Sweet Truth - Is There a Market Failure in Sugar?

A government clamp-down on sugar would be damaging and unnecessary Government intervention in the market can only be justified if there is a market failure and if government action will make a positive difference. This paper looks at several potential failures in the sugar market. These include (a) consumers having imperfect information upon which to make purchasing decisions, (b) negative externalities, such as the cost of obesity-related diseases to healthcare services, and (c) consumer irrationality, including the possibility of addiction. Annual sugar consumption in Britain peaked several decades ago at over 50 kilograms per person and is now typically less than 40 kilograms per person. Britons today consume less sugar per head than they did in 1900. Patterns of obesity and diabetes have not followed patterns of sugar consumption at the population level. There is insufficient scientific evidence to label any common ingredient, including sugar, as addictive. Although ‘eating addiction’ may be a behavioural problem, it is not the result of inherently addictive substances in food. Similarly, there is insufficient evidence to suggest that a calorie from sugar is more fattening than a calorie from other foods. There is very little evidence of consumers being limited by choice in the food market. So-called ‘food deserts’ are almost non-existent. A wide range of fresh food is available within walking distance in almost all urban areas of the UK. Some food campaigners may be unhappy about the kinds of choices consumers are making, but the market is providing ‘healthy’ options for those who want to take them. There are many low-fat, low-sugar and low-calorie options available, not least in the controversial market for fizzy drinks. Nearly all soft drink companies produce low-calorie and sugar-free varieties which are as widely advertised and widely available as the most sugary brands. Mandatory reformulation of food and soft drinks by government diktat with the simple aim of reducing sugar is unnecessary and would limit choice. Dietary information and sugar content is clearly marked on nearly all food products sold in British shops. Proposals to introduce ‘traffic light’ labelling would lead to food that is generally regarded as nutritious, such as cheese, being marked as dangerous and would detract from the more important message that diets matter more than individual items. A ban on television advertising for foods that are high in fat, salt or sugar (HFSS) before 9pm would effectively confine the promotion of a huge number of products, including cheese, bacon, cakes and biscuits, to a few hours late at night. Such a ban would have a detrimental effect on programming and would restrict useful commercial information about products which are generally considered to be safe. It would be a form of censorship. Limiting the availability of fast food outlets stifles competition, favours incumbents, and distorts the market by preventing supply meeting demand. It is therefore likely to result in higher prices and poorer quality. Taxes on food and soft drinks have been shown to be ineffective in reducing obesity due to inelastic demand and substitution effects. The cost to the taxpayer far exceeds any savings that might be made and the highest burden would fall on low income consumers. Moreover, it is extremely doubtful whether obesity, however caused, places an additional burden on public finances. Pigouvian taxes on sugar, soda or fat cannot therefore be justified on economic grounds. Such taxes are typically introduced as revenue-raising measures and should be seen as stealth taxes, not health taxes. There is vanishingly little evidence that there is a market failure in the food industry. If products which are high in sugar are widely available it is because they are big sellers, not vice versa. Consumers are no more irrational or ignorant when buying food than when buying any other product, and they are able to exercise a very significant degree of free choice when making purchasing decisions. When eating sugary products, individuals are maximising their welfare as judged by the only person who can best know their preferences: themselves. Health campaigners may believe that people should be maximising their longevity rather than optimising their taste buds, but in a free society that is not their decision to make.