There are at least two potential ways in which refined sugar intake could have a toxic effect on mental health. First, sugar suppresses activity of a key growth hormone in the brain called BDNF. BDNF levels are critically low in both depression and schizophrenia.
Secondly, sugar consumption triggers a series of chemical reactions in the body that promote chronic inflammation. In the long term, inflammation disrupts the normal functioning of the immune system, and is associated with an increased risk of disease including cancer, heart disease, diabetes, arthritis, and more. It also has a detrimental effect on the brain, linked to a greater risk of depression and schizophrenia.
Sugar refers not only to refined sugar, but to many other sources as well, including high fructose corn syrup (HFCS) and starches in the form of grains and potatoes.
Sugar, inflammation and Depression
As well as sugar, another major factor that encourages inflammation in the body is oxidized omega-fats like trans fats. One the other hand, omega-3 and omega-6 fats help to reduce inflammation. Omega-3 is already well-known for improving brain health and for depression.
One study in 2007 highlighted the importance of reducing inflammation when dealing with mental health issues. It found that inflammation might be the key risk factor for depression, especially for postnatal depression. This is because post-natal women have higher levels of inflammatory markers in their body, so are at a higher risk of depression. The study found that reducing inflammation, through breastfeeding and exercise were the best remedies. 
Other studies have also found significant links between high-sugar diets and mental health problems such as depression and schizophrenia. For example, a 2004 study found that a higher dietary intake of refined sugar and dairy products over two years showed a worse outcome of schizophrenia. 
The study also linked a low dietary intake of fish and seafood (sources of healthy omega-3 fats) with a high prevalence of depression.
The authors pointed out the link between depression and physical illnesses such as heart disease and diabetes. These conditions are proven to be caused by and/or worsened by a high intake of sugary foods.
Sugar and Behavior
Sugar has been found to adversely affect behavior. Two studies from the 1980s found a relationship between sugar intake and emotional behavior.
A 1985 study found that reducing sugar intake had a positive impact on emotions.  A high sugar content and starchy carbohydrates lead to excessive insulin release, which can in turn can lead to falling blood sugar levels, or hypoglycemia. Hypoglycemia causes the brain to secrete the neurotransmitter glutamate in levels that can cause depression, anger, anxiety and panic attacks.
The second study compared the lowering of the daily consumption of sugar in juveniles to see if it had an impact on behavior. A 44 percent reduction in the incidence of antisocial behavior was found within three months after the implementation of the revised diet. 
With such detrimental effects on health, its worthwhile cutting back on sugar intake. Remember that sugar is not just refined white sugar, brown sugar is not that much different, and sugar comes in many forms including fructose, glucose, sucrose and maltose, and is found in many foods and drinks.
 Kendall-Tackett K. A new paradigm for depression in new mothers: the central role of inflammation and how breastfeeding and anti-inflammatory treatments protect maternal mental health. Int Breastfeed J. 2007 Mar 30;2:6.
 Peet M. International variations in the outcome of schizophrenia and the prevalence of depression in relation to national dietary practices: an ecological analysis. British Journal of Psychiatry (2004) 184: 404-408.
 Christensen L, Krietsch K, White B, Stagner B. Impact of a dietary change on emotional distress. J Abnorm Psychol. 1985 Nov;94(4):565-79.
 S J Schoenthaler. Los Angeles Probation Department diet - Behavior Program - An Empirical Analysis of Six Institutional Settings. International Journal of Biosocial Research, Vol 5:1, P 88-98, 1983.
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