Impact of a second global recession on Pacific Island Countries

When reading the Forum Secretariat’s excellent E-Newsletter entitled “Trends and Developments” I came across a summary of implications of the current global conditions for the Pacific Region, published in the “In Brief: Economic Update Series”.

The link to the summary is here, in Issue 3 of the In Brief: Economic Update Series. However I have briefly summarized below the implications for Pacific Island Countries from a second global recession, an event that is threatened in 2012 by the uncertainty around the future of the Eurozone and other factors.

The first three implications are obvious even to non-economists but not everybody will be aware of the last three. All of the below are relevant directly or indirectly for agricultural and forestry commodity trade, to food security and to the income and expenditure of farming communities across PICs.

• Lower remittances: A slowdown in income in richer immigrant destinations is likely to lead to a drop in remittance flows into PICs.
• Lower tourism: Tourism hinges on the income available to spare on leisure in tourist source countries and this in turn depends on the economic fortunes of those countries. 
• Lower export demand: Affecting PICs with a larger proportion of export revenue to total national income, a global slowdown will hit export demand. However according to the regional in 2012 Australia and New Zealand have a positive outlook that will cushion the blow from decreased demand from other large markets. 
• Exchange rate appreciations: There are winners and losers from this. Appreciation of Australian and New Zealand currencies relative to PIC currencies means that imported goods from those countries will be more expensive to PICs, hitting any consumer or business that purchases goods from those countries. However island exports will be cheaper from the perspective of Australia and New Zealand, benefitting PIC exporters. Along with lower global export demand overall, the net effect for individual business is unpredictable.
• Commodity prices: The price of gold tends to increase in hard economic times and is currently on the increase. This is good for PNG, Solomon Islands and Fiji who export gold. The PIFS report cites an International Energy Agency report claim that the price of oil may continue to drop in 2011 but a 2012 market prediction from the same agency states that the price may increase. This is as much an economic driver as a result of economic conditions. However it is clear that as oil importers, PICs would benefit from lower oil prices and suffer from higher oil prices. It is the latter that appear more likely in 2012 especially given the prospect of an oil embargo by the international community on significant crude exporter, Iran. 
• Trust Funds: Several PICs have large amounts of money stored as public savings abroad; in the 2008 crisis when stock markets fell, some of these funds lost 20-30% of their value. A second recession threatens similar consequences, but these consequences will also differ by country according to investment portfolio.

Applying some perspective on relative significance of these factors, the ADB’s latest edition of the Pacific Economic Monitor states that:

“the Eurozone crisis is expected to have only limited impacts on the Pacific because the region‘s growth prospects are more closely tied to the economies of Australia and New Zealand, which remain relatively buoyant due to strong demand from Asian markets for their commodity exports. Main impacts will be indirect, through trade and investment linkages between the EU and the Pacific‘s economic partners, declining values of Pacific trust funds, and declines in tourism, particularly from US and Japan, if these economies weaken.”

In the same document,

“an analysis of sovereign investment funds in the Pacific shows that the current period of volatility to date has resulted in small valuation losses (relative to 2008-09), but, looking forward, considerable downside risks remain.”

Real GDP Growth and Inflation

Below are the estimated real GDP growth and inflation prospects for PICs in 2012, from the Asian Development Bank Pacific Economic Monitor.

 

Trade and Nutritional Outcomes in the Pacific

On duty travel in Samoa in the last couple of weeks I was given a set of papers about trade and nutrition in the Pacific, by a most helpful lady named Christine Quested in the Ministry of Health in Samoa, who co-wrote them. Most of the papers, having analysed the trade and nutrition situation in the Pacific, finish by recommending aligning trade policy with health and by advocating for putting health on the trade policy agenda in the Pacific. This links then to the points I made in a previous post on what then a good nutrition tariff might look like.

In this post I want to cover the following:

• Evidence that trade liberalization probably impacts on diet

• Other links between trade and nutrition in the Pacific region

• Policy implications for food-related trade policy

In a 2011 paper looking at trade and nutrition in Fiji and Samoa, Thow et al outline a fairly compelling pattern in the domestic availability of food. To simplify, the pattern can broadly be described as trade liberalization leading to increased availability – and by implication, consumption – of unhealthy, imported food.

They recognize that their methodology cannot assign causality from trade liberalization to trade increase to diet, and I would posit that the process of economic development itself, including rising incomes, urbanization, marketisation of the economy and so forth, would be a driver behind increased trade and changed diet independently of trade barriers.

However, a look at the graphs below reveals a repeating pattern that suggests that liberalization does contribute to increased imports and thus increased consumption of imported food. The first appears to show a direct link between policies such as export promotion (through production for export crowding out production of traditional crops for domestic production) and import substitution, and calories per capita of imported cereals and local starchy roots.  The second and third show that reduction of tariffs and liberalization in Fiji and Samoa were followed by big increases in imports of fats and oils.  The fourth graph shows that consumption of confectionary and pastry in Fiji and Samoa rose sharply following liberalization.

 

In a separate 2010 book chapter, Thow et al. posit that there have historically been six pathways through which trade has influenced diet, which I summarise below. I think only a few of them continue to be driven by trade POLICY, but they are worth noting.

1. The continuing transition to a cash economy, driven by trade – after all, the domestic economy was originally subsistence and barter-driven and cash would only originally have been necessary for the purchase of imported goods. The rise of the cash economy would have implications for nutrition through the ability to buy a wider variety of foods; however those foods would have been of a poor nutritional quality. Thow et al point to a number of very interesting historical examples – for instance during the Japanese occupation in the Marshall Islands, increasing exports of copra enabled the consumption of store-bought foods to increase dramatically, but this was accompanied by the presence of beri-beri (thiamine deficiency). In the subsequent American occupation, the low consumption of purchased food reflected the more limited opportunity to purchase imports. The same pattern occurred in Tahiti in the 1960s with the expansion of copra fuelling sudden increased consumption of imported foods.

2. Urbanisation – the growth of trade historically required administrative centres. Urban residents tend to consume a less traditional diet, both due to greater access to imports and –according to two studies cited by Thow et al (2010), through a ‘demonstration effect’ of the diets of expatriates.

3. Promotion of the production of exports and import-substitution, trade-related policies which change diet through:

• the greater availability of cash for food imports;

• encroachment on the land and labour needed for domestic production of traditional foods – and thus lowering of production of domestic foods;

• support for import-substituting meat, and lack of government support for traditional domestic food production

4. Low price and availability of food imports.  Currency devaluations in Papua New Guinea led to significant increases in consumption of local food, of course through making imported food more expensive relative to local staples. This and other examples cited demonstrate that demand for imported food is sensitive to price.

5. Financial integration and investment – many countries in the Pacific region have since the mid-1980s, made efforts to simplify their licensing and other investment-related procedures as well as to attract investment through tax reform. This has helped lead to an increased presence of international corporations selling marketable imported food – for instance, fast food outlets – and highly effective marketing of “commerciogenic” imported foods.

6. Donors, aid and trade – the high level of aid has enabled Pacific Island countries to plug the considerable gap between their export revenues and import spending, and has thus cushioned the incentive to consume domestic food instead of imported food. Another point is that donor aid objectives have not always been supported by their actions on trade. To quote directly from Thow et al’s book chapter: “the political and commercial considerations arising from the dependence of Pacific Island countries on aid may also limit their ability and desire to restrict food imports on health grounds (Foliaki and Pearce 2003). For example, New Zealand is a major donor to the Pacific region, as well as a major source of food imports; during the aftermath of Fiji’s ban on mutton flap imports, New Zealand threatened to take action through the WTO despite health being one of their aid and development priorities (Kelsey 2004).” Moreover food aid to Micronesia by the United States in the 1960s and 1970s was imported and helped lead to dependence of FSM populations on rice as a staple food.

Possible implications for policy from Thow et al (2010) – book chapter, Thow et al (2011) and Thow et al (2010) food policy paper are:

• Modify trade liberalization so that it allows for national control over trade policy measures, and allows for the promotion of domestic production in Pacific Island countries.

• Structure a country’s tariff schedule based on healthfulness of foods (see my post on the economics of nutrition for more on this). Do this in a way that is compatible with World Trade Organisation agreements – for instance quantitative bans are not permitted but increases in tariffs within certain bounds are, and trade-offs can be made by increasing tariffs on certain unhealthy foods and decreasing tariffs on other, healthy foods.

• Investment in rural infrastructure development and increased government support for domestic production, and better balance between export promotion through subsidies and so forth, and support for domestic production;

• I would add to this that it is important, when setting tariffs, for instance on the import of vegetables that may also be produced in the relevant Pacific Island country, to consider and if necessary, to mitigate the economic impact on domestic farmers who may produce the same good.

• Enforcement of food standards and labeling to enable consumers to make more educated choices.

• Some way to curtail marketing of imported foods of poor nutritional quality.

• Effective advocacy with more than one influential champion, active involvement of policy implementers and taking advantage of windows of opportunity, are critical to getting food-related trade policies on the agenda. Policy uptake was in three case studies of specific food bans in Samoa, Fiji and Tonga, aided by “the use of existing legislation, consideration of other government commitments (e.g. WTO) and establishing a clear justification for food targeted.”

• Barriers to policy success are likely to be the selection of an inappropriate legislative tool, the lack of a clear enforcement mechanism and low engagement from sectors other than health.

Citations:

Thow, AM & Snowdon, W. 2010. ‘The Effect of Trade and Trade Policy on Diet and Health in the Pacific Islands’, in Blouin, C. Drager, N. Dube, L. Hawkes, C. Henson, S (eds.) Trade, Food, Diet and Health: Perspectives and Policy Options. 2009, Wiley-Blackwell Publishers, London.

Thow, Anne Marie , Heywood, Peter , Schultz, Jimaima , Quested, Christine , Jan, Stephen and Colagiuri, Stephen(2011) ‘Trade and the Nutrition Transition: Strengthening Policy for Health in the Pacific’, Ecology of Food and Nutrition, 50: 1, 18 — 42

Thow, Anne Marie, Swinburn, Boyd, Colagiuri, Stephen,  Diligolevu, Mere,  Quested, Christine, Vivili, Paula Leeder, Stephen, 2010. ‘Trade and food policy: Case studies from three Pacific Island countries’, Food Policy 35 (2010) 556–564

Pacific Island Highlights from World Bank’s East Asia and Pacific Economic Update 2011

The World Bank recently published its second half-yearly economic update for the East Asia and Pacific Economic Update 2011  .  Agricultural and forestry-relevant highlights from the Pacific region are below.

Fiji

• “Current projections are for Fiji’s economy to grow by 2.0 to 2.5 percent in 2011 compared to 0.3 percent in 2010. The relatively ambitious growth target hinges on the continued strength of the tourism sector, as well as stronger performance of the manufacturing and forestry industries.”

• “The sugar industry may experience limited improvements in 2011, both in terms of production and mill efficiency. Production of sugar cane is expected to rise as a result of the recovery from the 2010 cyclone, while mill efficiency may rise with attention being given to maintenance and upgrading as reflected in the FJD20 million set aside for this purpose in the budget.”

• “On the external front, export earnings recovered in 2010. Decline in sugar receipts were offset by rises in gold, timber, and fishing receipts…Net income and transfers both worsened in 2010, due to a rise in profit repatriation, fall in remittances and no EU sugar transfers being received due to reforms in EU’s preferential pricing scheme. Overall, the current account deficit widened from 7.6 percent of GDP in 2009, to 11.2 percent of GDP in 2010.”

• “National poverty headcount ratio declined from 39.8 percent in 2002/03 to 35.2 percent in 2008/09. While there has been considerable improvement in urban areas over the six years (a decline from 35 percent to 26 percent), rural areas showed no decline in poverty, with a poverty headcount remaining at 44 percent. The trend was consistent with the sectoral pattern of economic growth: most of the decline in poverty was driven by the growth of non-agricultural sectors in urban areas.”

• “The dominant item in the 2011 capital budget is a 110 million Fiji dollar (FJD) allocation equivalent to around 20 percent of capital expenditure for the restructuring of the Fiji Sugar Corporation (FSC), recently taken over by the government.”

Papua New Guinea

• “Three factors underlie the strength of PNG’s economy: foreign-investment funded construction projects; record prices for PNG’s exports, and strong government spending financed by higher-than-expected revenues…Up to Q3 2011, prices of PNG’s cash crop exports (particularly coffee, copra and palm oil) returned to or exceeded the highs of mid-2008.”

• “The sectors of the economy most directly impacted by these factors—particularly construction, road, air and sea transport, storage and communications— are expected to expand by as much as 20 percent in 2011. This strength is spilling into other sectors in the economy (e.g., retail trade), thus creating a broader dynamic. Even agriculture and fishery production are expected to grow by over 4 percent in 2011 as producers respond to higher cash crop prices.”

• “Core inflation measures have also continued to rise, reaching between 7 and 8 percent for the year to the second quarter and remained near that level through the third quarter…The resurgence in global food prices early in the year directly explains about one-third of this acceleration in prices. In contrast, food prices contributed to 60 percent of PNG’s overall inflation between March 2008 and June 2009.”

Vanuatu

• “Growth moderated towards the end of 2010, as visitor arrivals and infrastructure spending declined, and copra prices fell. Throughout 2011, Vanuatu has benefited from resurgent copra prices, but continues to face risks from a slower-than-expected recovery in tourism arrivals, reductions in government recurrent expenditure, lower donor-financed infrastructure spending.”
• “With sound macroeconomic fundamentals, Vanuatu remains relatively well-placed to deal with future shocks. Inflation is expected to remain moderate, reaching 4 percent in 2011, driven by increased food prices, and expansions of private sector credit to both businesses and households in the context of accommodative monetary conditions.”

Samoa

• “Samoa was hit hard by the combined impacts of a food and fuel crisis, the global economic crisis and a major tsunami in 2009…Inflationary pressures are projected to decline, given an expected easing of oil prices and expansion in agricultural production for domestic consumption.”

Tonga

• “The economy contracted by 0.5 percent in FY2010 (ended June 2010) and is estimated to have achieved only modest growth of 1.3 percent in FY2011 as remittances and tourism earnings fell, weather events  disrupted alreadydeclining agricultural exports, and private sector credit contracted as banks tightened lending conditions in response to a sharp increase in non-performing loans.”

Kiribati

• “Kiribati has been running consecutive budget deficits, averaging 12 percent of GDP for the past decade. These deficits have been financed through RERF draw-downs and concessional loans. The 2011 budget projected a deficit of 14 percent of GDP, up from 12.5 percent in 2010. Emerging revenue shortfalls, arising from lower than- expected income from fishing license fees, and additional expenditure on pensions and copra subsidies in the context of upcoming elections may see the deficit further increase.”

Solomon Islands

• “In the second half of 2011, Solomon Islands enjoyed a markedly more secure macroeconomic footing relative to most of the preceding decade. A surge in logging, support from the government’s development partners, and gains in macroeconomic management lifted growth rates, and built foreign exchange and government cash reserves. Nevertheless, recent growth has been concentrated in natural resource exploitation, raising concerns about its sustainability.”

• “The Solomon Islands economy is likely to grow by around 9 percent in 2011 based on data through to August, several percentage points  stronger than earlier expected. This strength follows an estimated 7 percent expansion in 2010, following a 4¾ percent contraction induced by the global economic downturn in 2009. Logging activity is expected to contribute 2¼ percentage points of this year’s growth—the Solomon Islands Government now expects log exports of 1.75 million m3 in 2011, compared with 1.43 million m3 in 2010. The start of production at the Goldridge gold mine is estimated to contribute another 2 percentage points. Fishing, cocoa and copra production have also all performed strongly this year, buoyed by good production conditions and high international prices. But it is greater government spending (including through donor-funded projects) that explains most of the expansion in the Solomon Islands’ non-forestry, non-mining economy in 2011.”

• “The government’s revenues have exceed expectations in 2011, attributed to improvements in tax administration and the unexpected strength of logging activities and prices, while Solomon Islands Governmnet-funded development spending in particular was below budget.”

• “The rise in many global grains prices around the turn of 2011 has had little impact on the Solomon Islands, even among urban consumers who are the most dependent on imported food items. Rice is the principle imported staple, and movements in its retail price have been kept in check by the entry of new wholesalers sourcing rice from a wider range of producers, followed by renewed consolidation in the market.”

Tuvalu

• “Reduced seafarer remittances and higher food and fuel prices drove the economy to contract during 2009 and 2010, with the impact moderated by increases in donor expenditure. Improved remittance income is likely to spur growth of around 1 percent in 2011.”

 

 

What are economists for in the Pacific region?

I want to discuss in this post the role of economists in SPC’s work. Perhaps this may have relevance for those working for Pacific Island governments as well. Please be warned: these are the disjoined ramblings of a young applied economist (me) trying to learn by doing and I would welcome any feedback from those who have been in this for longer than I have. I hope to touch on the following areas in this post:

• What is economics for?
• How should we do it in the real world to make an impact?
• Examples of CBAs that I am doing or are on my long list

I would really welcome feedback on these questions, either as a comment or in my email inbox.

Economics for poverty alleviation and promotion of economic wellbeing

Some have been tempted to dismiss economic development in the Pacific region as an unimportant policy priority in the midst of a culture in which so many transactions are non-market, and in which the most common Non-Communicable Diseases such as heart disease and diabetes stem from abundance rather than scarcity. But poverty is a stark reality in the Pacific in which up to 40% of the population cannot meet their basic needs: an ADB report I read once put the proportion of people in Pacific Island Countries below a basic needs poverty line at between 16% (Vanuatu) and 39.6% (PNG, with three other countries at over 30%) with data missing for a few other countries or territories. Moreover, in relation to the relevance of economics, it is a reality that the Pacific region is becoming more market-oriented, and I don’t believe there is a good reason to neglect that element of human interaction just because non-market transactions through family, community and church are also highly significant here.

Economics can do much to advance poverty alleviation and economically smart policy implementation for greater economic benefit for lesser cost (and policy-making, but that’s not SPC’s job) in the Pacific region as long as we have a strategic approach and the discipline is well used.

Easier said than done

However this role of poverty alleviation and advancement of economic welfare through economic analysis is much much easier said than actually achieved, and the route to impact is often diffuse and does not give immediate satisfaction. It’s really hard and it takes a long term view. In a situation of data scarcity, with project leaders who don’t have the time or spare capacity or perhaps budget, if that is required, to go out and search for the data needed for economic analysis, it is easy to ignore the economics and focus on the ‘doing’ – getting those training workshops done or budget released for this or that building project or seeds disseminated or documents prepared.

But I think a good way forward for economists may be to find to somehow find those pieces of analysis whose results will be strategically positioned to make an impact in the future, and to integrate the use of economics more readily into the way we do business as a matter of course, so that opportunities for strategically placed analysis make themselves apparent. It is also important that there is a demand from key stakeholders for a certain piece of analysis otherwise it will not be listened to.  I understand that both the demand and the supply for cost-benefit analyses have been growing in the past ten years in the Pacific region. 

Perhaps the choice of strategically positioned CBAs for which there is a clear demand, could be achieved by sufficiently regular consultation between the economists and the program/project managers plus some process or criterion of prioritisation. Prioritising is important because it’s no use trying to do cost benefit analyses (CBAs) for EVERY project – with some CBAs you are simply going to have no impact, and with others, the cost of doing a CBA itself will be too high, so you have to pick the most important ones. And in terms of criteria of prioritisation of effort, the following factors should be considered:

• larger sums of money
• more people
• more people living below a basic needs poverty line
• similarity to other future projects which the analysis can inform
• feasibility of analysis and availability or ease of collection of data
• demand from key stakeholders

I list some examples below of work that I have found that needs to be done (although I don’t have the capacity to do it all!) relating to Land Resources Division, at least some of which I think could be useful.

How does economics tie in with the project cycle?

The scarcity of economists in the region made itself particularly apparent to me when I was asking myself questions about the exact nature of my own role back in early 2011, and was referred by another SPC economist to the UK Treasury’s Green Book which is essentially a handbook to the use of economics in government policy in the UK. The book makes clear that the use of a staple tool of economics, cost-benefit analysis, is at the heart of the monitoring and governance of much of what the UK civil service does.  Indeed, the Treasury states that “all spending proposals should be accompanied by a proportionate and well structured business case”.  You may be thinking that the UK is not a good comparison at all to the Pacific region – and be assured that I am not comparing it directly; moreover the Green Book may seem a terribly dull document.  But here in Suva I read it from cover to cover and found it a very useful starting point for thought. I say starting point because in the Pacific one can never just lift a policy ‘off the shelf’ and apply it, it must be adapted to context.  So I adapted the following diagram from the book which shows how economics work can mesh into the program or project cycle.

The project cycle is often not as linear as this but this is a reasonable representation.  It can apply to policy implementation anywhere in any country.  The economics points on the right are not all 100% necessary – indeed in the Pacific and with relatively small projects in terms of budget size it is either impractical or too costly to conduct all the steps for every project, particularly smaller ones.  This is why it is important to select those pieces of analysis that are likely to have the greatest impact; indeed as Resource Economist in LRD I have found that selection of the right pieces of analysis is a skill in itself and requires broad consultation and judgment.

Here are some examples either of my work or the long list of work that I have in my back pocket to do when I get round to it:

Projects I shall be working on in the next few months

This is not an exhaustive list:

• A cost-benefit analysis of Fair Trade certification of sugar in Labasa, Fiji Islands, that could shed light on the decision to extend fair trade certification to the rest of Fiji sugar.

• A cost-benefit analysis, from the farmers perspective and the perspective of a cocoa supplier, of Fair Trade certification of cocoa beans in Solomon Islands

• A cost-benefit analysis of the work of the EU-Facilitating Agricultural Commodity Trade to assist a cocoa supplier in the Solomon Islands

• A cost-benefit analysis of three different production methods of virgin coconut oil and possibly socioeconomic analysis (analysis of the distribution of the benefits) of each.

• Tonga Household Income and Expenditure Survey Data – poverty analysis, food consumption trends, nutrition analysis

• Fact-finding missions to fill in agricultural and forestry-relevant development indicators with relevant data, to Tonga, Samoa and Solomon Islands.  An LRD colleague is covering 3 other countries.

Projects that I discovered through interviews with the LRD Coordinators back in June that may be in the pipeline in future:

• Paper highlighting the economic and possibly the nutritional importance of increasing domestic consumption of domestically produced food as a % of total food consumption, and taking into account what drives consumer behaviour (probably convenience) when substituting for imports

• Study on agrobiodiversity and economic risk – how much agrobiodiversity is needed before economic risk/risk to sustainable livelihoods is decreased to an acceptable level?

• Cost analysis of imported foods versus locally produced foods

• The benefits vs costs of Integrated Pest Management vs no IPM

• Post-project impact assessment of ACIAR Taro beetle project which finished 2 years ago.

• ACIAR – Developing cleaner export pathways project: relatively simple assessment of costs and benefits of different production methods in the taro supply chain, for example: Use of crates vs bags between the farm and the pack house; Use of hot water treatment vs paying for fumigation

• CBA of an animal disease prevention strategy: would the expected benefits in terms of insurance against a pandemic, justify the costs?

• An investigation of the impact on farmers profit over time of sustainable land use practices. Would either require a large dataset or a case study of 8 farms – 4 sustainable, 4 business-as-usual – describing their costs and profits over a period of time e.g. 5-10 years. Same could be repeated in 3 or 4 countries – Polynesia, Micronesia, Melanesia.

I have put it all out there – I hope this has enlightened about how I see the role of economics in the Pacific region – I would welcome any feedback!

1000 hits – thanks!

A big thank you to LRD Economics readers for your interest and support: this blog now has over 1000 hits since its launch in June and that number is steadily growing.

I’ve been on leave for just over a week but more posts to come soon.  Today on my first day back I’m attending a very interesting workshop from the Pacific Climate Change Science Program, learning about what tools and publications are available on climate change in the Pacific and meeting a number of interesting climate change-engaged people from the Fiji government, University of the South Pacific, SOPAC-SPC, AusAid and ADB.  The second part of the workshop is training the participants to use climate change prediction software for Fiji, which will be publicly available from December for all Pacific Island Countries.  My own reasons for being here are to network and get up to speed on climate change science, tools and publications in the Pacific as I am putting together an LRD proposal that links climate change to both land administration and sustainable land management in the Pacific region.   I hope to finish this soon.

But I digress…this is just to say: thank you for your interest in the blog and please keep on visiting for updates.

Should we tax fat like we tax cigarettes and alcohol? The economics of nutrition

This post sketches an attempted definition of a well-crafted duty on unhealthy food, more popularly referred to as a “fat tax”.

EIGHT out of the world’s top ten fattest countries are Pacific Island Countries according to a list published by the Global Post  in November 2010 on the basis of World Health Organisation data.  NB: after a few google searches I cannot find the original World Health Organisation data but the Global Post’s list for the previous year does correspond perfectly to the WHO global BMI database.  However the 2009 list does not include data for many PICs, so for interest’s sake, and because this is a blog not an academic paper, the 2010 list in is as follows, with percentage of people who are technically overweight, obese or morbidly obese (with a BMI over 25):

1. Nauru: 95 percent
2. Micronesia: 92 percent
3. The Cook Islands: 92 percent
4. Tonga: 92 percent
5. Niue: 84 percent
6. Samoa: 83 percent
7. Palau: 81 percent
8. United States: 79 percent
9. Kiribati: 77 percent.
10. Dominica: 76 percent

Houston, we have a problem! 

It should be mentioned that Body Mass Index is a pretty crude measure of weight that does not account for different body types between countries.  In particular the benchmark of BMI>30 as a measure of obesity has been criticised as not appropriate for the Pacific.  Having said that, weight and diet are undeniably issues in the region contributing very significantly to Non-Communicable Diseases, alongside inactivity and substance abuse.

In an attempt to change Pacific diets for the better, some countries have tried less orthodox methods that stray into the realm of economic policy.  In a fascinating development the government of Fiji recently announced its intention to follow Denmark’s implementation of a tax on saturated fats.  In 2007 Samoa banned turkey tails although they are still allowed in if attached to a turkey.  Moreover, on my recent trip to Tonga I came across a 2009 report commissioned by the Tonga Ministry of Health recommending high import and excise duties on turkey tails and mutton flaps and lower duties on healthy foods such as breakfast cereals and vegetables.

Disclaimer: I am writing this without knowledge of what has transpired after the Tonga report nor what other similar initiatives  or analysis, apart from those I have mentioned, have taken place across the Pacific.  I only mean to lay out some thoughts on how a good dietary tax might look.

An increase in tax or import duty on food packed with saturated fat seems to serve two good purposes:

• raise government revenue
• reduce consumption of fatty food because such food becomes more expensive

The idea is intuitively attractive and may work well IF people do in fact change their behaviour to a healthier pattern.  Indeed we have been taxing cigarettes and alcohol for years under exactly the same principle, and increased taxes have helped reduce smoking in particular.  A number of studies have identified that they would do so for dietary taxes as well.  However, the evidence comes with caveats and there is quite a debate about the benefits of a fat tax: badly done, it could cause more harm than good. 

The first objective of increased government revenue is fairly unambiguous. 

However the second objective is more complex than it first appears – because it involves both human behaviour and nutritional outcomes. 

For example, one 2009 paper published in the Journal of Public Economics ”explores conditions under which obesity will rise, fall, or remain intact following the introduction of a fat tax or a thin subsidy” in a food-intake rational choice model that incorporates exercise, cooking time/effort and food cost, and finds that for a weight-conscious, physically active individual, a fat tax may increase obesity through increased time spent cooking and decreased time spent devoted to physical activity.

Some empirical evidence from America shows that the magnitude of the fat tax needs to be high in order to actually change consumption behaviour: “The limited existing evidence suggests that small taxes or subsidies are not likely to produce significant changes in BMI or obesity prevalence but that nontrivial pricing interventions may have some measurable effects on Americans’ weight outcomes, particularly for children and adolescents, low-Socio-Economic Status (SES) populations, and those most at risk for overweight. Additional research is needed to be able to draw strong policy conclusions regarding the effectiveness of fiscal-pricing interventions aimed at reducing obesity.”

Moreover, on the nutritional side, a fascinating 2006 empirical paper from a UK dataset, says that taxing saturated fat may not be better for health as people may consume more salty food instead which is equally bad for cardiovascular health.  The paper’s results show (text from the abstract) that in the UK:

1. Taxing only the principal sources of dietary saturated fat is unlikely to reduce the incidence of cardiovascular disease because the reduction in saturated fat is offset by a rise in salt consumption.
2. Taxing unhealthy foods, defined by SSCg3d score, might avert around 2300 deaths per annum, primarily by reducing salt intake. 
3. Taxing a wider range of foods could avert up to 3200 cardiovascular deaths in the UK per annum (a 1.7% reduction).

Thus taxing a wider range of unhealthy foods may work to “plug all the holes” so that people do in fact substitute towards eating healthy foods, whereas taxing just one unhealthy food may lead to people consuming more of others.

A point I want to raise is: a fat tax on imports could be good for local farmers who produce import substitutes such as any poultry farmers in Tonga (substituting for turkey tails?), but decreasing tax on HEALTHY imported food such as fruit and vegetables may harm local farmers who produce import substituting vegetables.  The impact on domestic agriculture of such a tax needs to be thought through.

Finally, the distributional consequences should also be thought through.  Would a high fat import duty hurt the urban, time-constrained poor too much?  The poor tend to spend a much higher proportion of their income on food.  Thus a fat tax would be likely to be a regressive tax, and the extent of this should be weighed against the health benefits of such a tax.

To summarise the messages contained in these points:

• We need to think about the consequences of a fat tax for human consumption and lifestyle patterns.  What would people consume instead?  Would they become less physically active if they had to spend longer cooking local food?
• Therefore we need a carefully crafted tax, possibly that captures a wider range of unhealthy imports.  In the Pacific there almost certainly isn’t the data to run statistical regression analysis but it may at least be good to consult a cross section of our communities on these behavioural questions.
• To have a real effect on health, the tax needs to be large enough.
• Any economic effects on local farmers would need to be considered.  They could theoretically be positive (fat tax), or negative (thin subsidy e.g. lowering duties on imported fruits and vegetables).  This is a matter for empirical observation.
• The distributional consequences, especially in poor Pacific Island Countries, with large populations of urban poor with imported food as a high proportion of diet, need to be considered.  They would not necessarily invalidate the idea of a dietary tax but must be at least accounted for in the discussion.

RIP Wangari Maathai

Professor Wangari Maathai, a Kenyan environmentalist, died on 25th September.  In 2004 she won the Nobel Peace Prize for her contribution to sustainable development, peace and democracy, the first environmentalist and the first African woman to do so.  This post is simply to pay respects to her from the Pacific region, with which she undoubtedly had common cause.

Professor Maathai founded the Green Belt Movement, the mission of which is, according to its web site: “to mobilize community consciousness- using tree planting as an entry point- for self-determination, equity, improved livelihoods and security, and environmental conservation.

She then served served as Assistant Minister for Environment and Natural Resources in the government of President Mwai Kibaki between January 2003 and November 2005.  She had earlier become also the first East African woman (and the first of many) to gain a doctorate, in 1971, studying in Germany, US and Kenya.

According to Joseph Kabiru, she was: “a thorn in the side of the Kenyan authorities – ‘that woman’, they used to call her – and was never afraid to speak the truth to the most powerful world leaders when they dragged their feet on climate change”.

Former United Nations Secretary-general Kofi Annan said that “Wangari was a courageous leader. Her energy and life-long dedication to improve the lives and livelihoods of people will continue to inspire generations of young.”