Oebel, B. et al.Towards true prices in food retailing: the value added tax as an instrument transforming agri-food systems

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Authors: Benjamin Oebel, Lennart Stein, Amelie Michalke, Susanne Stoll-Kleemann, Tobias Gaugler
Publication Date: March 2024
Publication: Sustainability Science


Current crises (i.e., climate crisis, COVID-19 pandemic, Russian invasion of Ukraine, and the resulting energy and food shortages) indicate the need for robust, and sustainable supply chains with regional food production and farmland to secure food supply in the European Union (EU). Recent research shows that organic food is more resilient to supply chain disruptions and price fluctuations. In this context, the authors examine an approach for the sustainable and resilient transformation of agri-food networks: can an adaptation of value added tax levels work as a financial incentive to amplify resilient agricultural practices and sustainable dietary patterns? 

Within the setting of the amendment of the European framework directive on the use of value added tax levels in 2022, the authors model the effects of adapting the current German VAT system by 

  1. reducing value added tax levels on organic vegetarian food to 0 percent and 
  2. raising value added tax levels on conventional meat and fish to 19 percent. 

Based on historical data on organic sales shares and price elasticities, the authors project sales shares differentiated by product group for each scenario. Then, the authors calculate expected tax revenues, changes in consumption patterns, and arising total external climate costs in Germany for both scenarios. 

The results show the following:

  • The overall consumption share of organic food would increase by 21.83 percent due to the modeled value added tax reform compared to the status quo. 
  • Despite the value added tax reduction to 0 percent on organic vegetarian products, the measure would yield €2.04 billion in extra tax revenues in Germany per year due to the increased taxation on conventional meat products. 
  • Annual environmental costs of €5.31 billion can be avoided as a result of lower external climate costs of organic and vegetarian food. 
  • Therefore, adjusting value added tax rates in the food market can be a political instrument to drive organic food consumption and reduce animal livestock. This supports reterritorialization of agriculture and a more sustainable and resilient European food supply.

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