Incentivizing Healthy Food Consumption in Low-Income Areas

Katie Pettit

 

Obesity has joined the ranks among other health illnesses in being described as an epidemic in America. In the past 30 years, adult obesity rates have more than doubled from 15 percent (in 1976–1980) to 35.7 percent (in 2009–2010) (Levi 5). Children obesity rates have more than tripled (since 1980), and over 23 million children and adolescents are obese or overweight (Levi 5). The U.S. has an abnormally high rate of obesity, resulting in massive social costs. Scholars agree that the absence of fresh, healthy food is a significant contributor to obesity. Impoverished areas lack access to supermarkets and other healthy food retailers, and therefore experience higher obesity rates. Significant efforts must be made to increase accessibility and affordability of healthy food options to low-income families.  An earmarked sugary drink tax would enable the U.S. government to expand its Healthy Food Financing Initiative (HFFI) across all states, ultimately providing accessible and affordable food to low-income areas. The provision of healthy food combined with a tax on sugary drinks would raise the cost of the unhealthy behavior, reducing the quantity of soda demanded. Expanding the HFFI will shift out the supply of healthy food available, driving down the cost and increasing demand for fresh, nutritious food, ultimately leading to healthier eating choices and reducing levels of obesity.

Obesity harms individuals’ physical and mental health, resulting in widespread social costs. Obese individuals have a higher risk of Type II diabetes, coronary heart disease and stroke, hypertension, arthritis, and cancer  (Musingarimi 1). An unhealthy nation is prone to raised health care costs, decreased productivity, and lowered satisfaction of life. Reversing the rising levels of obesity would greatly benefit the United States . The U.S. government needs to set specific targets for increased access to nutritious food at the local, state, and national level. The public and private sectors must work together to improve the provision of healthy, affordable food to low-income communities.  

Literature Review
The Link Between Obesity and Poverty

Low-income families in particular have limited access to healthy, fresh food. Researchers studying statewide data have indicated a link between poverty and increased obesity rates . Lower socioeconomic status results in less income available to spend on food, as well as decreased access to healthy food retailers. A 2012 Food & Health Survey found that consumers make purchasing decisions first based on taste, with price coming in second. Nutritional value is considered the least important of the three.  Fresh and healthy food prices have sky rocketed, while unhealthy snack and sugary drink prices have remained at the same price level. As a result, customers prefer to purchase lower priced, unhealthy food.

Studies have shown that supermarkets provide the most reliable access to healthy products at lower costs (Levi 61). Americans with access to healthy food retailers have lower rates of obesity than the 29 million citizens who lack access  (59). “Food deserts” are neighborhoods that have no supermarkets within a mile of homes in urban areas and within 10 miles of homes in rural areas.

Snack and Sugary Beverage Taxes

Throughout U.S. history, the federal government has taxed very few foods and nonalcoholic beverages. The Federal government has imposed taxes on soft drinks twice, but they were both repealed (Kuchler 5). Much of today’s literature discusses the efficiency of soda and snack taxes. In 2009, 33 states had sales tax on soft drinks (averaged at about 5.2%). These taxes are too small to affect consumption and are not earmarked for health programs (Brownell 1599). In a Health Policy Report, Brownell looks at consumption trends of sugar-sweetened beverages and poor health, concluding that most studies find a strong correlation between sugar-sweetened beverages and weight gain. Brownell proposes an excise tax of 1 cent per ounce for sugar-sweetened beverages, which would increase cost by 15-20% (4). This tax would both reduce sugary beverage demand and raise large amounts of revenue.

Some researchers feel that taxes on cheap, unhealthy food and drinks are regressive and disproportionately affect the poor. Low-income citizens spend most of their income on unhealthy foods, so they are hurt more by the taxes. Taxing unhealthy, cheap foods could reduce access to key nutrients for low-income people . Because of this, the policy only advocates a tax on sugar-sweetened drinks that offer no nutritional benefits. Low-income citizens are the most at risk for being obese. Although they might be affected more by a sugary drink tax, they will benefit most in the long run from changed consumption behavior. The provision of affordable, healthier alternatives will offset the utility lost from decreased sugary drink consumption. Unhealthy food and drinks cost both individuals and society money in health care costs. While a low-income individual may spend more of his or her income on unhealthy food, it is in his or her long-term interest to be dissuaded from soda and sugary drinks. Soda has little nutritional value, and its consumption adds to a negative externality. 

Current Healthy Food Financing Initiative Programs

Different variations of Healthy Food Financing Initiatives have been used in 17 states, allowing the federal government to determine a successful strategy in providing low-income areas with nutritious food options. The federal government began a nationwide HFFI program in 2010 based off of the Pennsylvania Fresh Food Financing Initiative model, which provides necessary one-time loans and grants for development, expansion, and/or renovation of fresh food retailers (FFFI 1).  FFFI focuses on underserved communities with either below average supermarket density or 50% of supermarket customers living in low-income census tracts .
 The Departments of Treasure, Health and Human Services, and Agriculture created and funded the national HFFI, which seeks to provide all communities access to fresh, healthy food  (Levi 61). HFFI administers incentives at both the provider and consumer level. By giving out forgivable loans to healthy food retailers, HFFI subsidizes building in low-income areas. This encourages businesses by lowering barriers to entry and reducing the uncertainty of their ability to pay back loans. For consumers, the increased access of healthy food retailers lowers the opportunity cost of eating healthy—the food is less expensive and requires less commuting time to obtain. Shifting out the supply of affordable healthy food should ultimately increase the quantity demanded and consumed (Levi 59). 

HFFI’s success has provided low-income areas with accessible and affordable healthy foods, new jobs, and economic growth opportunities. In 2014, the President requested $13 million of the 2015 budge to be allocated towards starting up HFFI loan and grant activities. Congress did not appropriate any funding to HFFI, and Obama will renew the request in the 2016 budget (NSAC). Fortunately, HFFI has other sources of funding. In order to apply the HFFI nationwide, the federal government needs additional funding. A potential large source of revenue exists: earmarked soda taxes. This national tax could fund access to healthier foods, while deterring consumption of unhealthy, nutrient free drinks. 

Proposal

Obesity is a complex issue—there are multiple theories regarding its prevalence. Much of the rise in obesity has been an economic phenomenon, brought about by relative price changes (Bhattacharya 446). Scientific and agricultural developments have allowed more food to be produced at a lower price. Technology advancement shifts up the production function and increases the supply of food. This shift lowers the price, increasing the quantity demanded (Bhattacharya 447). In addition, the U.S. has shifted to a service sector economy, while technology has replaced manual tasks. As both women and men work more, they may have less time to prepare meals at home. These changes have lowered the price of calories and raised the opportunity cost of exercise and eating healthy (447).  Policy changes should increase the price of nutrient devoid calories and lower the cost of healthy calories. 

A federal earmarked soda tax would generate considerable revenue and allow the government to fully expand its new HFFI program. Researchers at Yale University estimated that a national soda tax of a penny per 12 ounces would generate $1.5 billion a year. Even further, the Congressional Budget Office estimated that a federal excise tax of three cents per 12 ounces of sugar-sweetened beverage could have generated $24 billion between 2009 and 2013 (Levi 63).  A modest sugary drink tax would both raise large amounts of revenue and dissuade consumers from purchasing the product. This multifaceted approach addresses two causes of obesity: lack of access to healthy foods and sugary drink intake. 

Obesity is a negative externality , and increasing rates have resulted in raised health care costs and social costs. There are proven links between sugary beverages and weight gain—adults who drink a soda or more per day are 27% more likely to be overweight than those who do not drink sodas, regardless of income or ethnicity (Levi 64). The consumption of sugary drinks adds to the negative externality. A national tax on sugary drinks reduces the negative behavior while raising much needed revenues for the HFFI program. Added supermarkets promote the desired behavior—eating healthy, fresh food. 

When taxing negative externalities, one faces a tradeoff between decreasing the unwanted behavior and still collecting desired amounts of revenue. If the tax works in reducing soda consumption, there are fewer funds for the nationwide HFFI program. In these situations, price elasticity is necessary in predicting the impacts of a sugary drink tax. The price elasticity for all soft drinks is -0.8 to -1.0  (Brownell 1602).  This indicates a moderate sized decrease in sugary drink consumption from the tax. Despite the decrease, the magnitude of sugary drink sales will continue to generate large funds for HFFI. Controversy exists now over whether to tax beverages that are sweetened with noncaloric sweeteners, as well as how to determine the threshold of a “sugar sweetened” drink (1603). Further research must be done to determine the threshold of how much sugar increases risk of obesity.  

Other objections question the ability of sweetened beverage taxes to curb obesity. The benefits and returns from a sweetened beverage tax will be long term. Mexico offers an interesting case study for the efficiency of a soda tax . In 2014, the Mexican government introduced a tax of one peso a liter (about 10 percent) on sugary-sweetened drinks. Since then, soda sales have decreased by 12%. Mexico’s soda industry lobby has released its own study with contradicting results, however there is debate over the accuracy of the report. The health impacts have yet to be fully understood, but the evidence indicates soda taxes decrease the demand for sugary drinks.

Possible Limitations and Concerns

It may be difficult to encourage larger supermarket chains to open new stores in low-income areas that may have lower profit margins. In addition, the junk food and drink industry opposes the shifting of consumer purchases to healthier food. However, consumer preferences are changing. A growing number of shoppers and customers prefer lighter, healthier versions of food (Levi 67). In addition, the Natural Marketing Institute conducted a study finding at least a third of America’s consumers are committed to healthier eating. This indicates a growing market of healthy food retail shops and markets (Levi 68). Chains who increased lower-calorie options saw a 5.5 percent increase in same-store sales, while those that did not experienced a 5.5 percent decline (68). Companies will need to reshape and adjust to consumer preferences, as it is a huge business opportunity. Barriers brought up by the FFFI include the difficulty in finding accessible data sources when deciding where next to build and learning how to fully measure social costs of a poor diet (FFFI 7). As research improves, more will be known about the impacts of changing diets.

Collective action is necessary to curb obesity, especially though public-private partnerships. The public must feel as though it is community driven effort. When deciding health policies, the government aims to curb unwanted behavior while still allowing for personal choices and freedom (Musingarimi 9). In addition, the junk food and drink industry contributes to the economy and provides jobs.  The government must frame this tax as a method to transform existing companies and markets into healthier versions that will yield both economic and health benefits to consumers and producers. 

Final Thoughts

The earmarked sugary drink tax will be advertised as a stimulant for HFFI expansion. The original bill will call for a 1-cent tax on sugary beverages, which will generate the needed revenue. HFFI will be given the funds, with a target amount of projects it must complete each year to ensure efficiency. Success will be measured in the short term by the amount of projects opened, and the quantity of increased healthy fruits, vegetables, and whole grains sales. Economic boosts in the surrounding communities should also be measured. In the long term, success will be measured by the continued existence and prosperity of stores, as well as whether they are still affordable and accessible to the low-income neighborhoods. The quantity of fruits and vegetables sold should be measured every 5 years to determine growth rates. Lastly, the overall obesity trends should be measured in areas that were granted a supermarket through HFFI. The data can serve as a natural experiment in researching whether improved access to nutritious food reduces risk of obesity. 

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Endnotes

[1] In the past twenty years, the amount of Americans diagnosed with diabetes has risen from 7.8 million to 25.8 million. More so, 1 out of 3 cancer deaths are linked to obesity or lack of physical activity (Levi 23).

[2] Obesity related diseases lead to $147 billion dollars in health care and $4.3 billion in job absenteeism each year. A 5% reduction in overall BMI levels would save the U.S. $29.8 billion in five years, and $158 billion in 10 years (Levi 23, 24).

[3] 33% of adults who earn less than $15,000 per year are obese, compared to 25.4% of those who earned at least $50,000 per year (Levi 23).

[4] Adults living in neighborhoods with access to healthy food retailers have the lowest rates of obesity (21%), whereas those living in areas with no supermarkets have the highest rates (32-40%). Nutrition is an important factor in maintaining a healthy body weight. Consumption of fruits and vegetables is much lower than recommended levels. Nationally, 37.7% of adults consume fruits less than 1x per day, and 22.6% consume vegetables less than 1x per day. This is due to rising costs of fresh fruits and vegetables, as well as many neighborhoods lacking access to fresh food (Levi 22).

[5] For example, beef is a key source of iron for many poor children. While a hamburger may be unhealthy, it still provides needed nutrients (Bhattacharya 476).

[6] These outlets serve 500,00 residents, have created 4,680 jobs in the process, and increased local tax revenues in 78 rural and urban areas (Levi 60). Costs of each location vary between $100,000-$200,000/year, and they take around 2.5 years to complete. Funds came from multiple sources—the PA General Assembly allocated $10 million in funding for three years, and private dollars matched state funds 3:1. In addition, New Market Tax Credits were used, totaling in a $120 million fund (FFFI 4).

[7] Since 2011, HFFI has distributed $109 million in grants. HFFI’s public-private partnership model has raised $1 billion in grants, loans, federal tax incentives, and investments—financing over 100 projects. These projects have spanned across 30 different states (HFFI 1).

[8] Externalities are any positive or negative effects that a market transaction imposes on a third party. The added health care costs due to obesity are a social loss, which has resulted due to market inefficiency (Bhattacharya 429). Obesity imposes externalities in the form of increased health insurance premiums (482).

[9] An elasticity of -1.0 indicates that a 10% increase in price results in a %10 decrease in consumption.

[10] Mexico consumes “titanic” amounts of soda—the average Mexican drank 728 cans of soda per year (double the American average). Mexico is one of the world’s most overweight populations, 70% of citizens are overweight and 32% are obese (Times). 

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