The Republic of Nauru is currently facing an obesity crisis. More than 70% of the Nauruan population is considered obese, and a further 25% of the population is considered overweight. The high obesity rate in Nauru is posing a serious threat to Nauruan society, requiring immediate attention. This report will attempt to outline the negative implications of obesity, attribute the obesity crisis to a food market failure, and propose adequate solutions to the obesity crisis in Nauru.

Nauru Negative Implications of Obesity

According to the Global Nutrition Report, instantly produced, unhealthy fast food—hereafter interchangeable with junk food—is the main contributor to the high obesity rate in Nauru. Now, in turn, the high obesity rate is significantly burdening the Nauruan society as a whole: the junk food consumption that causes obesity entails Negative externalities.

Negative externalities of consumption are spillover effects that cause harm to a third party consuming a certain good. Following illustrates some sections of Nauran society that are harmed by these negative externalities of consumption.

Health Care Costs

The health cost of obesity extends beyond an individual’s private health care cost and burdens the society as a whole.  For example, obesity related diseases consistently had the highest bed occupancy ratio— around 80% —in Nauruan hospitals. This high demand for medical treatment related to obesity has numerous harms to Nauruan society. First the Nauruan society is spending resources to handle obesity when those funds can actually be spent elsewhere. Secondly, hospitals crowded  by patients with obesity means that hospitals are unable to allocate resources in treating other critical diseases or injuries. Hence both cases represent negative externalities burdened on Nauruan society.


There are majorly two reasons why obesity negatively impacts the Nauruan society’s work force capabilities: premature death and decreased productivity. 

Currently many of the Nauruan nationals are facing a premature death due to type-two diabetes, an obesity related disease. In fact many Nauruans fall short in life expectancy at birth compared to the global average by more than 5 years. Even worse, more than 80% of deaths in Nauru is caused by obesity related diseases. Because many people in Nauru can not fully utilize their labour resources due to premature death, there is societal harm.Even if some of these people of Nauru do not face a premature death, obesity decreases the general quality of life and makes the Nauruan workforce less productive. Obesity makes the Nauruan population harder to engage in not just physical labour but also mental labour as well, and currently more than 20% of the Nauruan workers are unemployed due to obesity compared to the global average of 5%. Again both of these cases are  negative externalities put on the Nauruan society.

Nauru Food Market Failure

Market failure occurs when the market equilibrium for a good does not translate to the societal optimum. To better understand the current food market failure in Nauru, it is important to recognize that an individual’s benefits derived from consuming fast food might not equate to the society’s benefits derived from that act of consumption. In fact, fast food consumption causing societal harm has already been demonstrated in the report in the section ‘Nauru Negative Implications of Obesity.” The consumption of junk food in Nauru is less beneficial for the Nauruan society than it is to a Nauruan individual, thus the consumption of it is less desirable in the societal perspective. 

In a joint investigation with The Boden Institute of Obesity, the Nauran Ministry of Health and Medical Services estimated that the current obesity problem is costing the Nauran society AUD 1.2 Million annually (AUD 747/ Capita / Year) or (AUD 0.7 / Capita / Meal). This comprehensive figure incorporates the aforementioned public health care costs, loss of workforce capabilities, and any other relevant factors.

The diagram (FIG.1) depicts the fast food market failure in Nauru. The current fast food market equilibrium is formed at an average meal of fast food costing around AUD 14.6 (PE) and (QE). However, as fast food consumption has negative externalities (NEC), the Marginal Social Benefit is less than the Marginal Private Benefit when consuming fast food in Nauru (MPB > MSB). Thus there is a Welfare loss of AUD 1.2 Million that could be captured between (QE) and (QOpt).
Simply put, there is an over supply and consumption (QE – QOpt) of fast food in Nauru. If the food market in Nauru is left uncorrected, the Nauruan food market will be in a constant state of social inefficiency, which will continue to cost the Nauruan society AUD 1.2 Million annually.

Case Study on Mexico

As a solution to this market failure, the report conducted a case study on Mexico. Also causing a serious problem in Mexico, obesity was tackled by the Mexican government through an implementation of ‘sugar tax.’ The 10% sugar tax on all fizzy drinks is known to have reduced the quantity consumed of sugary drinks in Mexico by 5.5% in the first year and nearly 10% in the second year. The evidence also suggests that the sugar tax not only limited some people from purchasing the fizzy drinks through the sheer rise in price but also created a long lasting behavioural change within the Mexican population that will discourage the consumption of sugary drinks in the long term. The report predicts similar effects in Nauru if such a tax was implemented by the Nauran government.

Proposed Solution

To fulfil the aim of reducing the quantity of fast food consumed to the societal optimum in Nauru (QOpt), the report strongly argues for an indirect ‘Junk Tax’ to be imposed on all fast foods. An indirect tax would effectively increase the average price of fast food meals to  (PE1) , compensating for the AUD 0.7 negative externality of consuming a meal of fast food. The diagram above (FIG.2) illustrates the process. After the ‘Junk Tax’ is imposed,  the private cost of Consumption (MPC) shifts upwards to a new (MPC1). Then, although the new market equilibrium price of junk food will be at an increased price of (PE1), the new quantity of fast food consumed will meet the (QOpt), correcting the market equilibrium and capturing the AUD 1.2 million welfare loss.


However to recognize the possible criticisms, this Junk tax alone may not yield intended outcomes. Contrary to the situation in Mexico, the country of Nauru is incapable of producing its own fresh food and primarily relies on foreign aid that usually consists of canned, fast food goods. Because of the decades of reckless  phosphate mining that provided temporary wealth to Nauruans, nearly all of the Nauruan population grew reliant on these junk food as many formed new habits of importing western style fast food instead of fishing or farming. 

This means that the rise in fast food prices can devastatingly affect the Nauruan consumers by decreasing their real income. The policy may also have significantly reduced effects in curbing the junk food consumption because the demand for junk food in Nauru may be very inelastic. Without substitutes and with heavy reliance on fast food, demand for fast food being inelastic would mean that the price increase created by a Junk tax will not significantly reduce the quantity consumed of fast food in Nauru.

However, because the obesity situation in Nauru is severe, all measures to curb fast food consumption are necessary. Thus the junk tax should be compensated with the combined efforts to reduce the junk food consumption: possibly obesity awareness campaigns and further development of the agricultural sector to provide the Nauruan population with a fresh, healthy substitute to junk food.


Alarmed by the obesity crisis caused by the food market failure in Nauru, this report therefore urges the department of finance to impose a junk tax on all fast food products consumed in the country. To aid this effort, other measures should also be taken to decrease the demand for junk food, discouraging consumption of fast food in general.


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Sang Yoon (Fred) Lee
Sang Yoon (Fred) Lee

He is a student of NLCS Jeju. The article was written as one of the Common Assessed Pieces (CAP) during IB Economics Class.


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