Fat Chance: From the Department of Unintended Consequences

This writer is a firm believer in the need to consider the possibility of subtle feedback loops and second and third-order effects from any action that we might take in order to supposedly solve a problem. In case after case, seemingly decisive actions have, in hindsight, (and often with foresight) consequences that undermine the action.

In this example, the Danish government imposed a tax on saturated fats. As The Economist reports, the result was a comic-opera:

Farmers, retailers and shoppers whooped with joy this week when the government announced the abolition of one of its most hated taxes: a tariff on saturated fats, imposed just over a year ago. The tax was undoubtedly well-intentioned. Higher prices for unhealthy foods would reduce consumption and improve public health; obesity levels and cardiovascular disease would fall; strains on health-care budgets would be eased.

Yet in practice, the world’s first fat tax proved to be a cumbersome chore with undesirable side effects. The tax’s advocates wanted to hit things like potato crisps and hot dogs, but it was applied also to high-end fare like speciality cheeses. One gourmet cheesemaker cut his range of products when his creamy Danish blue saw a price increase of 25%.

Critics saw the tax as the worst excesses of the nanny state. Bakers fretted over the fat content of cupcakes. Pig farmers said their famous bacon would cost more than imports. Independent butchers complained that they were unfairly disadvantaged: supermarkets could keep meat prices down by spreading the tax across other goods, but small butchers sold only meat. This meant higher prices and lower sales.

Besides the bother and cost of installing new systems to calculate the extra tax, retailers were also hit by a surge in cross-border shopping. Family jaunts to Germany or Sweden to stock up on beer, fizzy drinks, butter and sugary delights became a national pastime. One study found 48% of Danes doing some cross-border shopping. A report by the tax ministry put the 2012 value of these trips at DKr10.5 billion ($1.8 billion), a 10% rise on the previous year. Another bugbear was how the tax was applied to meat. It was imposed per carcass not per cut, which meant higher prices for lean sirloin steak as well as for fatty burgers.

Not everybody is happy to see the fat tax go. The Danish medical association accused politicians of putting the economy before public health. And even though some doctors acknowledged that the tax was a blunt instrument, they insisted that one year was too short a time to be able to gauge its impact.

A study by researchers at Copenhagen University into the effect of the tax during its first three months found that sales of margarine, butter and cooking oil had fallen by 10-20% over the previous year. But these data, said sceptics said, were skewed by hoarding in the run-up to the legislation as well as by cross-border shopping in its wake. Unless and until more data emerge, the effectiveness of the world’s first fat tax will have been buried under its own controversy.