The Effects of Farm Commodity Policies and Retail Food Policies on Obesity and Economic Welfare in the United States

Many commentators have claimed that farm subsidies have contributed significantly to the ―obesity epidemic‖ by making fattening foods relatively cheap and abundant and, symmetrically, that taxing ―unhealthy‖ commodities or subsidizing ―healthy‖ commodities would contribute to reducing obesity rates. In this paper we estimate and compare the economic welfare effects from hypothetical farm commodity and retail food policies as alternative mechanisms for encouraging consumption of healthy food or discouraging consumption of unhealthy food, or both. To do this, we develop an equilibrium displacement model that characterizes the linkages among multiple commodities that are vertically linked to multiple retail products, where the commodities and retail products are related in production and consumption. We simulate the likely effects on food and commodity consumption of several policies that have been proposed in as ways of addressing obesity: (a) eliminating current farm programs including farm subsidies and trade barriers on agriculture, (b) a subsidy on fruit and vegetable retail products, (c) a subsidy on fruit and vegetable farm commodities, (d) a tax on the fat content of food products, (e) a tax on the calorie content of food products, (f) a tax on the sugar content of food products, or (g) a uniform tax on food. We then translate the changes in food consumption into changes in calorie consumption, adult body weight, and public health-care expenditures, and compare the changes in social welfare for each policy. We find that among all these policies, a tax on calories would be the most efficient as obesity policy, having the lowest deadweight loss per pound of fat reduction in average adult weight, and yielding a net social gain once the impact on public health care expenditures is considered, whereas the other policies typically would involve significant net social costs.