Should Finland tax meat?

Outi writes*

In the Western diet, meat has for a long been a fundamental source of protein on people’s plates. However, research has revealed that in the we consume more meat than we should from the perspective of public health, and the climate. In fact, a study published in Science [pdf] finds that a vegan diet is the most efficient means of reducing one’s impact on the planet. Besides the greenhouse gas emissions, agriculture, and production of meat and dairy in particular, is also “the largest source of human-related nutrients in the Baltic Sea”, and is therefore one of the major causes behind the toxic algae blooms, which made the Baltic Sea unswimmable last summer, not to mention the impacts on the sensitive ecosystem.

In economic jargon, the cost of meat production for the environment would be described a negative externality, since it affects third parties who did not incur the cost. Due to this property, the free market is inefficient in allocating the socially optimal quantity, leading to too much of meat being produced. In the graph below, the lower supply curve represents the production cost without externalities, and the upper line is the social production cost where the externalities are taken into account.

Thus, economic theory suggests that a tax that reflects the external costs to the third parties could internalize these externalities and bring the production to the socially optimal level, as seen from the graph. Or would it? According to a study [pdf], the value added tax on sugary products in Finland did not reduce their consumption, which is accounted to the inelasticity of demand since there are no close substitutes.

Although every supermarket nowadays has an ever-increasing variety of meat-substituting products, many still have a suspicious attitude towards them, and do not deem them as viable option, although people and the food industry would probably adjust in the long run. Therefore, a drastic increase in prices might be necessary to truly change people’s behavior, as the graph illustrates. Increases of the prices of such a staple good would also make the tax regime more regressive, thus hurting the people with lower incomes. Currently, meat substitutes are quite expensive. This is because the volume of production is low, and the competition is oligopolistic since there are only few producers who produce differentiated products.

In the future, if the market for meat substitutes grows, the price might decrease due to increased competition and economies of scale. On the other hand, if the tax increased the demand for meat substitutes, their prices might increase. Therefore it is somewhat tricky to forecast how much the consumers would be hurt if the tax would force them to move to meat substituting products. It might also be the case that some people would then replace lean meat products with sausages, or other processed meat products with even worse nutritional values. If people would not be willing to move to meat substitutes, adjusting the tax so that it accounts for the different health and environmental impacts of different meat products could be a good policy solution, but implementing such tax regime would also be costly and complicated.

On the supply side, the tax would obviously hurt the Finnish meat producers. Due to its Northern location, the production of plant-based protein in Finland is also relatively costly, and the meat producers are therefore worried that moving to production of plant-based proteins would be difficult, although the industry has been developing at a fast-pace in Finland. Importing plant-based protein would obviously be an option but might hurt the security of supply of protein before the production of plant-based proteins is advanced enough.

Bottom line: Meat production has many externalities, which could be internalized with a tax. However, especially in the short run, the demand for meat might be relatively inelastic, and the farmers and people with low incomes might be hurt, which is why costs and benefits of different meat tax regimes should be evaluated carefully.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

3 thoughts on “Should Finland tax meat?”

  1. Hey Outi! I enjoyed your blog post and thought it gave interesting insight into this topic as it is becoming increasingly relevant in society today. You discuss the negative externalities of meat and how this results in a lack of providing the ‘socially optimum’ quantity. I agree with the idea that, in theory, a tax on meat would internalize these externalities. However, as you mentioned with the example of sugary products in Finland, a tax may not be enough to change consumption patterns. While I would find it ideal for a high tax on meat to incentivize people to use meat-substitutes, I am not sure that this would be enough to make a significant impact. You mention that people and industry would adjust in the long run but I would argue that it may be just as likely that this does not happen ‘in time’. I like that you pointed out the fact that meat substitutes remain rather expensive right now, as I think this is one of the biggest deterrence from fully switching to these products for many people (myself included).

    I would argue that alongside a tax, and perhaps more importantly, policies should be focused on changing the food culture and educating the public on both the personal (health) impacts of consuming meat alongside environmental consequences. In many places, Finland included, meat is a staple ingredient in many traditional meals making it that much harder to incentivize people to consume less. What if the industry were to advertise traditional recipes with meat, using a meat substitute instead. This may sound like a very small initiative, but I think that in order to really change behavior, a tax must be combined with educating the public with information. You’re blog post made me reflect on my own consumption patterns and whether or not I would be willing to change my behavior due to price increases. I would be really interested to hear your thoughts on this!

    1. Yeah, I also believe that quite high tax is needed for a large scale change, 10 or 20 % higher tax would not necessarily be enough to really change many people’s behavior. I guess another solution would be imposing a lower tax rate on the sustainable food, so that people would really have the incentive to purchase it. Given the environmental impact of meat, the price of meat substitutes should always be lower than the price of meat.
      When it comes to the food culture, the change might be quite difficult to impose from above. However, I believe that higher prices of meat would also mean that i would be lucrative for the firms start innovating with plant-based product, which would probably lead to innovations and ad campaigns etc. Additionally, the government should also provide funding for the research and development of sustainable food in the universities. Perhaps the biggest opportunity for the state to affect the food culture, however, is the meals that it serves at schools. In Finland, a free warm meal is served everyday in kindergartens, schools and high schools, and university students also get state-subsided meals from the university cafeterias. The city of Helsinki has already made the decision to half its dairy and meat use in schools, and if all the other cities followed, this would greatly reduce emissions, as well as affect people’s customs.

  2. Hi Outi,
    Your piece is incredibly relevant in the oncoming discussions on climate change and the kinds of behavioural changes that may be expected.
    I do agree to some extent that with the meat tax, in the short run, the prices of meat substitutes might rise. However, it should be taken into account that in the medium- to long-run, this would open the market up to others and might increase competition, thus lowering prices of these products. Even now in the Netherlands, as a person that doesn’t eat meat, there is an increase in vegetarian and vegan-friendly products that are being introduced, as businesses and producers see the ‘value’ in such a market. So, whilst it might begin off as a niche market, it is likely to expand. Especially, in combination with the increasing looming presence of climate change discussions and with your suggestion of education.

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