Will taxes on fat take a bite out of farm returns?

Monday, December 6, 2010

With Denmark and some other European countries eying a tax on saturated fats, there are fears that profits for dairymen and swine farmers could be hurt

by NORMAN DUNN

No one can accuse agriculture of not following the ups and downs of market demands for its products. Take hogs, for example. Quite apart from increased fat trimming on slaughter lines, the swine sector has been increasing carcass lean meat content for years now. In the last seven years alone, the average lean meat proportion of carcasses in the U.K. pork industry has risen from 58.5 to almost 62 per cent.

The story is the same all over northern Europe. And the general reduction of fat now covers almost every form of meat. Naturally, this has been no hardship for the feeders themselves. After all, that last kilogram or two of fat on any animal costs an awful lot of money in terms of feed.

But profits could be negatively affected for dairymen and swine farmers with Denmark planning a tax on saturated fats in foods starting in 2011. The government excuse is that Danes are getting too fat.

The levy is planned at around the equivalent of C$4.70 per kilogram of butter and cheese, for example. Pork products such as sausages with 11 per cent fat (uncooked) would certainly attract such a tax, according to expert commentary. Under the same "encouraging healthy eating" slogan, the Danes have already slapped a 25 per cent tax on soft drinks with high sugar content and some confectionary products.

Over in London, the U.K. Parliament has been talking about a similar move since 2004.

It also claims that the increase in overweight and diabetic patients in the population is the reason. Commentators have been quick to note that expected earnings from such a levy on high-sugar drinks, fat meat products, cheese and butter (the equivalent of about C$3.3 billion per year) would pay for handling all the obese people in the land and still leave plenty over! Some of the German states want to take the same route, although a member of the Saxony parliament was quoted this summer as saying that it should be the overweight members of the population (21 per cent of German nationals at the last count) that should be taxed, and not the general public through a food tax. The feeling is, however, that this country will, sooner rather than later, also introduce surcharges on fatty food and high-calorie drinks to help out the state medical budgets, probably in the form of extra sales taxes.

No one is under any illusion about who is going to pay in the long run – for any taxes on dairy or pork products anyway. Consumption will fall and producer prices will follow suit.

In Denmark, the dairy associations reckon that prices paid to farmers for milk will certainly suffer if the new taxes go through.

As mentioned, there's certainly a good argument that the swine industry has been working effectively in reducing fat in pork. It's only a matter of months since researchers at Abertay University in Scotland produced cured salt bacon sides with 20 per cent lower fat content than standard, although this was mainly achieved by some pretty hefty hand trimming after the curing process. Maybe the Scottish government is going the right way about these things. There's no talk there of extra taxes for animal fats. Instead, research grants are being given to universities to encourage the identification of new ways of making potentially fatty foods much healthier. For instance, the equivalent of C$70,000 of government money was invested in the reduced fat bacon research.

The good news is that the scientists at Abertay are now going on to find ways of reducing fat content in other popular meat products, including pork sausages and mutton pies.  

Generally, this threat of taxes on saturated fats is already stimulating reduction of fat content in a lot of products, from ground pork and beef to yoghurt, drinking milk and the so-called "light" cheeses. And this is a trend that will definitely continue.

One silver lining perhaps is that the rising demand for biodiesel has led to pork fat being successfully converted into the automotive fuel in a number of countries now. More effort in this direction could maybe take the sting out of fat taxes as far as farmers are concerned. BF

Norman Dunn writes about European agriculture from Germany.