Economists at the University of Warwick have said that a subsidy on fresh fruit and vegetables would increase consumption by up to 15 per cent.
The study shows that high fixed costs for retailing fresh fruit and vegetables means that they cost 40 per cent more than would be efficient, unlike unhealthy alternatives, which trade close to marginal cost. The researchers suggest that introducing a subsidy to counteract this price distortion and reduce the cost of fruit and vegetables will change diets in a way that is not only healthier, but also more in line with what consumers like to eat.
Professor Thijs van Rens from the Department of Economics, one of the authors of the article, said, “The food retail market is very competitive, so if there weren’t any fixed costs you would expect food to be sold close to marginal cost. And the fact that they are not affects diets
“A higher price of any product means that people buy less of it. The question is, by how much? We find that if the market were working correctly, consumers would buy 15% more fruit and vegetables than they currently do, which would constitute a huge gain for public health.
“There is something wrong with the market, which is that there’s a high fixed cost in the provision of fruits and vegetables. The effect of that is that the prices are too high, and consumption too low. What is worse: the effect is stronger when demand is low. And demand happens to be low where people are poor. So, this market failure not only makes us all unhealthier, but it increases health inequality as well.”
As a result of their study, the economists argue for a subsidy for fruit and vegetables as high as 25 per cent to increase consumption of fruit and vegetables. It is estimated that UK supermarkets sold around £10.4 billion of fresh produce in 2017, so they estimate that funding a subsidy would cost government £2.5 billion per year, in relation to direct and indirect costs of unhealthy diets in the region of £27 billion.