International College Essay: SSB Consumption and Obesity in Australia

This economics essay examines the escalating obesity problem in Australia, with a specific focus on the contribution of sugar sweetened beverages (SSBs). The essay begins by presenting the prevalence of obesity in Australia, highlighting the increased rates among both adults and children. It then explores the health issues associated with obesity, including type 2 diabetes, cardiovascular diseases, and various cancers, and emphasizes the significant role of sugar consumption, particularly from SSBs. The essay delves into the economic aspects, quantifying the financial burden of obesity in Australia and analyzing the concept of social costs arising from excessive SSB consumption, using graphical representations to illustrate market inefficiencies. It then critically evaluates policy interventions aimed at curbing SSB consumption, such as sugar taxes and consumption restrictions, assessing their effectiveness and social implications. The conclusion summarizes the key findings, emphasizing the need for effective government policies to mitigate the obesity crisis and recommending the adoption of either sugar tax or licensing policies based on specific requirements, like revenue generation or social efficiency.

Running head: Sugar Sweetened Beverages and Externalities
Sugar Sweetened Beverages and Externalities
Name of the Student
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1Sugar Sweetened Beverages and Externalities
This essay studies the obesity problem in Australia and analyses the contribution of sugar
sweetened beverages in aggravating the concerned problem. Additionally, it studies the
associated health issues that occurs due to obesity in all age groups and critically analyses the
policies that are suitable to reduce obesity problem by controlling consumption of sugar
sweetened beverages.
Obesity is a worldwide problem and one of the reason of occurrence of obesity is over
consumption of sugary products such as sugar sweetened beverages. The problem of obesity is
prevalent in Australia too. As per adult obesity data, Australia is at rank 27 with 29% of the adult
population suffering from the obesity problem in 2015. However, the percentage has increased
in 2017-2018 by 2% and reached 31%. Additionally, 12.4% of children in Australia has obesity
problem in 2015 and for the children this percentage has increased drastically to 25% in 2017-
2018 (Australian Institute of Health and Welfare, 2019). Obesity itself is not a critical kind of
disease but physical condition of a body occurs mostly due to over calorie consumption.
However, obesity is the reason for emergence of various kind of disease and many of them are
fatal. Due to over consumption of sugary beverages the children become obese and more prone
to type 2 diabetes and apart from that, bones become weak and prone to fracture. The kids with
high consumption of sugar are prone to cardiovascular diseases, become resistant to insulin and
in addition to that, dental erosion occurs. Along with all these, the possibility of cancer increases
in adults. It has been found by WHO that chances of occurrence of 13 types of cancers increase
due to obesity (Wiki.cancer.org.au., 2019). Sugar is a major reason of obesity and it has been
found by studies that the 52% of the consumed sugar by Australians are sourced from sugar
sweetened beverages (SSB) (Miller et al., 2019). Thus, it is evident that SSBs play a crucial role
in increasing obesity among Australian people. It has been found too that the cost of obesity in

2Sugar Sweetened Beverages and Externalities
PMC=S1
SMC=S2
Q1 Q
P
P1
SSB Consumption
Price of SSB
D
Deadweight Loss
Australia in 2011-2012 was $8.6 billion including both direct and indirect costs (Australian
Institute of Health and Welfare, 2019). Thus, it can be understood that around 50% of this cost is
coming from consumption of SSBs. Hence, the cost of consumption of SSB in Australia and it
should be mitigated immediately.
Most people love to consume sugar and majority of them love SSBs and consume then in
the form of packaged fruit juice, soft drinks, sweetened coffee and many more. However, over
consumptions of anything is harmful for health and the fact is true for SSBs too. However, utility
extracted from consumption is not drawn from physical health factors but from taste preference
and habitual factors. Thus, demand for SSBs under free market is decided where utility is
maximized from the consumption. Due to this reason, people tend to consume more SSBs as
there is no restriction and thus indulges themselves in over consumption. Further, it leads to
health issues caused due to consumption of SSB. Thus, obesity occurs that increases the chances
of various diseases and thus several health problems occur. These health issues accrue some cost
and that are termed as social cost in theory of economics. The graphical representation of this
economic condition is shown in figure 1.
Figure 1: Social Cost of SSB
Consumption

3Sugar Sweetened Beverages and Externalities
Source: (Created by the Author)
From figure 1, it can be seen that PMC is the producers’ marginal cost and P and Q is the
price and quantity respectively for SSB in the free market. Additionally, the socially desirable
consumption of SSB is given by the intersection point between social marginal cost curve (SMC)
or S2 and demand curve D (Mathieu-Both & Wendner, 2018). At this point equilibrium price
and quantity is given by P1 and Q1 respectively. Under no restriction, the market for SSB
operates at the point where PMC intersects demand curve and thus produces a social cost shown
as deadweight loss in the figure. This deadweight loss is occurred due to obesity associated
diseases caused due to over consumption of SSB (Lusk, 2017). The social cost or negative
externality can be internalized if equilibrium of the market occurs at the intersection point
between SMC and demand curve. Thus, to internalize the negative effect of over consumption of
SSB policies are required to move the market equilibrium to socially desired level.
SSB consumption in Australia cannot be curbed or reduced by leaving it to the free
market operations, effective policy interventions are required from the end of government of the
country. It has been observed that the United States has imposed tax on manufacturers of SSBs
(Falbe & Madsen, 2017). Due to this imposition of tax the manufacturers are forced to increase
the price and thus demand of the SSB decreases to the socially desired level where the negative
externality is internalized and the no dead weight loss of social welfare exists. The graphical
explanation of the sugar tax on SSB is shown in figure 2 (Beeley, 2016). In the figure,
equilibrium price and quantity is given by P and Q respectively. Now, the government imposes
sugar tax and thus price increases to P1. Due to this, the demand for SSBs declined and
manufacturers are forced to produce below their capacity. However, the price received by the
manufacturers fell to P*. The amount of tax per unit if SSB sold is given by difference between

4Sugar Sweetened Beverages and Externalities
Tax
P*
PMC=S1
SMC=S2
Q1 Q
P
P1
SSB Consumption
Price of SSB
D
Deadweight Loss
PMC=S1
SMC=PMC=S2
Q1 Q
P
P1
SSB Consumption
Price of SSB
D
Deadweight Loss
P1 and P*. Tax is the revenue collected by the government. Under sugar tax policy both the
producers and consumers are loss some of their surplus. Thus, internalizing of negative
externality should not occur at the cost of producers or consumers
since depriving people is not the motive if any policy.
Figure 2: Effect of sugar tax on SSB consumption
Source: (Created by the Author)
The above policy is price oriented policy but there are policies that would not affect the
price however would effectively reduce the consumption of SSB. One such policy is restriction
on consumption of SSB. Due to this, the demand for SSB would automatically reduce to the
socially desired level and thus there will be no social cost or deadweight loss. This is depicted in
figure 3.
Figure 3: Consumption restriction policy on SSB

5Sugar Sweetened Beverages and Externalities
Source: (Created by the Author)
Under consumption restriction policy, the government limits the production of SSB at
Q1, which is socially desirable amount of consumption of SSB. Therefore, due to this PMC and
SMC become equal at S2. Consequently, the equilibrium price and quantity under the policy is at
P1 and Q1 respectively. The consumer cannot buy more than Q1 due to unavailability of SSB.
This policy is implemented by the use of license. There is limited number of license that is
purchased by limited number of manufacturers and thus the production is limited. Under this
policy, there is no loss of producer surplus and no deadweight loss (Zhang et al. 2016). However,
there is loss in consumer surplus. However, licensing policy is more socially efficient than sugar
tax but under the tax policy, the government earns revenue that can used further for public
benefit (Breda, Jewell & Keller, 2019). Australia uses sugar tax policy and it is suitable for the
country as the government would earn revenue which it can use to mitigate the damage done by
obesity problem.
From the above discussion, it can be inferred that the cost of obesity due to consumption
of SSB in Australia is significantly high and it is getting worse with passage of time. Therefore,
the government should implement effective policies to mitigate the problem of obesity. The
policies like sugar tax and licensing policy on SSB proved to be effective. However, the
government should make the choice of policy based on its requirement. For revenue generation
sugar tax is better and licensing policy is socially efficient.

6Sugar Sweetened Beverages and Externalities
Reference
Australian Institute of Health and Welfare (2019). Overweight & obesity Overview - Australian
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overview
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7Sugar Sweetened Beverages and Externalities
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