HomeArticlesThe Future Plant-based milk alternatives are growing increasingly popular across Europe. From soy to oat, many milk alternatives are now available in regular supermarkets, coffee chains and even small local cafés. But why do milk alternatives have a higher price mark, and what does taxation have to do with it? Plant-based Milk Alternatives Are Taxed MoreWhile the price of milk alternatives is shaped by different variables, such as price of raw material, production volume output, demand and scalability, differential taxation is one external factor that could help close the price gap between milk and milk alternatives – but ultimately proves to actually be increasing the gap.Dairy Alternatives are taxed up to 450 % more than milkIn Europe, traditional dairy products often fall under the reduced VAT rate (Value Added Tax) as they are considered staple foods. This means that part of the taxes is waived by authorities. Meanwhile, dairy alternatives are taxed as ‘luxury goods’, which in some countries accounts for a difference in taxation of up to 450%. In Germany, the classification of goods into ‘luxury goods’ or ‘staple foods’ categories has been critiqued as somewhat arbitrary.1 For example, while cat food is taxed with the lowered 7% VAT reduced rate, consumers buying baby food are paying the regular VAT rate 19%. Freshly squeezed orange juice is also subject to the full 19% VAT, but if you prefer your fruit blended instead of juiced, you will enjoy the lower 7% tax rate for your smoothie. The list of seemingly odd differential taxation continues - including plant-based milk alternatives. Countries like Germany, Poland, Italy, Spain, Greece, Slovakia and Austria apply significantly higher taxes to plant-based milk alternatives. In Germany, cow’s milk is taxed with a reduced VAT rate of 7%, while plant-based drinks are considered luxury goods and are therefore taxed with the regular 19% VAT. This adds up to a 171% increased tax rate for plant-based milk alternatives. The gap is even greater in other countries such as Italy, where cow’s milk is taxed with only 4% and plant-based alternatives with 22%, which amounts to a whopping 450% higher taxation. In other European countries, such as Denmark and France, the VAT applied for cow’s milk and plant-based milk is the same (25% and 5.5% respectively).With dairy alternatives already being 50 – 100 % more expensive compared to their dairy counterpart, this is playing a crucial role in the acceptance of such beverages: 4 in 10 consumers state that they avoid or limit purchasing dairy alternatives due to their higher price.2 Created by Paulina Cerna-FragaTaxing Milk Alternatives: Double standardsWhether on a national or pan-European level, subsidies and tax reliefs shape product pricing and therefore consumer decisions. With climate change already transforming our planet and extreme climate events like fires, floods and droughts becoming more frequent, choosing a more sustainable diet is one way to demand a better food system with lower environmental impacts. According to a 2018 study conducted by Poore and Nemecek, a more plant-based diet could reduce greenhouse gas emissions by the food sector by up to 76%. The study estimates that up to 10.4 billion tonnes of CO2 equivalent could be saved per year if consumers replaced half of the animal products they consume with plant-based alternatives.5 Why then, one may ask, are local and European authorities making it harder than necessary for consumers to make more sustainable choices that would help meet sustainability goals and ultimately benefit the planet? Learn more about the environmental footprints of various Plant-Based Milk Alternatives.Lowering the VAT on plant-based milk alternatives would help make them more affordable, giving a fairer opportunity for more consumers to choose more sustainable options. Right now, the reduced VAT rates for dairy products seem like another form of subsidy - however less obvious - for the struggling dairy industry. Supporting Dairy - A Conflicting Interest? But supporting the dairy industry isn’t a novelty in the European Union. In 2018, for instance, the EU granted funds to Spain to counteract the downward trend of dairy consumption in Spain over the last years. Contributing more than 1 million EUR in funds, the EU supported the Spanish Interprofessional dairy organisation (NLAC) to coordinate a 3-year campaign including a 25.000km roadshow, synergise with medical professionals and create informational materials to educate about dairy and its benefits.3 This might sound counterproductive, as the EU also pours one-third of its funds into European agriculture as part of their Common Agriculture Policy (CAP) to financially help farmers make a living and support the supply of affordable food, but also aiming to help tackle climate change and support the sustainable management of natural resources.4Given the fact that the production of dairy milk amounts for considerably higher uses of resources (land and water) and results in significantly higher CO2 emissions (relevant for climate change) than plant-based drinks, supporting both causes to fight climate change and help the dairy industry to revive their business sounds like conflicting interests.Read More About The Common Agricultural Policy (CAP).Recently, global ‘food awareness’ NGO ProVeg called on national lawmakers to end this unfair VAT gap on plant-milks and drew the public eye on this double standard.6 However, little has changed in this regard since then. Policymakers still seem reluctant to pave the way for dairy alternatives. For instance, in 2017, the EU strictly banned the term “milk” for purely plant-based products in 2017.7 While on the surface, this was claimed to be a ruling to protect consumers, surveys show that consumers are not confused by terms like “soy milk” or “plant cheese”, especially since their purely plant-based ingredients are usually marketed in a transparent way.However, the ruling established that the terms ‘milk’, ‘cheese’, etc. are unique to dairy products and therefore set them apart from plant-based alternatives.7 In reality, this court decision seemed to support the dairy industry, as exclusive labels could give dairy products a competitive advantage.6 Such decisions are also shaped and influenced by powerful lobby organisations that have a significant impact on important political matters on national and pan-national levels. Choose an Alternative Milk Anyway Authorities need to be held accountable for their promises towards a more sustainable future. However, it is also upon us, the consumers, to make more sustainable choices – and make our voices heard with our purchasing power. Opting for a dairy alternative during the next trip for groceries is one small step that adds up if many consumers join together.