varables have been already defned Elastctes Several types of elastctes have been calculated from the estmated model. Table 6 shows the elastctes of the Det Qualty Index wth respect to food expendture and prces. As can be observed, the qualty of det s gettng worse as food expendtures 4 Estmated parameters are not ncluded due to space lmtatons. Moreover, n the demand system theoretcal restrctons have been mposed as results from tests ndcated that the null could not be rejected 5 The reference category s wthout studes 6 The reference category s towns wth less than 10,000 nhabtants.

16 15 as well as cereal and potatoes and dary prces ncrease. On the contrary, an ncrease of vegetable ol prces mproves det qualty. Food expendture and uncompensated own-prce elastctes, calculated at mean values, are shown n Table 7 7. All expendture elastctes are postve and sgnfcant at the 5% level of sgnfcance. Meat and dary products can be consdered as luxury goods n relaton to total food expendtures (when total food expendtures ncrease, the allocaton to such products ncrease more than proportonal). Elastctes for cereals and potatoes and fruts and vegetables are close to unty (0.97 and 0.99, respectvely). The obtaned results are qute consstent wth expectatons. Perhaps, n the case of fsh t would be expected hgher values because those products used to be hgh-prced. However, nowadays the market share of farm fsh has substantally ncreased pushng average prces down. All uncompensated own-prce elastctes are negatve and sgnfcant. In general terms, the demand for the dfferent products are qute nelastc, except n the case of mlk and dary products. Fnally, food demand elastctes wth respect to the qualty of the det are also shown n Table 7. As can be observed, a postve (negatve) varaton of the Det Qualty Index ncreases (decreases) the demand for cereals and potatoes, and mlk and dary products whle decreases (ncreases) the demand for meat, fsh and vegetable ols. These results are qute consstent wth prevous expectatons as cereals and potatoes are man provders of carbohydrates and fber, whle meat and vegetable ols are man supplers of lpds. The demand for fruts and vegetables s not sgnfcantly affected by changes n the Det Qualty Index. 7. Effects of prce nterventons As mentoned n Secton 3, we have consdered changes n prces at the consumer level by modfyng ndrect taxes (Value Added Tax (VAT)). In Span, VAT s set at 16% for most products. However, necesstes lke bread, mlk, eggs, fruts and vegetables and potatoes are taxed wth 4%, whle for the rest of food products the VAT s 7%. Two scenaros have been smulated: Decreasng taxes on Fruts and Vegetables (from 4% to 1%) 7 Compensated prce elastctes are not shown due to space lmtatons but they are avalable from authors upon request.

17 16 Increasng taxes on Meat (from 7% to 16%) In both scenaros, we have assumed that the food supply s compettve and that there are not specalzed nputs (.e. margnal and average costs reman constant). Under these assumptons, any prce change wll be fully passed forward to consumers (Kuchler et al, 2005). Own- and cross-prce elastctes have been used to make the smulatons assumng that total food expendtures reman constant. We wll focus our analyss to the mpact on: 1) Quanttes consumed; 2) the Det Qualty Index; and 3) the Publc Budget. Total expendture has been assumed to reman constant. Effects on quanttes consumed and on the publc budget of both scenaros are shown n Table 8. As can be observed, subsdng fruts and vegetables generates a double effect. On one hand, there s a postve effect on ther demand. On the other, the real ncome rses (ncome effect), ncreasng the demand for meat and decreasng the demand for the rest of the products. In any case, ncome effects are qute nelastc. Smlar effects are observed for the second scenaro. In ths case, the demand for meat s reduced by 7%, whle the negatve ncome effect generates an nelastc and negatve change n the demand for most of the products wth the excepton of mlk and dary products and vegetable ols. In global terms, prce nterventons seem to have a relatvely small effect on quanttes consumed as a consequence of the nelastc nature of food demand. Moreover, t can generate adverse effects n food consumpton (see also, Schmdhuber, 2004). As an example, Table 8 shows that subsdng fruts and vegetables can margnally curb meat consumpton. However, accordng to economc theory, prce nterventons have been shown to be effectve n generatng addtonal publc funds to fnance alternatve or complementary educatonal campagns 8, as also suggested by Nestlé (2002). In fact, an ncreased of 9% of meat prces generates a 27.54% ncrease of publc funds. Our fnal queston concerns how the qualty of det s modfed after prce nterventons. The answer s shown n Table 9 for dfferent socoeconomc groups. As demonstrated, the effectveness of prce nterventons on the qualty of det s null. In 8 In 2005, the Spansh Mnstry of health and Consumpton has mplemented a new polcy nstrument, named NAOS (Nutrton, physcal Actvty and ObeSty reducton) specfcally addressed to prevent obesty, mprove the det qualty and promote physcal actvtes. Several measures have been desgned at household, frm, santary and educatonal levels as well as the creaton of the Spansh Observatory of Obesty.

18 17 fact, under the two scenaros the mpact s slghtly negatve. Among the dfferent clusters, t seems that polcy measures are more effectve for older people wth lower educatonal levels. In most European countres these are the consumers groups towards whch health polces are usually addressed. However, as mentoned n Secton 6, these are precsely the consumers wth a better balanced det n Span. 8. Concludng remarks Nowadays, n developed as well as n an ncreasng number of developng countres, food dets have become clearly unbalanced havng generated a rapd ncrease of the prevalence of overweght, obesty and related non-communcable dseases. Nutrton polces n the past have concentrated on nformaton and educaton strateges, whch have been proved not to be very effectve. Some researchers and heath polcy advocates have started to demand more prescrptve measures to mprove food dets. One of the most popular proposals to come to grps wth the ncreasng obesty problems and assocated economc costs and socal externaltes has been the mplementaton of taxes (subsdes) on energy-rch (poor) foodstuffs. Ths paper has tred to assess the mplcatons of prce nterventons on food demand, the qualty of the det and the publc budget n Span. The methodologcal approach s based on the estmaton of a food demand system based on consumers maxmsaton of a utlty functon, whch depends on both food quanttes and the level of health reached by consumers, subject to two restrctons: a budget constrant and a health producton functon. From the estmated prce elastctes, the paper smulates the effects of reducng the VAT on healthy foodstuffs (.e. fruts and vegetables) as well as ncreasng t on unhealthy ones (.e. meat). Results suggest a number of ponts. The frst one s that, although the Spansh det s clearly unbalanced, t seems that t s of hgher qualty for rural and lowereducaton households, just the opposte of what usually s happenng n Northern and Central European countres. Rural famles are closer to the tradtonal Medterranean det, whle wealther famles seem to have been convergng, at least to a certan extent, towards energy-rch dets exstng n hgher ncome European countres. Ths fact should take nto account when mplementng general health polces at the EU level. In

19 18 any case, we have to note that t s not possble, at least wth the data avalable, to drectly relate qualty of det and obesty. A second nterestng result s that, as the Spansh food demand s nelastc, taxes (subsdes) would brng about only a small reducton n demand, thus only provdng a small contrbuton to mprovng the Qualty of Det of the average consumer and to reduce food ntakes and, possbly, obesty. As expected, the mpact of the tax (subsdy) declnes wth the elastcty, whle tax revenues ncrease, thus provdng addtonal publc funds to fnance educatonal campagns or complementary health polces. Although modfyng ndrect taxes could be consdered unfar as they are pad ndstnctly by all ctzens, t s also true that t has been common practce to obtan addtonal revenues to fnance publc polces (.e. n many Spansh regons, governments have ncreased gasolne taxes to fnance the publc health defct). In any case, further research s needed n several drectons. Frst, t would be nterestng to analyze and compare the results from alternatve tax polces, such as taxes on unhealthy nutrents or taxes on excess weght. Second, alternatve measures of detary qualty could be explored n the future. Thrd, there s a need, at least n Span and other EU countres, to elaborate better databases to carry out deeper studes on the ssue nvestgated n ths paper. References Aranceta J, Pérez C, Serra L, Rbas L, Qules J, Vloque J, Tur J, Matax J, Llops J, Tojo R, Foz M. Prevalenca de la obesdad en España: resultados del estudo SEEDO. Medcna Clínca 2003, 120: Aronsson T, Thunström L. Optmal Paternalsm: Sn Taxes versus Health Subsdes. Contrbuted paper, 97 EAAE Semnar, Readng (UK), 21 st -22 nd Aprl Battle EK, Brownell, KD. Confrontng a rsng tde of eatng dsorders and obesty: treatment vs. preventon and polcy. Addcton Behavor 1996, 21: Bewley RA. Allocaton Models: Specfcaton, Estmaton and Applcaton. Ballnger. Cambrdge, Bewley RA, Young T. Applyng Thel s multnomal extenson of the lnear logt model to meat expendture data. Amercan Journal of Agrcultural Economcs 1987, 69: Cawley,J. Economc Framework. Paper presented at the Conference An Economc Analyss of Eatng and Physcal Actvty Behavors: Explorng Effectve Strateges to Combat Obesty by The Partnershp to Promote Healthy Eatng and Actve Lvng, Washngton, D.C., Aprl 10, 2003.

20 19 Cutler DM, Glaeser EL, Shapro JM. Why have Amercans become more obese? Journal of Economc Perspectves 2003, 17: FAO/WHO/UNU. Human energy requrements, Food and Nutrton Techncal Report Seres nº 1. Rome, Gao XM, Rchards TJ, Kagan A. A latent varable model of consumer taste determnaton and taste change for complex carbohydrates. Appled Economcs 1997, 29: Gl JM, Graca A, Pérez L. Food consumpton and economc development n the European Unon. European Revew of Agrcultural Economcs 1995, 22: Greenhouse S. Obese people are takng ther bas clams to court. New York Tmes, 3 August Guo X, Popkn BM, Mroz TA, Zha F. Food prce polcy can favorably alter macronutrent ntake n Chna. Journal of Nutrton 1999, 129: Insttuto Naconal de Estadístca. Encuesta Contnua de Presupuestos Famlares. Madrd, several years. Jacobson MF, Brownell KD. Small taxes on soft drnks and snack food to promote health. Amercan Journal of Publc Health 2000, 90: Kuchler F, Tegene A, Harrs JM. Taxng snacks foods: Manpulatng det qualty of fnancng nformaton programs? Revew of Agrcultural Economcs 2005, 27: Kursched, T., Lauterbach, K., The costs mplcatons of obesty for health care and socety. Internatonal Journal of Obesty and Related Metabolc Dsorders 1998, 22: S3- S5. Lu JL, Manadaks N, Gray A, Rayner M. The economc burden of coronary Herat dsease n the UK. Heart 2002, 88: Marshall T. Explorng a fscal food polcy: the case of det and schaemc heart dsease. Brtsh Medcne Journal 2000, 29: Matax FJ. Nutrcón y almentacón humana. Ergon DL. Majadahonda. Madrd, Mazzocch M, Trall B. Nutrton, health and economc polces n Europe. Food Economcs 2006, 2: Meyer J, Von Cramon-Taubadel S. Asymmetrc prce transmsson: a survey. Journal of Agrcultural Economcs 2004, 55: Nestlé M, Food poltcs: how the food ndustry nfluences nutrton and health. Unversty of Calforna Press, O Donoghue TO, Rabn M. Dong t Now or Later. The Amercan Economc Revew 1999, 89: Pollack RA, Wales TJ. Demographc varables n demand analyss. Econometrca 1981, 49: Schmdhuber J. The growng global obesty problem: some polcy optons to address t. The Electronc Journal of Agrcultural and Development Economcs 2004, 1(2). Schroeter C, Lusk J, Tyner W. Determnng the mpact of food prce and Income changes on obesty. Amercan Agrcultural Economcs Assocaton Annual Meetng. Provdence, Rhode Island, July 24-27, Smed S, Denver S. Taxng as economc tools n health polcy. Contrbuted paper, 97 EAAE Semnar, Readng (UK), 21 st -22 nd Aprl, 2005.

21 20 Thel H. A multnomal extenson of the lnear logt model. Internatonal Economc Revew 1969, 10: Varyam J, Blaylocl J, Smallwood D, Basots P. USDA s healthy eatng ndex and nutrton nformaton. Techncal Bulletn Number 1866, Unted States Department of Agrcultural (USDA), WHO, [14 October 2005]

22 21 Table 1. Structure of food expendture n Span by soco-economc groups (2003) Cereals and potatoes Meat Dary Fruts and vegetables Fsh Vegetable ols Average 16,2 24,5 13,8 20,4 13,9 11,3 Town sze (nhabtants) < 10,000 18,1 24,0 14,2 19,1 12,6 12,0 10,001-50,000 17,8 24,1 13,8 20,4 12,6 11,3 50, ,000 15,3 24,9 13,7 20,1 14,8 11,2 > 500,000 11,5 25,2 12,9 23,8 16,3 10,3 Educaton level Wthout 19,3 22,6 14,0 20,1 11,8 12,2 Prmary school 16,0 24,5 14,1 20,4 13,8 11,2 Secondary school 15,4 25,5 13,3 19,8 15,1 10,9 Unversty 10,6 26,5 13,1 22,4 16,6 10,9 Household type 1 adult younger than 65 15,6 24,2 11,2 19,8 15,2 14,0 1 adult older than 65 14,8 19,0 14,5 23,9 13,8 14,0 Couple wthout chldren 14,7 23,4 12,5 22,1 15,1 12,2 Couple wth 1 chld 15,4 24,8 14,2 20,0 15,8 9,8 Couple wth 2 chldren 17,5 24,3 15,7 18,7 13,9 10,0 Couple wth more than 2 chld. 21,9 27,4 17,9 13,9 10,0 8,9 1 Adult wth chldren 16,8 22,1 15,3 19,2 17,9 8,6 Other 16,5 25,5 13,8 19,9 13,3 11,0 Age of the head of the household (years) < 25 18,2 27,7 15,1 13,0 16,1 9, ,8 25,4 14,3 18,7 14,6 10, ,4 25,2 13,4 20,2 13,6 11,2 > 65 15,0 21,9 13,8 22,9 13,5 12,9 Sex Of the head of the household Male 16,4 25,0 13,6 20,0 13,9 11,1 Female 15,0 22,5 14,5 21,7 14,0 12,2 Household sze (number of persons) One 15,0 20,7 13,4 22,6 14,2 14,0 Two 14,5 23,3 12,9 22,1 14,8 12,4 Three 15,5 24,7 13,5 21,2 14,5 10,7 Tour 16,8 26,0 14,0 19,1 13,4 10,7 Fve 18,1 26,6 15,4 16,9 12,7 10,2 More than fve 20,7 24,5 15,2 18,1 12,0 9,6 Source: Encuesta Contnua de Presupuestos Famlares (INE) and own elaboraton

23 22 Table 2. The prevalence of obesty n Span Body Mass Index Males Females < 18,5 0,70 1,73 18,5 24,9 41,83 50, ,9 23,38 15, ,9 21,59 16, ,9 12,39 12, ,9 0,70 2,34 > 40 0,30 0,70 Average 25,75 25,51 Source: Aranceta et al. (2003)

24 23 Table 3. Lst of potental polcy nstruments to reduce obesty Polcy nstrument Objectves Measures to change consumer utlty functon Informaton campagns Increase consumers awareness Advertsng regulaton Lmt/ban advertsng of unhealthy foods (specally targeted to chldren) Nutrtonal educaton programs n Increase awareness and knowledge of schools nutrtonal requrements and health consequences Measures to allow better-nformed decsons wthout changng the utlty functon Labelng rules Promote nformed choce by sgnpostng healthy and unhealthy nutrents Nutrtonal nformaton on menus Promote nformed choce n eatng-out stuatons Regulatng health clams Defne rules and montor the use of nutrton and health clams n promotng and labelng food products Fundng epdemologcal, behavoral Improve knowledge, evaluate polcy optons and clnc research Market measures to change actual choces wthout changng the utlty functon Tax on unhealthy nutrents / products Reduce consumpton of unhealthy foods Prce subsdy for healthy nutrents / Increase consumpton of healthy foods products Measures to affect avalablty Regulate lablty of food companes Monetze negatve externaltes of producton/ sale of unhealthy foods Food standards Settng nutrtonal standards for processed food n order to lmt the access of unhealthy nutrents Facltatng access to shoppng areas for dsadvantaged categores Fortfcaton and supplementaton measures Regulate caterng n schools, hosptals, etc. Source: Mazzocch and Trall (2005) Address the ssue of store dsperson n lowncome areas by facltatng access to supermarkets for dsadvantaged categores Improve the nutrtonal balance of exstng foods Contrast the tendency of allowng snack vendng machnes or fast food n publc places n exchange for prvate fundng of actvtes

25 24 Table 4. FAO/WHO/UNU and nutrtonst recommendaton on per capta nutrent ntake FAO/WHO/UNU (2004) Matax (2002) Carbohydrates 50-55% of total energy >40% <70% Lpds 30-35% of total energy >20% <45% Protens 12-15% of total energy >10% <20% Fbre gr/day >10gr/day <40 gr/day Cholesterol < 300 mgr/day < 450 mgr/day

26 25 Table 5. The Det Qualty Index and ts components by soco-economc groups n Span Carbohydrates Lpds Protens Fbre Cholesterol Index Average Town sze (nhabtants) < 10, ,001-50, , , > 500, Educaton level Wthout Prmary school Secondary school Unversty Age of the head of the household (years) < > Sex Of the head of the household Male Female Household type 1 adult younger than adult older than Couple wthout chldren Couple wth 1 chld Couple wth 2 chldren Couple wth more than 2 chld Adult wth chldren Other Household sze (number of persons) One Two Three Tour Fve More than fve Source: Own elaboraton from the Encuesta Contnua de Presupuestos Famlares (INE)

27 26 Table 6. Elastcty of the Det Qualty Index wth respect to food expendture and prces Food expendture -0,229* Cereals and potatoes prces -0,113* Meat prces -0,038 Dary products prces -0,101* Fruts and vegetables prces -0,012 Fsh prces 0,053 Vegetable Ols prces 0,064*

28 27 Table 7. Food demand elastctes Cereals and potatoes Meat Mlk and dary Fruts and vegetables Fsh Vegetable ols Expendture 0.974* 1.052* 1.702* 0.993* 0.639* 0.525* (21.33) (23.90) (33.75) (20.79) (10.62) (8.17) Uncompensated * * * * * own prce (-26.30) (-18.25) (-34.31) (-13.38) (-3.45) (-0.96) Det qualty 1.140* * 3.715* * * (6.01) (-6.76) (17.65) (-0.23) (-5.89) (-5.53) Values n parentheses are t-ratos. 5% sgnfcant values are marked wth an *

29 28 Table 8. Impact of prce nterventon on quanttes consumed and publc budget (%) Decreasng taxes on fruts and vegetables Increasng taxes on meat Cereals and potatoes Meat Mlk and dary products Fruts and vegetable Fsh Vegetable ols Publc budget

30 29 Table 9. Impact of prce nterventons on the qualty of det by soco-economc groups Decreasng taxes on fruts and vegetables Impact on Impact on the Det quanttes Qualty Index consumed Increasng taxes on meat Impact n quanttes consumed Impact on the Det Qualty Index AVERAGE Town sze (nhabtants) < 10, ,001-50, , , > 500, Educaton level Wthout Prmary school Secondary school Unversty Age of the head of the household (years) < > Sex of the head of the household Male Female Household type 1 adult younger than adult older than Couple wthout chldren Couple wth 1 chld Couple wth 2 chldren Couple wth more than 2 chl Adult wth chldren Other Household sze (number of persons) One Two Three Four Fve More than fve