- Taxing unsustainable food could help supermarket prices
finally capture the 'true cost of food'
- Advocates argue that revenues could help farmers adopt
greener practices
- Opponents fear such a policy will lead to carbon
leakage and undermine farmers' competitiveness
- COP26 saw the tax debate focus on food's carbon
emissions - with livestock products singled out
- Uncertainty remains on how to compare different farming
systems and ensure a fair tax
- Policymakers are still likely to engage with the topic
as they search for solutions to meet climate targets and make
sustainable food more affordable
Bringing the food system within safe environmental limits
requires huge changes to modern farming, with some arguing that a
tax on unsustainable products is one of the most effective
incentives to guarantee that transition happens.
In June 2021, scientists advising the UN said such a tax could
help supermarket prices finally capture the 'true cost of food',
estimating that currently markets exclude $7 trillion in costs from
a degraded environment and $12 trillion from an unhealthy society.
Advocates for such a tax add that revenues can be redirected back
to farmers where they can fund the adoption of greener practices.
Still, the concept of an unsustainable food tax is a controversial
one, particularly among farming and business groups who argue it
discriminates against certain producers, while also raising doubts
that such a fiscal policy can reflect the nuances of regional
production.
That has seen taxing unsustainable food become a high-risk
option for politicians - on one hand it could stimulate more
sustainable production and consumption while meeting a range of
green targets, but on the other hand it risks hurting certain food
producers and undermining their competitiveness. It makes the path
forward a perilous one, but recent trends may end up pushing
decisionmakers ahead whether they want to move or not.

Carbon focus emerges at COP26
Taxes on 'unsustainable' foods could discourage their
consumption, but the reality of taxing food based on this notion is
complex - considering the amount of economic, social and
environmental aspects in a product.
The range of issues and definitions when producing and consuming
food means the debate around taxing unsustainable products has
generally centred around one of the most pressing topics - climate
change. The International Panel on Climate Change (IPCC), which
sets the science for the Paris Climate Agreement to limit global
warming to a 1.5C degree scenario, found that meeting this
objective requires a 50% decrease in the consumption of foods like
meat, dairy and added sugar, alongside doubling plant-based foods.
The climate scientists also highlighted taxes as one of the most
promising solutions to reduce food system emissions in line with
this pathway.
That has given momentum for a sustainable food tax based on
greenhouse gas emissions, and even more so as countries commit to
reducing their carbon footprint further following COP26, the UN's
climate summit in Glasgow. A group of 90 organisations calling
themselves the 'Carbon Pricing for Food Coalition' used COP26 as a
platform to call on the 50 biggest meat consuming countries to back
a carbon price for food, including the US, EU and China.
"Taxation policies are effective when you want to reduce
consumption of something," said the coalition's coordinator Jeroom
Remmers at COP26, arguing that fiscal policies have helped reduce
the use of fossil fuels, alcohol and tobacco. Remmers went on to
say that more policies are needed to curb meat consumption and its
associated emissions, which he says are rising at 4% per year
worldwide. "If we don't tackle this problem, we will never realise
the Paris Climate Agreement goals," he added.
Responding to the coalition's letter, Lucas Pre, policy officer
at the Dutch Agriculture Ministry, said it comes at the "right
time" and hopes it will lead to more engagement from governments on
the topic. "The role of true [food] pricing to reach sustainability
goals is a very interesting approach," Pre said at COP26, adding
that when consumers visit the supermarket they need to know "what
the production of meat and dairy means for the living
environment".

Dutch support for taxes seem to be growing as Pre's comments
come on the back of his country's agriculture minister voicing her
support for some sort of sustainable food levy. And the Netherlands
is not alone here either - ahead of the COP26, UK Secretary for
Food and Rural Affairs George Eustice said Britain will "start to
move into the realms of things like carbon taxes" to improve
farming's environmental impact.
However, this rhetoric does not come without its risks and
Eustice's comments sparked outrage among the UK agriculture sector,
which quickly pushed back against such a policy idea. The National
Farmers Union of England and Wales (NFU) argued that the British
livestock sector produces some of the most sustainable food in the
world and that a carbon tax would undermine its competitiveness and
ultimately result in farmers going out of business.
The NFU's concerns appears to have reached Eustice who since
backtracked and ruled out a carbon tax on red meat.

Level CO2 playing field
The sensitivity of a carbon tax for food reveals one of the
biggest obstacles standing in the way of such a fiscal policy based
on carbon emissions - the need for a level playing field. The
highly competitive nature of international food markets has seen
agri-food stakeholders argue that if one region introduces any sort
of sustainability tax domestically, then it must be applied to
imports too.
This carbon leakage narrative plays out regularly in sustainable
farming debates, particularly when trade agreements have given
beneficial market access to products that can come from less
sustainable food systems. And one place where these arguments are
very common is the European Parliament's Agriculture Committee
(AGRI), where policymakers recently started to push for farming
products to be covered in the EU's new carbon border tax on
high-emitting imports.
In October 2021, AGRI finished its draft opinion on the European
Commission's proposed Carbon Border Adjustment Mechanism (CBAM) and
proposed one amendment to the EU executive's legal texts that
called for agricultural imports to be included in the future levy.
In response, the Commission told AGRI that the CBAM cannot single
out specific products or else the carbon levy risks going up
against WTO rules as well as derailing the EU's own climate
commitments.
There were also several opposing AGRI members who were sceptical
that such a tax proposal can get enough political support since it
is still unclear how such a levy could measure the carbon footprint
of all the different systems in the world, let alone those within
the EU.
The challenges of fair taxation and affordability
Fairness is a far-reaching issue for an unsustainable food tax,
whether that's for domestic products and imports or consumers -
even if it focuses on just one such indicator like greenhouse gas
emissions, or a market segment, such as beef and dairy.
For instance, the UN's Food and Agricultural Organization (FAO)
attributes livestock to 14.5% of all greenhouse gases. These
figures are based on a global perspective which takes in the best
and worst performers worldwide, meaning a carbon price based on
that approach, albeit very unlikely, shows how such a levy could
unfairly treat some livestock farmers, such as those in Europe
where livestock accounts for about 8-9% of the bloc's total
emissions.
"We have to be really careful when we make generalisations,"
said Steven Thomson, Agricultural Economist at the Scottish
Government's Strategic Research Programme.
Thomson explains that going down the route of a carbon tax for
food requires discussions about a range of supply chain
externalities to ensure fair treatment, such as the local
environment, processing and transport, and then comparing this
analysis to other sectors and their share of the economy's carbon
footprint.
Without this information, Thomson says policymakers could put
forward "blunt" and "generic" carbon taxes. "We have to be really
smart on how we address this climate issue when signalling for
consumers to reduce their emissions," the economist explained,
adding that direct payments to farmers and green investments are
better positioned to make sustainable food cheaper for farmers.
"We're giving farmers quite a lot of [public] support in order
to maintain income because of fluctuating market prices," he said.
"We should be utilising that as much as we can to drive behavioural
change."
In an ideal world, every farmer would get a different carbon tax
bill, according to Jeroom Remmers from the Carbon Pricing for Food
Coalition, who also defends some sort of a general approach because
it can still collect and redistribute revenues in a way that helps
food producers adopt more sustainable practices while also making
the right food more affordable for consumers. "57% of French and
German consumers support our proposal of a 40% tax on meat," he
added.
Affordability will remain key for making sustainable food
systems a reality. Half of UK consumers are still unwilling to pay
extra for more sustainable products, according to survey of 3,000
consumers conducted by ASDA, a British supermarket chain. Asked
what would help them shop more sustainably, 45% said logos
highlighting greener choices and 56% said greater choice, but 76%
said lower prices. ASDA's senior director of commercial
sustainability Susan Thomas concluded their research shows
"consumers from all backgrounds care about sustainability but many
cannot afford to buy greener products".
This means that without some sort of fiscal change, most
countries' diets will continue to contribute to climate change for
the time being and that could push policymakers towards measures
that can see the public put more money where their mouth is. Add
climate targets to the mix and policymakers are likely to engage
with the tax topic even further - which means others may need to
take their own stance, whether they want to or not.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.