Sugar Policies and Added Sugars in US Diets Have Farm Policies Made Us Consume More Sweeteners?

Helen Jensen and John Beghin Iowa State University April 2007 Introduction

• Increase in dietary intake of sweeteners • Shift from sugar to other sweeteners • Factors linked to change in sweeteners – Farm policies that lead to “cheap” ingredient sweeteners – Low cost retail prices for sweetened beverages – Consumer demand for convenience, sweet tasting foods Introduction

• Public health concerns – Health effects from high share of calories – High Fructose Corn Sweetener (HFCS) contributes to high intake – Excess calorie intake linked to obesity • Public policy response – Dietary guidance – Limit access in food and school programs Issues addressed

• What is the influence of farm policy on changes in added sugar in the US diet? • Has farm policy contributed to the change in sweetener consumption and composition? • What is its contribution today? Figure 1. Per capita sweetener deliveries Sugar use per capita has fallen; corn-based sweetener use has increased. Total sweetener use peaked in 1999. HFCS use explains most of the corn-based sweetener use.

160

140

sugar 120 corn total HFCS 100

60 pounds dry weight dry pounds

66 69 72 75 78 81 84 87 90 93 96 99 02 05 19 19 19 19 19 19 19 19 19 19 19 19 20 20 Figure 2. Industrial use of sugar by product group Baked and cereal products have become the most important industrial users of sugar. Beverage products used to be but that use collapsed after 1978.

3000 baked and cereal products confectionery 2500 ice cream beverages canned bottled & frozen foods

2000

1500 1000 st 1000 st

1000

500

952 961 976 985 000 1949 1 1955 1958 1 1964 1967 1970 1973 1 1979 1982 1 1988 1991 1994 1997 2 2003 2006 Changes in final demand

• Sweetening of the World’s diet – Popkin and Nielsen, 2003 – Increase in soft-drinks and sugared fruit drinks – Caloric sweeteners as increased share of calories and carbohydrates • Rising income and urbanization • Industry influence on serving size, convenience products (vending machines) • Product attributes that favor HFCS Table 1. Intake of total added sweeteners as gram-equivalents and as percentage of total energy, 1994-96

Mean Intake of total added sweeteners

Age-gender group Gram-equivalents % of total energy 2-5 y old children 60.9 15.9 6-11 y old children 90.7 18.6 12-17 y old females 97.7 20.1 12-17 y old males 141.8 20.4 18-34 y females 81.9 17.9 18-34 y old males 115.0 16.8 35-54 y old females 63.9 14.9 35-54 y old males 92.1 14.4 55-64 y old females 51.2 12.8 55-64 y old males 70.2 12.7 65+ y old females 44.9 12.4 65+ y old males 57.5 11.6 Total population, 2 y 82.2 15.8 and older

Source: Guthrie and Morton, 2000 Table 2. Intake of added sweeteners by food category, people aged 2 yrs and older

Food category and examples of foods containing added Mean intake % of sweeteners (gram- total equiv.)* intake Grains Breakfast cereals (presweetened cereals) 3.6 4.4 Sweetened grains (cookies, cakes) 10.6 12.9 Fruit/fruit juice 1.1 1.3 Vegetables (candied sweet pot., glazed carrots) 1.1 1.3

Milk/milk products 7.1 8.6 Meat, poultry, fish, dried beans, eggs 1.7 2.1 Fats/oils 0.7 0.9 Sugars, sweets, sweetened beverages Sugars/sweets (table sugar, honey, syrups, candies, jams, gel desserts) 13.2 16.1 Soft drinks, regular 27.1 33.0 Soft drinks, low calorie 0.1 0.1 Fruitades/drinks, regular (fruit punch, fruit juice drink) 8.0 9.7 Fruitades/drinks, low calorie <0.1 <0.1 Other beverages 3.0 3.6

*Gram-equiv. is an amount of added sweeteners comparable in carbohydrate content to 1 g sucrose.

Source: Guthrie and Morton, 2000 Figure 3. Relative retail food prices Aggregate food prices have risen much faster than the price of carbonated drinks, slightly more than the price of sweets, and have slightly fallen relative to the price of baked goods

1.5

food/carbonated drinks 1.4 food/cereal and baked goods food/sweets

1.3

1.2

1.1

1 normalized price (1982-84=`)

0.9

0.8 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Food processing

• Increase in processing share and fall in farm share of final food price • Emergence of added sweeteners in food processing • Rise in use of HFCS • Less substitution in processing between HFCS and sugar • Low price responsiveness in derived and final demand – Small cost share explains lower price responsiveness (Marshall’s rules) Figure 4. Food price, farm price, and farm-retail price spread evolution (1952=100) 900

800 retail food price index

700 index of farm prices received

farm-retail price spread 600

500

400 normalized price normalized 300

200

100

0 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 Figure 5. Farm value share in retail cost for processed food products

Bakery and cereal products 60 Fresh vegetables3 Meat products Dairy products3 50

30 value share (%)

67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 121 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 000 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 202 Correlation of US sugar prices

Retail, wholesale Wholesale Time period refined refined, raw Retail, raw 1960-1981 0.97 0.99 0.94

1982-2006 0.44 0.58 0.14

1995-2006 0.60 0.65 0.01 Correlation of corn, HFCS and carbonated drinks prices

Corn, HFCS, Corn, HFCS carbonated carbonated drinks drinks 1978-2006 -0.21 -0.30 0.42

1978-1992 -0.06 0.51 0.47

1993-2006 -0.28 0.07 0.33 Agricultural policies: R&D

• Ag R&D affects commodity prices – Price (indicator of technical change) trends down for most ag commodities – Corn price has fallen faster than sugar price – Price of HFCS has fallen over time and lowered unit cost of sweeteners • Limited but ambiguous impact of agricultural subsidies (and tax) on food intake Figure 6. Falling real farm prices of corn and sugar beets (nominal farm prices deflated by the index of prices paid by farmers) Corn falls more than twice as fast as beet does.

ND beet price

2.5 IA corn price -0.0186x y = 2.0201e Expon. (IA corn price) 2 R = 0.6662 Expon. (ND beet price) 2

1.5 y = 1.2171e-0.0069x R2 = 0.4796 1 normalized price 1963=1

0.5

4 8 2 0 4 8 2 6 0 4 8 6 0 4 8 2 6 0 4 2 2 3 4 4 4 5 6 6 7 8 8 8 9 0 0 95 96 99 19 19 19 1936 19 19 19 1 19 19 19 1 1972 19 19 19 19 1 19 20 20 Figure 7. Nominal sweetener price faced by food processors. HFCS price has fallen over time and has lowered the unit cost of sweeteners 45

composite sweetener price 40 refined sugar price

HFCS price 35

20 $ per pound $ per

66 9 2 5 8 81 84 7 0 3 6 9 02 05 19 196 197 197 197 19 19 198 199 199 199 199 20 20 Agricultural policies: R&D

• Corn – R&D policies and costs of corn price policy have been borne by taxpayers – Benefits of lower corn prices mainly through lower feed costs to dairy and meat • Sugar – R&D policies and price policies have maintained higher prices relative to corn – Price policies borne by consumers US corn and sugar farm policy support

1986-88 1997-99 2002-04 US corn Producer NAC 1.64 1.32 1.26 Consumer NAC 0.88 0.86 0.82

US sugar Producer NAC 2.46 2.39 2.19 Consumer NAC 2.96 2.75 2.59 Source: OECD Food programs and policies

• Dietary Guidelines (2005) – “Choose and prepare foods and beverages with little added sugars or caloric sweeteners” • National School Lunch and Breakfast Program – calorie but no sugar restrictions • Food Stamps Program – No limits on specific foods or food types • WIC Food Program – Limit on sugar content of cereals Other countries

• Increase in intake of sweeteners worldwide – Faster increase in middle income countries • Policy vs. culture? – Similar EU policy across countries and high sugar prices – Per capita intake varies (UK vs. France) • Mexico – Rise in consumption of sweeteners – Soda tax on sweetener composition had sharp effect on processing use Table 3: Changes in sweetener consumption by major regions for 1970-75 and 1999-2001

Average 1970-75 Average 1999-2001 Percentage change 1970-75 to 1999-2001

(kilocalories per capita per day)

Total Other Total Total Other Total Total Other Total sugar1 sweeteners sweeteners2 sugar sweeteners sweeteners sugar sweeteners sweeteners

World 210.65 9.24 221.55 217.32 23.32 242.32 3.17 152.38 9.37

Developed 396.79 24.63 425.39 322.18 89.77 416.26 -18.8 264.47 -2.15

Developing 136.29 3.08 140.13 188.12 4.81 193.88 38.03 56.17 38.36

USA 464.34 100.74 569.1 328.77 328.6 662.3 -29.2 226.19 16.38

Mexico 383.91 1.82 388.02 439.82 28.8 471.4 14.56 1482.42 21.49

Source: FAOSTAT Refined sugar user price distortions in some OECD countries from agricultural policies (NAC) measured at the farm gate

4.5 Australia European Union 4 Mexico United States 3.5 OECD Japan 3

2.5

1.5 NAC (no distortion=1) (no NAC

0.5

0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Summary and lessons learned

• Historically, link between agricultural policies and sweeteners was stronger than it is today – Until 1980, R&D led to cheaper inputs and food – Today, less direct effect in sweeteners market – Relatively large fall in corn prices (relative to sugar) allowed emergence of cheaper HFCS as a substitute for sugar • Lesson – The “unintended consequences” of commodity and R&D policies on sweeteners use are small Summary and lessons learned

• Falling farm value share at the retail level makes ag input costs inexpensive relative to other input costs in food processing – Today: tenuous link between farm/commodity policy and cheap food input for sweetened goods • Lesson: Using farm policy to influence food prices or ingredient inputs is a poorly targeted policy for sweeteners Summary and lessons learned

• Rise in sweetened beverage consumption driving change in U.S. and other countries – Sweetened beverages lead increase in HFCS use • Lesson: Policies focused on consumption of foods better targeted & more effective for public health – Limited ability of taxes to change food demand – Some ability of taxes for ingredient switching • Nonlinear tax on food/beverages exceeding some threshold of added sugars – Non-price approaches more effective • Limit access to foods (vending machines) • Food program regulations • Nutrition education