They don’t like diet drinks

09/08/2013 § 3 Comments

I have been discussing with colleagues a recent article in the American Journal of Agricultural Economics, Zhen, et al. on Predicting  the Effect of Sugar-Sweetened Beverage Taxes on Food and Beverage Demand in a Large Demand System. One issue we discussed was whether diet and sugar sodas were complements or substitutes. As a reminder, substitutes means that as one price goes up, people buy more of the other product. A complement means that that as one price goes up, people buy less of both goods.

Are they substitutes or complements? I would suggest that it’s an empirical question. Zhen, et al. mention research that finds that the two types of sodas are complements (Dharmasena and Capps, 2012, for those playing at home).

If someone is buying diet soda, I would not expect the prices to affect their decision within the ranges of price movements we usually see. Price may lead them to switch to other low-calorie drinks (water, tea) or other diet foods, but the significant calories in a sugar soda probably represent large dis-utility to the diet-conscious consumer. On the other hand, consumers of sugar drinks have already rejected the diet drinks and probably switch to other good-tasting drinks (energy drinks, flavoured milk).

Me, I can’t stand diet drinks and price won’t make me switch. I will drink water instead.

We could also think about the purchase scenario. When consumers buy soft drinks, perhaps they are buying them for a group: a family or a party. They buy both diet and sugar drinks to cater to the different tastes in the group. Higher and lower prices change the total amounts but have little effect on the ratio.

There are two methodological issues that can affect these sorts of estimates. First, there is significant correlation in the diet and sugar soft drink prices. Companies tend to price both types the same. That correlation would make it difficult (or perhaps impossible) to estimate cross-price elasticities (XPE). Secondly, a common assumption is that XPEs are symmetric. That is, the diet–> sugar XPE is the same as the sugar–> diet XPE. That may not be the case. A diet drinker may be reluctant to change, but a sugar drinker may be quite price sensitive. If we assume symmetry (which is common) then we won’t estimate the different XPEs.

Fat tax lax facts

31/07/2013 § 6 Comments

Today’s fat tax news:

A fat tax is being suggested as a possible way to improve the health of New Zealanders by encouraging people to replace some saturated fats with polyunsaturated fats.

Some butter could be replaced with grapeseed or safflower oil, meat with omega-3 rich fish, and potato chips with nuts or seeds, while the tax could add $1 to a pack of butter.

Rachel Foster and Associate Professor Nick Wilson from Otago University in Wellington looked at five meta-analyses to estimate how the risk of cardiovascular disease could be reduced by eating less saturated fats.

They also used data from the New Zealand Adult Nutrition Survey 2008/09 to determine whether a change to the amount of fat eaten would be warranted and feasible.

Their conclusion was that replacing 5 per cent of daily energy consumed as saturated fat with polyunsaturated fats would be expected to reduce cardiovascular events by about 10 per cent.

This news report, and others on the newly published article from the Australian and New Zealand Journal of Public Health (paywall), makes two statements:

  • the tax adds $1 to a pack of butter
  • changing the fats would reduce cardiovascular (CV) events by 10%.

Now, if you aren’t careful, you might think these two statements are related. They aren’t. The article, by the way, is the same. It says that a Danish-style tax would add $1 to a 500-g pack of butter. Then, later on, it focuses on switching out the type of fat for 5% of energy consumed.

Let’s connect those two statements.

One way is to go from prices to impacts. Assuming everything works mechanistically, what is the CV events effect of a Danish-style tax?

  • Price of butter: $5 (range on-line: $4-$6)
  • Tax: $1
  • Proportional change in price: 20%
  • Elasticity: assume -0.5 (see here, Table 1)
  • Proportional change in butter consumed: -10%
  • Energy as saturated fats: 13% (from Foster and Wilson)
  • Reduction in energy from saturated fats: 1.3%
  • CV events effect: 2.6%.

Yes, this assumes that the decreased butter is replaced by the required poly-unsaturated fats, but I’m assuming that for the sake of argument. My point is that the $1 tax wouldn’t lead to a 10% drop in CV events, but something closer to 2.6%, even if it worked as advertised.

We can also do the exercise in the other direction:

  • CV events effect: 10%
  • Change in butter consumed: -38% (that is, 5%/13%)
  • Tax: 77%
  • Price of butter: $8.85.

There’s a headline for you: Public Health Academics Propose $9 Butter.

UPDATE: The Manawatu Standard talked to me about the Foster and Wilson article, and shared my estimate of the price impact.

A tasty morsel on fat taxes

27/05/2013 § 3 Comments

Denmark placed the first-ever tax on saturated fat in 2011, and then abandoned it fifteen months later. It was supposed to be a real-world example of a ‘nudge’ — a little governmental push in the ‘right’ direction for all the fatty-fatty-two-by-fours healthy people struggling to emerge from their unhealthy bodies. Those ungrateful little sods actual consumers didn’t behave properly, so the policy failed.

The Institute of Economic Affairs has now published a paper by Christopher Snowdon on the whole affair, which makes for interesting (and lite!) reading.

While I appreciate his general approach — that such a tax is denying people the pleasures they want — I will take issue with a couple of methodological points:

  • the section on revealed and stated preferences doesn’t quite get it right. It might be the slide between a textual analysis and an economic one. I think he’s right that the language is laden (dripping?) with subtexts and unspoken meanings — but isn’t all language? What he gets wrong economically, though, is the ‘true preferences’ versus ‘expressed preferences’ part. All preferences are expressed in a context. Changing the context or changing the preferences are two different ways to change the choice.
  • That leads to my second point, which is that ‘making health options cheaper/easier’ is a theoretically defensible way of promoting healthy food options. Whether you do it by subsidising the ‘good’ or taxing the ‘bad’ will have equity implications, but changing the price differential is key to changing the choice context in the face of unchanging preference orderings. Now, the elasticities of demand might not be in your favour, and implementation can be a nightmare, and the tail can be wagging the dog, and so on. But this statement is a bit simplistic:

Campaigners might talk about ‘making healthy choices easier’, but the most they can do is make ‘healthy choices’ more appealing in relative terms by making ‘unhealthy choices’ more expensive and therefore less appealing. Unfortunately, this does not make the‘healthy’ choices cheaper in real terms, nor does it make them any tastier.

Those points aside, the affair is a warning to those who would meddle with our food consumption in a mechanical way. It’s not as simple as you would like to believe.

Commitment through our identities

06/12/2012 § 19 Comments

One of my favourite Christchurch restaurants is Welcome Cafe. Why? Because it’s a vegetarian restaurant, so I have my pick of anything on the menu. I had dumplings last time I was there — I have no idea why more restaurants don’t make veggie dumplings.

Here are two ways of looking at my dietary practice:

  • I do not eat meat
  • I am a vegetarian.

In practice — in the market — these two statements lead to the same revealed preferences: I do not demand products made from meat. But, there is an important difference. One statement focuses on behaviour while the other says something about identity. And I wonder, are we vegetarians because we don’t eat meat, or do we avoid meat because we are vegetarians?

One problem in economics is time inconsistency of preferences (here is Akerlof’s ‘Procrastination and Obedience’). We know we should do something — give up cigarettes, take up exercise, save for retirement — but it is easy to put the change off until tomorrow. After all, one more cigarette isn’t that bad, and exercise tomorrow is just as good as exercise today. It’s not that we don’t want to do these things. Our preference is to have done them. The problem is matching our preference for today with our preference for the longer term.

If we are concerned with some aspect of meat — gout or animal cruelty — then one burger more or less doesn’t make a difference. And then one more burger doesn’t make a difference. Nor the next one. The preference for avoiding gout or animal cruelty gets caught in the marginal impact that is zero in the limit.

I wonder if selecting identities is a way that people overcome the problem of time-inconsistent preferences. This thought is in the same vein as Peter Earl and Jason Potts’s work on the market for preferences. They were explaining the use of interior designers: people aren’t sure what their preferences ‘should be’. That is, they have a preference to be a certain kind of person but aren’t sure how to reflect that in their colour scheme.

By deciding ‘I am a vegetarian’ (or ‘I am a non-smoker’ or ‘I am a saver’), you construct the immediate consumption problem differently. The impact of the burger or cigarette isn’t on your heart or lungs but on your identity. The marginal impact on your physical health may be nearly zero, but the impact on your identity is binary. You are no longer that which you have decided to be.

Selecting an identity — like selecting an interior decorator — allows you to make a portfolio of decisions all at once. You commit to the identity. Then, to preserve the identity you  have to do the behaviour in the future and in the now. Identity becomes a strategy for pre-commitment.

Which is another reason why I like Welcome Cafe. They don’t just have non-meat dishes. They are a vegetarian restaurant. They even have store copies of Vegetarian Living New Zealand, from the New Zealand Vegetarian Society. Note the magazine title — ‘Vegetarian Living’. It’s not about the everyday consumption decisions; it’s about the identity.

A little sanity in the Great Junk Food Panic

19/10/2012 § 5 Comments

Food is such an obsession. It produces so much anxiety, whether we have too much or not enough or the wrong kind or the wrong packaging. We have to Do Something, for the kids’ sake. Often, doing something involves fiddling with the GST or imposing junk food taxes.

My favourite inane comparison is this: soda costs less than milk! Imagine! Industrially produced gassy sugar water is cheaper to make than milk from animals — who have to be tended — which then needs to be trucked around the country and kept sanitary at all times. And all milk has to recommend it is some vitamins and protein and calcium and fats and sugars [sarcasm].

The reading and research I’ve done on food suggests that income and prices have less to do with our choices than a lot of other factors. Who we are, who we aspire to be, who we think we should be — these are all just as important. Pricing and taxing policies are blunt instruments compared to the complexity of food decisions (and food anxieties).

Some new research suggests that, yes, it’s about more than prices. New research has found that healthy eaters spend about the same amount on food as unhealthy eaters (leaving aside for the moment what those categories really mean):

New Zealand Health Promotion Agency nutritionist Rebecca Whiting told NZ Newswire researchers had assumed that cost is the primary factor in the healthiness or otherwise of people’s diets.

However, when data emerged that there’s no significant difference in the weekly or per person spend on food between the least and most healthy eaters, researchers wanted to find out what else was at play.

This may sound strange coming from an economist, but prices don’t play as big a role as you might think. Preferences are much more important.

I think what happens is that observers assume that preferences are relatively homogeneous. Therefore, if the observed are eating differently from the obervers, it must be due to external factors like prices. As these researchers found out, first you have to look at preferences. Only then can you start figuring out the impact of prices.

Hurrah for these researchers, injecting some much-needed empirical sanity into our Great Junk Food Panic. And they are presenting their results at an obesity conference, to boot. Good luck to them.

Living is leading cause of death

24/02/2012 § 2 Comments

The sun rose this morning. Wellington had some weather. Oh, and medical researchers said that food is bad for you.

Once again, we are told that high-calorie, low-nutrient food might not be the best choice. Researchers published a list of 49 foods that we should avoid. What’s more, they published it in the New Zealand Medical Journal, so they get points towards the next PBRF assessment round. The article is here but has restricted access.

The problem, apparently, is people’s knowledge:

“Many people struggle to know what to eat if they have a weight problem,” Dr Elmslie said.

“The advice out there is often complicated and contradictory. It can be quite difficult to understand the relevance of health-related product endorsements and the information on food labels.”

I really, really struggle with this idea that people don’t know what they are eating. We eat all the time. Food is one of the highest involvement products there is. If we don’t know or understand about food, then there is no chance we have good information about anything. Also, it’s a lazy argument that opens us up for any solution: people don’t understand what they are eating, so we should provide advice/limit their choices/feed them in giant public cafeterias/provide standard ration packs (choose one).

A much more interesting question is, what knowledge do people have and how  do they use that knowledge? But, that kind of research is much harder than dividing the number of calories by the number of vitamins and ranking foods by the result.

I found this interesting, too:

[Ria Schroder] and Dr Elmslie said they were expecting a backlash, but wanted to get out the message that there was an urgent need for new strategies or guidelines to deal with the growing problem of obesity.

See how they’ve set themselves up? They are tenacious researchers willing to brave backlash from unnamed sources in order to share their secret knowledge with the masses. This makes them impervious to counterargument. If you agree with them, you support them. If you disagree, then you are part of a ‘backlash’ and can’t be trusted. There is no space for informed disagreement.

The researchers get extra special bonus gold stars for item number one in the list:

1. Alcoholic drinks

‘Nuff said.

Talking about diets

19/12/2011 § 4 Comments

A set of nutritional guidelines was issued in Australia last week. In a lot of ways, the advice was unremarkable. Key recommendations:

  • People should eat a variety of nutritious food; advice that has not changed over many years, but is now reinforced with stronger scientific evidence.
  • Most Australians need to increase our intake of vegetables, fruit, whole grain cereal foods, and milk products- particularly reduced fat varieties.
  • Some population groups need to eat more of some food groups and less of others. For example, some women who consume an omnivore diet may benefit from eating more red meat, while some adult males may need to reduce their consumption.
  • Most Australians may benefit from reducing excessive intake of energy-dense nutrient-poor foods and drinks which are high in saturated fat, salt and added sugar, particularly sugar sweetened drinks, if we are to tackle obesity and diet-related chronic disease.

Or, as Michael Pollan puts it more succintly: ‘Eat food. Not too much. Mostly plants.’

There wasn’t really much ‘news’ to the announcement. But the Dom Post saw it a bit differently:

Based on the average diet, the council recommended eating 40 per cent less starchy vegetables, such as potatoes and kumara, half the amount of high-fat dairy products and – except for people who exercise vigorously – cutting out all “discretionary choice” foods such as cakes, burgers, soft drinks and alcohol.

To me, those two bits of communication are entirely different. The first is a generally moderate, not altogether surprising summary of things we already know but don’t do. Eating more vegetables makes us healthier. Too many calories make us fat. Energy-dense foods are essential if you are in a physical occupation and unnecessary if you sit at a desk all day. The last quote is frightenly prescriptive: cutting out all cakes, fizzy drinks, and alcohol?

I don’t know where the disconnect was inserted. It may have been the reporter looking to jazz up an otherwise unremarkable story. That’s not much of a worry — papers try to sell the sizzle. Or, it may have been that the Council created a veneer of moderation to hide a more radical food agenda. That’s more worrying, particularly because it’s so daft.

Why is it daft? Let me count the ways.

  • It doesn’t work. How long has the government been telling people what to eat? What has happened to our waistbands in the meanwhile? Just yesterday, the NZ Herald said that 63% of NZers were overweight or obese. I have a hard time believing that only 37% of us know we should eat more vegetables.
  • It doesn’t understand food. If you think of food as fuel, as the substance that keeps our physical bodies maintaining and moving, then getting the perfect mix of vitamins and energy is the focus. If, on the other hand, food is about taste and sharing and culture and memories and emotions and all the rest, then the question of what to eat is more fascinating and harder. I certainly don’t need to eat mushrooms newburg, but it’s gosh darn delicious and reminds me of my mother’s Julia Child style of cooking.
  • It doesn’t understand people. Just telling people what to do won’t get them to do it. People react in all sorts of ways to instructions. Some will follow the rules (with the appropriate amount of anxiety). Others will ignore it. Others will explicitly flout the guidelines as a way of supporting their anti-elitist identity: ‘Nobody can tell me not to have my steak!’

We’ll see what happens with the guidelines. It will likely go the way of 4-4-3-2 and the rest.

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