Emerging Roles for Food Labels
Dr. Shida Henneberry
Professor of Agricultural Economics
Oklahoma State University
Srh@okstate.edu
Nanjing Ag University
February 2004
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Demand Side


Health Concerns
Consumers Demand More Information on
Food Attributes:
1.
2.
3.
4.
5.
Quality
Nutrition Content
Production process
Safety
The origin
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Supply Side

Quantitative Characteristics
Nutritional composition

Qualitative Characteristics
Not easily measured
Health claims: disease prevention,
fitness
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The Role of Food Labels

Voluntary Labels

Mandatory Labels
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The Use of Labels

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Nutritional content– a good source of
vitamin C,
Country of origin
Production process – free of GMO or
produced under fair labor practices,
Health Claims – May prevent cancer,
Warnings about the product – may upset
the stomach.
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Use of Labels to Gain Price
Premiums
A form of Advertising
 Product Differentiation

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Effectiveness of Labels
Research has shown that consumers
will pay a small premium for ecolabeled (environmentally sound
practices) products (apples, fish).
 Compared to Organics, Eco-labeled may
be a less-desirable choice for
consumers.

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Expenditures

U.S. producers spend over 12% of
domestic food expenditure on
packaging and advertising, including
labeling costs.
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Confused Consumers
Consumers purchasing behavior does
not always reflect their stated
preferences.
 Growth hormones and irradiation and
food safety
 Chemical residues and higher price of
organics
 Biotechnology

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Nutritional Labels
not so rational choices

Purchases do not reflect rational
choices.
1.
2.
3.
Hunger
Hectic schedule
Source of food
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Labels may help confused consumers
make choices that better reflect their
preferences.
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Costs and Benefits of Food
Labels
Benefits:
Price
premiums
Increased sales
Costs:
 Chemical analysis
 Printing of labels
 The verification associated with
on the label
 Third party services
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what is stated
12
Government Intervention in
labeling
The goal is to influence individual
consumption choices to align them with
social objectives.
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The U.S. Labeling laws
USDA governs poultry and meat labels.
 FDA governs health claims
 FTC governs advertising claims

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The NLEA
Nutrition Labeling and Education Act of 1990

NLEA required mandatory nutrition
labeling for almost all packaged food
and set strict regulations for health
claims.
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Costs of NLEA

NLEA has been costly to producers and
consumers (higher food prices). FDA
estimates that over the next 20 years,
the NLEA would cost:
$163 mil to the gov’t
 $1.4 bil to $2.3 to the food industry

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Post NLEA

Significant increases in the use of health
claims:


Fruits & vegetables
Low-fat dairy products
Nutrition labels provide measurable benefits
by improving diet quality as measured by
Healthy Eating Index (HEI).
 HEI is impacted by income, age, college
education

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Mandatory labeling
Is used to impact consumption
decisions to bring them more in line
with what is deemed best for society.
 Mitigating potential inefficiencies
resulting from imperfect information
about product characteristics
 Experience and Credence
Characteristics.

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Processed Based Labeling
Inform consumes
 Shape the production process
 In case of credence characteristics
consumes may trust public agencies
more.


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Food safety
Production conditions
GMOs
Ethical characteristics
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Response to GM Food Labeling
is Mixed
Chinese consumers place a higher value
on technology
 European & Japanese consumers may
prefer traditional ingredients
 53% of Europeans reject GM foods.
 64% of US consumers are supportive or
neutral towards GM foods.

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Country of Origin Regulations

The 2002 U.S. Farm Bill mandated COOL
for fresh & frozen food commodities such
as:







Beef
Pork
Lamb
Fish
Fruits & Vegetables and
Peanuts
The new law will take effect in September
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2004
Exclusions for covered
commodity include:

Being an ingredient in a processed food
item.

Being served in a food service
establishment
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Expected COOL Impacts



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Consumers
Producers
Retail Industry
International Trade
Government
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COOL Impacts on
U.S. Consumers

Proponents

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Right to know where their food has been
produced
WTP Studies
Belief that American Food Products are
safer than imports
Traceability
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COOL Impacts on
U.S. Consumers

Opponents

The right to know argument




The labeling exemption of food service
establishments & poultry
Is COOL likely to provide information critical
to consumers choices ?
What is the social welfare impact affecting
an industry segment from consumers
making choices opposed to their interests?
Higher cost of food to consumers
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COOL Impacts on Producers

Proponents



Creating an identity:
 Certified Angus Beef
 Organic Products
 Dolphin Safe Tuna
 Washington State Apples
Price premiums
Increased consumer demand for USA
labeled Ag products
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COOL Impacts on Producers

Opponents




No evidence that price premiums will occur
No evidence that increased consumer
demand will occur
Producers will end up paying the additional
cost of labeling
The required tracking system is excessive,
unnecessary and too costly
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The Food Industry
Retailers

Costs


Record-keeping costs
Tracking & labeling costs of ground meat
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Estimated Industry Costs
Related to COOL
Exceeding $1.3 billion annually (FMI)
 $353 million annually for the meat
industry (American Meat Institute)
 Cost of monitoring COOL for Produces is
estimated at $56 million/year by the
U.S. General Accounting Office (GAO)

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International Trade Issues
Most US trading partner countries
require COOL at retail for covered foods
 COOL as relief from foreign competition
(more protectionism)
 COOL: may be challenged at WTO as a
non-tariff trade barrier
 COOL compliance may be most costly
for LDC suppliers to the U.S.

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Current Debate

two year delay in the labeling
requirements
Unanswered Questions
Consumer willingness to pay for COOL
 Meat sold to grocery stores versus meat
for exports or food service market
 Producers focusing their advertising
thrust on U.S. produced beef

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Unanswered Questions
Consumer willingness to pay for COOL
 Meat sold to grocery stores versus meat
for exports or food service market
 Producers focusing their advertising
thrust on U.S. produced beef

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Thank You
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