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How does taxing ultra-processed food impact sales?

May 29, 2024
in Entertainment
How does taxing ultra-processed food impact sales?
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Last year, in what is considered a world first, Colombia introduced a tax on ultra-processed food (UPF).

Enforced 1 November, the law imposes an initial tax rate of 10% on certain foods, which increases to 15% in 2024 and 20% in 2025.

Even in its infancy, it appears the tax is already having an impact on UPF sales. According to data and insights consultancy Kantar, by the end of 2023 consumption was down 5% compared to 2021 levels.

Which ultra-processed foods are subject to tax?​

The most common definition of ultra-processed food comes from Nova, which splits level of processing into four groups: from raw and minimally processed foods; to processed culinary ingredients; processed food; and ultra-processed food.

But Colombia is not taxing all ultra-processed foods according to this classification system. Instead, the government is applying the tax to ultra-processed ‘junk food’ products.

An increase in UPF consumption in Colombia is associated with increased intake of chronic disease-related nutrients. According to research​, reducing the consumption of UPF is a potentially effective way of achieving nutrition goals for the prevention of chronic disease.

These are defined as edible products formulated from food-derived substances along with additives, that contain added sugars, sodium, and saturated fats that exceed thresholds for those nutrients.

For sodium, the threshold is>​1 mg of sodium per 1 kcal and/or >​300 mg of sodium per 100 g. For free sugars, the threshold is>​10% of total energy; and the threshold for saturated fats is similarly>​10% of total energy.

junk food monticelloIn Colombia, foods that are both ultra-processed and high in fat, salt and sugar are being taxed. GettyImages/monticello

So which food categories are impacted, and not impacted, by Colombia’s UPF tax?

Those that fall under the new law include milk products with added sugar; sausages and cold cut meats; confectionery; snacks; bakery products; breakfast cereals; canned fruits and vegetables with added fat, sugar or salt; and spreads, condiments and seasonings.

Traditional Colombian foods are exempt, including the milk caramel spread dulce de leche; a salami-like sausage known as salchichon; and a sweet, dessert water called oblea.

How is the UPF tax impacting food sales?​

Although the tax was relatively recently enforced, it’s already having an impact on consumer behaviour.

From 1 November (when the tax was imposed) through to the end of December 2023, the spending on ultra-processed food increased. According to John Studerus, advanced analytics manager at Kantar’s Worldpanel division in Colombia, consumers spent 14% more during that two-month period on ‘unhealthy’ UPFs compared to the previous year.

“This contrasts with a 9% increase in disbursement for other categories that were not subject to tax.”

Spending aside, volume sales were down 5% compared to 2021, with some categories hit particularly hard. Volume was down between 5-20% for the three most affected categories: liquid tea, flavoured milk, and chocolates.

For Studerus, these findings suggest that households are already adapting their purchase decisions with expenditure in mind. “On the one hand, they are reducing the frequency of purchases of taxed products, which resulted in a decrease of 6% in one quarter.

“On the other hand, some consumers have chosen to migrate towards cheaper brands, which has already resulted in a 1% increase in their market share.”

Ultra-processed sugary drinks also in the firing line

Ultra-processed sugary drinks are also on the Colombian Government’s hitlist. From 1 November 2023, such products are subject to a new tax.

The tax rate differs according to sugar content and will increase in three phases from 2023 through to 2025. The rate will be updated for inflation from 2026 onwards.

Exempt products include plain water, 100% fruit or vegetable juices, and infant formula.

Such a tax can also have a negative impact on non-ultra-processed healthier foods. Consumers may choose to stop buying such non-taxed products, in order to be able to afford taxed products.

“These implications suggest that the industry must understand the specific dynamics of each category and anticipate the impact as the tax increases in the coming years,” believes Kantar’s Studerus.

Is ultra-processed food on government radars in Europe?​

Although no UPF taxes currently exist in Europe, ultra-processed foods are certainly on government radars.

Several countries around the world refer explicitly to ‘ultra-processed foods’ in their national dietary guidelines. These include Belgium, Brazil, Ecuador, Israel, Maldives, Peru, and Uruguay.

Belgium, for one, explicitly refers to ‘ultra-processed foods’ in its national dietary guidelines. “Most ultra-processed foods should by no means replace basic foods,” according to the Belgium Government​.

France’s food-based dietary guidelines​ recommend limiting ultra-processed foods, and Portugal wants its population to decrease the consumption of ‘unhealthy foods’ (ultra-processed foods and foods not included in its Food Guide Wheel​) by 2030.

UPF Thomas FaullWhat does ‘ultra-processed’ mean to consumers? GettyImages/Thomas Faull

The UK is another country keeping a keen eye on ultra-processed food, but government scientists remain unconvinced the quality of many UPF studies linking consumption to poor health outcomes is up to scratch​.

UPF sceptics are wary all the same. Earlier this year​, former non-executive board member of the UK’s Department for Environment, Food and Rural Affairs (Defra), Henry Dimbleby, proposed a complete advertising ban on ultra-processed foods, and called for ‘warning labels’ to be carried on UPF products.

As to what Europeans themselves think of UPF, recent research​ suggests most believe ultra-processed foods are unhealthy and damaging to the environment. At the same time, confusion persists​; what ‘ultra-processed food’ means to one consumer may not be what it means to another.

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Tags: entertainmentTaxingUltra-processed
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