Environmental Food Taxes and Inequalities: Simulation of a Meat Tax in T Sweden

Food Policy 74 (2018) 147–153 Contents lists available at ScienceDirect Food Policy journal homepage: www.elsevier.com/locate/foodpol Environmental food taxes and inequalities: Simulation of a meat tax in T Sweden Sarah Säll Swedish University of Agricultural Sciences, Department of Economics, Ulls väg 27, 756 51 Uppsala, Sweden 1. Introduction compare tax incidences. Expenditure is argued to be a more reliable proxy for life time income, since households can borrow or use savings The environmental problems connected to livestock production to smoothen consumption (see e.g. Poterba, 1991). In Sweden, ex- were brought to the attention of a wider public when the Food and penditure possibilities also depend on government transfers for the low Agriculture Organization of the United Nations (FAO) released a report income household, which allows for higher expenditures than current on the climate effects, nutrition leakages and other environmental da- income levels. Income on the other hand, can vary much over the years. mage that arise from livestock production (Steinfeld et al., 2006). As Introducing environmental taxes on food is a topic on which there is the world struggles to deal with climate change, the large share of total little research. Environmental taxes on meat and dairy have been greenhouse gas emissions (GHG), 18%, (revised to 14.5% in Gerber analyzed in, for example, Wirsenius et al. (2011), Edjabou and Smed et al., 2013) that the FAO found came from livestock production, was (2013) and Säll and Gren (2015). Yet to the best of my knowledge the brought into focus. Since then, other studies have identified the pro- distributional effects of such a tax have not been analyzed at all, blem with meat and dairy production and the need for environmental However, Edjabou and Smed (2013) look at the change in total con- policy implementation to curb consumption of these commodities (see sumer surplus when taxes are introduced to promote a more environ- for example Cederberg et al., 2013; Säll and Gren, 2015; UNEP, 2009; mental friendly diet. Welfare effects/health effects on income groups Wirsenius et al., 2011). In addition to GHG emissions, the importance of when taxes on unhealthy food, together with subsidies on healthy food reducing nitrogen leakages from the agricultural sector, where livestock are implemented, have been studied to a small extent (see Chouinard cause large emission levels, was pointed out by e.g. Galloway et al. et al., 2007; Nordström and Thuström, 2009, 2011; Smed et al., 2007). (2008). Environmental taxes on meat as regulation method have been a For example, Nordström and Thunström (2011) use the percent change topic in the Swedish public debate since the Board of Agriculture issued in tax payment, before and after VAT-reforms, as well as dietary im- a report on sustainable meat consumption and possible mitigation ac- provements as measures of welfare changes. tions (Lööv et al., 2013). One of the suggested mitigation actions was a In order not to feel worse o ff and experience a decrease in utility tax to reduce meat consumption, which has increased rapidly since the (Huang, 1993), the welfare effects in this paper are estimated using early 1980s (for a discussion of regulation methods on meat in Sweden, Compensating Variation (CV) for multiple price changes, which mea- see i.e. Lööv et al., 2013; Säll and Gren, 2015). In 2011, the average sures the consumers’ willingness to accept (WTA) as compensation Swede consumed 26.2 kilo of beef, 37.3 kilo of pork, 18.4 kilo of when prices increase. The method is based on Hicksian demand, which poultry and 5.4 kilo of other kinds of meat, such as sheep, horse and excludes the income effects of price changes. Thus, only analyzing the wild game and since 1984 there has been an increase in meat con- effects of the direct price change and not the relative change in income sumption with almost 54% per person and per year (Swedish Board of where households feel they have less money due to a price increase. Agriculture, 2017a). Despite this large increase in consumption and the Data on meat consumption used in Säll and Gren (2015) are also used to known environmental impact from livestock production, taxes on meat calculate the Hicksian demand elasticities needed to carry out the cal- have not yet been introduced, with one of the arguments being that culations in this paper. The same paper gives estimates of tax levels that such a tax would be regressive (HD, 2013). This paper aims to answer cover part of the average environmental damage cost from production whether a tax on meat in Sweden would affect the households with the of beef, pork and chicken in Sweden. This paper calculates the dis- smallest income most. tributional effects of those specific tax levels, thus extending the ana- Environmental taxes are found to be regressive when wealth im- lysis of meat taxes in Sweden. The choice of focusing on meat only, even pacts are related to income levels (Kosonen, 2012). However, the dis- though damage costs are available on dairy products as well, is moti- tributional effects (where one does not take into account how the col- vated by the results in Wirsenius et al. (2011), Edjabou and Smed lected tax revenues are recycled into the economy) of commodity taxes (2013) and Säll and Gren (2015) where beef is found to be of most largely depend on whether current income or expenditures are used to importance to reduce GHG emissions, and beef and pork to decrease E-mail address: [email protected]. https://doi.org/10.1016/j.foodpol.2017.12.007 Received 2 June 2017; Received in revised form 14 December 2017; Accepted 17 December 2017 0306-9192/ © 2017 Elsevier Ltd. All rights reserved. S. Säll Food Policy 74 (2018) 147–153 emission levels of nitrates and phosphorus. 3. Compensating variation for multiple price changes In the case of price increases, CV is the amount consumers are 2. Choice of empirical approach. Food- and environmental taxes willing to accept as compensation to be as well off as they were before the price increased. That is, to be able to change consumption bundles When measuring distributional effects of taxes, a large number of relative to new prices and stay at the initial utility level. In the case of models are reported in the literature. One of the most common is the one price increase on one commodity, CV is fairly easy to calculate. It computable general equilibrium (CGE) model, developed from the becomes more complicated when prices simultaneously increase on multi-sectorial model of economic growth (Johansen, 1960). CGE several commodities on which there are cross price effects. models thus give a picture of the whole economy when policies are Eq. (1) shows CV as the difference in minimized expenditure func- introduced. tions before and after price p changes, for a given utility level U 0. In this Connected to food and agriculture policies, CGE is used mainly for case, U 0 is the utility level that consumers received from their initial large changes, such as new trade policies, effects in developing coun- consumption bundle. Index 1…n is for the different commodities and tries when food prices change, or when aid is received (see for example superscript (0,1) denotes before and after prices change. Arndt and Tarp, 2001; Gelan, 2007; Hertel, 1997; Laborde et al., 2011). CV=…−… E( p1 , p11 ,, p , U0 ) E ( p0 , p00 ,, p , U 0 ) In developing countries, large proportions of the population live in 1 2 nn1 2 (1) rural areas and agriculture is a main source of income. Policies that E (·) is the expenditure function, which is specified in Eq. (2) as the affect food prices and supply will therefore have a large effect of the minimized costs for demand q of commodity i that gives the utility level total economy, thus a CGE approach is suitable. U 0. The superscript H is for Hicksian demand, where only the new For a country like Sweden however, the agricultural sector accounts relative prices and the initial utility level have effect on consumption for only 0.5% of total GDP (Sweden Statistics, 2013). Households use a choices. small share of total expenditures on food and up to 2.5% of ex- n penditures are used on meat (Vingren and Kruse, 2010). This implies H 0 E =…∑ pqi i (,,,, p12 p pn U ) that a CGE model is too large for estimating the effects of a tax on one i=1 (2) type of food product. The small changes in demand caused by an en- Inserting Eq. (2) into Eq. (1) CV can be rewritten as in Eq. (3), which vironmental tax on meat (Säll and Gren, 2015), would bring con- is the change in expenditures needed to reach the initial utility. sumption back to the beginning of the 21st century, and affect the average Swede by less than 100 SEK per month (equivalent to Euro 9.43 n CV=−( p100 qH p q ) per month, in the 2009 exchange rate). It is unlikely that this small ∑ ii ii i=1 (3) decrease in demand would affect the Swedish economy to such an ex- 0 tent that would motivate a GCE approach. qi is the initial demand of commodity i and the Hicksian and Instead of an intersectorial model, a consumer welfare approach Marshallian demand are the same. The initial point is observable, while H could be used. When related to food, this is often used in health eco- the new Hicksian demand qi is not, due to subjective utility levels. To fi H nomics (e.g Chouinard et al., 2007; Nordström and Thuström, 2011; nd qi a number of steps have to be taken.

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