BSB113: Obesity Epidemic and Sugar Sweetened Beverages in Australia

This research essay investigates the significant contribution of sugar-sweetened beverages (SSBs) to the obesity problem in Australia, a country grappling with high SSB consumption rates and a rising prevalence of obesity. The essay begins by establishing the positive correlation between sugar intake and obesity, highlighting Australia's position as a major consumer of SSBs and the subsequent rise in obesity rates, both in adults and children. It then explores the economic and social costs associated with obesity, emphasizing the impact of SSB consumption. The essay delves into the economic principles of SSB consumption, including consumer preferences, utility, and affordability, and illustrates the social cost of obesity through a graphical representation. Furthermore, the essay critically analyzes potential policy solutions to mitigate SSB consumption and its impact on obesity, such as sugar taxes and licensing policies, evaluating their effectiveness and social implications. The essay concludes by emphasizing the importance of implementing effective policies to address the obesity epidemic in Australia, based on the evidence presented.

Running head: Effect of Sugar Sweetened Beverage in Australia
Effect of Sugar Sweetened Beverage in Australia
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1Effect of Sugar Sweetened Beverage in Australia
Sugar and obesity share a positive relation between themselves. Australia is one
of the largest consumer of sugar sweetened beverages (SSB) in the world and thus the
country is experiencing the problem of obesity. This research essay studies the
contribution of SSB on obesity problem of the country and along with that critically
analyze the policies to curb SSB consumption.
Most of the countries in the world is trapped in the problem of obesity and the
problem is increasing every year. According to studies, it is proved that one of the major
reason of obesity is over consumption of sugar or sugar contained foods and drinks.
Apart from being one of the largest consumer of sugar, Australia is among the countries
that houses most number of obese people in the world (Ahmad et al., 2019). In the past
ten years, the number of obese people in the country has risen two times. The number
of obese adults in the country in 2007-08 was 2.8 million and now the number is 5.7
million. The increase in obesity problem is so large that it has taken a form of epidemic
in Australia. In less than 30 years the percentage of obese people in the country
increased by 23.3% (Static1.squarespace.com., 2020). Considering, the trend of increase
in obesity problem it is estimated that percentage of adult obese people in the country
will reach 40% in the next 10 years. The problem of obesity is not limited to the adult
population of the country only, it is present in the child population too. The number of
obese children in the country was 249, 000 in 2011-12 and it increased to 396, 400 in
2017-18. There is 60% rise in the child obesity in the country. Obesity is considered as
the doorway to various harmful diseases such as Type 2 diabetes, cancer, cardiac
diseases and insulin resistance (Who.int., 2020). However, according to WHO children
are more vulnerable to obesity because including the above problems children suffer
from bones weakness too (Skinner et al., 2018). In Australia, of total sugar consumption
52% comes from consumption of SSB. Thus, it can be said that nearly 50% obesity in
the country occurs due to SSB. The sum of direct and indirect cost of obesity in
Australia has been calculated as $8.6 billion and following the trend in 2018, this cost
reaches $11.8 billion. Therefore, social cost of consumption of SSB in Australia is quite
high.
It is already known that consumption of SSB in Australia is very high which is
why the country is struck with obesity problem. Consumption of SSB is growing all
around the world and Australia is following the suit. Most people are inclined towards
the consumption of SSB naturally and with the influence of advertisement and
promotional activities to increase sales of SSB has impacted the society significantly
(Hoare et al., 2017). Consequently, the amount of consumption of SSB has increased.
Data show that 9.1% of the Australian population consume SSB regularly. Previously,
there was no such restriction on the consumption of SSB and thus people consumed
high amount of such drinks (Abs.gov.au., 2018). Consumption depends on three factors
and they are preference, utility and affordability. Australia is a developed country and
thus almost all of population are able to afford SSB. It should be noted that SSB are
cheap and the producers offer them in various form and taste keeping in mind the
preferences of consumers. Therefore, consumers in Australia purchased as many SSB
as required to maximize the utility. As a result, consumption of SSB exceeds critical
threshold resulting in obesity. The social cost of obesity due to SSB consumption is
illustrated in Figure 1.

2Effect of Sugar Sweetened Beverage in Australia
PMC=S1
SMC=S2
Q#
1
Q*
P*
P#
1
SSB
Consumption
Price of SSB
D
Deadweight Loss
Tax
PMC=S1
SMC=S2
P*
P#
Price of SSB
Deadweight Loss
Figure 1: SSB consumption and obesity as
social cost
Source: (Created by the Author)
In figure 1, PMC is the producers’ marginal cost and SMC is the social marginal
cost. Intersection point between demand (D) curve and PMC gives the free market
equilibrium of the SSB market. At this point, Q* and P* is the equilibrium quantity and
price (Colborne, 2016). However, the socially efficient price and quantity is given by
intersection point between D and SMC. At this equilibrium, quantity and price is shown
as Q# and P#. Thus, when the market operates at free market equilibrium then there
occurs loss in social welfare known as deadweight loss and shown as green triangle in
the figure (Alston & Okrent, 2017). It is the social cost of obesity caused due to over
consumption of SSB. Thus, Australia is in immediate need of polices those will remove
the social cost of obesity.
Obesity in Australia has reached to such an extreme point that if not dealt with
proper policy implementation, all of country’s population will turn become obese in next
25 years. The question is what policy the country should use to curb the problem of
obesity by reducing the consumption of SSB. It the countries like Mexico and England
the government has imposed sugar tax to reduce SSB consumption. The concept of the
policy is to increase the price of SSB such that consumers are discouraged to consume
SSB beyond a certain point (The Conversation, 2016). The tax that is imposed on SSB
is shared by both the producers and consumers. Due to this, the quantity of SSB traded
in the market fell to the socially efficient level where there is least chance of occurrence
of obesity (Johnson, 2018). The policy is graphically illustrated in figure 2. In the figure,
it can be seen that after tax, the price of SSB has increased to P# but the price received
by the producer is P1 which is lower than the original price P*. At this price, the quantity
traded in the SSB market is Q# and is socially efficient that means there is no social
cost as obesity. Due to tax, the government receives tax given by the difference
between P# and P1. However, in this policy producers are getting penalized as they
have lost significant amount of surplus which is unfair from their perspective. It should
be noted that this policy is price policy that controls the market by influencing price of
the market.

3Effect of Sugar Sweetened Beverage in Australia
P1
1
Q#
1
Q* SSB
Consumption
D
PMC=S1
SMC=PMC=S2
Q#
1
Q*
P*
P#
SSB
Consumption
Price of SSB
D
Deadweight Loss
Figure 2: Sugar tax policy in SSB consumption
Source: (Created by the Author)
The sugar tax about which discussion is made above directly influences the price
and is not socially efficient as they causes significant loss to producers. However, there
are policies those are socially efficient than sugar tax or price oriented policies
(Cotwright et al., 2019). These policies mostly controls the market by restricting
production and thereby rescues consumption. One of such policies is licensing policy
under which the government provides license to limited number of producers such that
the amount of SSB produced remains at socially efficient quantity Q# as given in figure
3. Under this policy the PMC become shifts to S2 and become equal to the SMC and
thus free market equilibrium equals to the socially efficient equilibrium. In addition to
that, the equilibrium price increases to P#, however, the producer receives eh increases
price and thus there is no loss of surplus for the producers (Allcott, Lockwood &
Taubinsky, 2019). The policy is efficient enough to remove the problem obesity
completely and not at the cost of benefits of the producers. However, it has been found
that in Australia, the government has taken the policy of sugar tax and thus it receives
revenue which it can use for well-being of the people of the country.
Figure 3: Licensing policy on SSB production
Source: (Created by the Author)
The above discussion on SSB and obesity in Australia leads to the conclusion
that the consumption of SSB plays crucial role in increasing the obesity problem in the

4Effect of Sugar Sweetened Beverage in Australia
country. The trend of SSB consumption and obesity in the country showed that the
problem of disease occurrence due to obesity will increase significantly. Thus, the
country should use the above mentioned policies to mitigate the existing problem of
obesity.

5Effect of Sugar Sweetened Beverage in Australia
Reference
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%20consumption~110
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6Effect of Sugar Sweetened Beverage in Australia