1. SH, Feb 20041 Emerging Roles for Food Labels Dr. Shida Henneberry Professor of Agricultural Economics Oklahoma State University Srh@okstate.edu Nanjing Ag University February 2004

2. SH, Feb 20042 Demand Side Health Concerns Health Concerns Consumers Demand More Information on Food Attributes: Consumers Demand More Information on Food Attributes: 1. Quality 2. Nutrition Content 3. Production process 4. Safety 5. The origin

3. SH, Feb 20043 Supply Side Quantitative Characteristics Quantitative Characteristics Nutritional composition Qualitative Characteristics Qualitative Characteristics Not easily measured Health claims: disease prevention, fitness Health claims: disease prevention, fitness

4. SH, Feb 20044 The Role of Food Labels Voluntary Labels Voluntary Labels Mandatory Labels Mandatory Labels

5. SH, Feb 20045 The Use of Labels Nutritional content– a good source of vitamin C, Nutritional content– a good source of vitamin C, Country of origin Country of origin Production process – free of GMO or produced under fair labor practices, Production process – free of GMO or produced under fair labor practices, Health Claims – May prevent cancer, Health Claims – May prevent cancer, Warnings about the product – may upset the stomach. Warnings about the product – may upset the stomach.

6. SH, Feb 20046 Use of Labels to Gain Price Premiums A form of Advertising A form of Advertising Product Differentiation Product Differentiation

7. SH, Feb 20047 Effectiveness of Labels Research has shown that consumers will pay a small premium for eco- labeled (environmentally sound practices) products (apples, fish). Research has shown that consumers will pay a small premium for eco- labeled (environmentally sound practices) products (apples, fish). Compared to Organics, Eco-labeled may be a less-desirable choice for consumers. Compared to Organics, Eco-labeled may be a less-desirable choice for consumers.

8. SH, Feb 20048 Expenditures U.S. producers spend over 12% of domestic food expenditure on packaging and advertising, including labeling costs. U.S. producers spend over 12% of domestic food expenditure on packaging and advertising, including labeling costs.

9. SH, Feb 20049 Confused Consumers Consumers purchasing behavior does not always reflect their stated preferences. Consumers purchasing behavior does not always reflect their stated preferences. Growth hormones and irradiation and food safety Growth hormones and irradiation and food safety Chemical residues and higher price of organics Chemical residues and higher price of organics Biotechnology Biotechnology

10. SH, Feb 200410 Nutritional Labels not so rational choices Purchases do not reflect rational choices. Purchases do not reflect rational choices. 1. Hunger 2. Hectic schedule 3. Source of food

11. SH, Feb 200411 Labels may help confused consumers make choices that better reflect their preferences.

12. SH, Feb 200412 Costs and Benefits of Food Labels Benefits: Price premiums Price premiums Increased sales Increased salesCosts: Chemical analysis Chemical analysis Printing of labels Printing of labels The verification associated with what is stated on the label The verification associated with what is stated on the label Third party services Third party services

13. SH, Feb 200413 Government Intervention in labeling The goal is to influence individual consumption choices to align them with social objectives.

14. SH, Feb 200414 The U.S. Labeling laws USDA governs poultry and meat labels. USDA governs poultry and meat labels. FDA governs health claims FDA governs health claims FTC governs advertising claims FTC governs advertising claims

15. SH, Feb 200415 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. NLEA required mandatory nutrition labeling for almost all packaged food and set strict regulations for health claims.

16. SH, Feb 200416 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: 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 $163 mil to the gov’t $1.4 bil to $2.3 to the food industry $1.4 bil to $2.3 to the food industry

17. SH, Feb 200417 Post NLEA Significant increases in the use of health claims: Significant increases in the use of health claims: Fruits & vegetables Fruits & vegetables Low-fat dairy products Low-fat dairy products Nutrition labels provide measurable benefits by improving diet quality as measured by Healthy Eating Index (HEI). Nutrition labels provide measurable benefits by improving diet quality as measured by Healthy Eating Index (HEI). HEI is impacted by income, age, college education HEI is impacted by income, age, college education

18. SH, Feb 200418 Mandatory labeling Is used to impact consumption decisions to bring them more in line with what is deemed best for society. 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 Mitigating potential inefficiencies resulting from imperfect information about product characteristics Experience and Credence Characteristics. Experience and Credence Characteristics.

19. SH, Feb 200419 Processed Based Labeling Inform consumes Inform consumes Shape the production process Shape the production process In case of credence characteristics consumes may trust public agencies more. In case of credence characteristics consumes may trust public agencies more. Food safety Food safety Production conditions Production conditions GMOs GMOs Ethical characteristics Ethical characteristics

20. SH, Feb 200420 Response to GM Food Labeling is Mixed Chinese consumers place a higher value on technology Chinese consumers place a higher value on technology European & Japanese consumers may prefer traditional ingredients European & Japanese consumers may prefer traditional ingredients 53% of Europeans reject GM foods. 53% of Europeans reject GM foods. 64% of US consumers are supportive or neutral towards GM foods. 64% of US consumers are supportive or neutral towards GM foods.

21. SH, Feb 200421 Country of Origin Regulations The 2002 U.S. Farm Bill mandated COOL for fresh & frozen food commodities such as: The 2002 U.S. Farm Bill mandated COOL for fresh & frozen food commodities such as: Beef Beef Pork Pork Lamb Lamb Fish Fish Fruits & Vegetables and Fruits & Vegetables and Peanuts Peanuts The new law will take effect in September 2004 The new law will take effect in September 2004

22. SH, Feb 200422 Exclusions for covered commodity include: Being an ingredient in a processed food item. Being an ingredient in a processed food item. Being served in a food service establishment Being served in a food service establishment

23. SH, Feb 200423 Expected COOL Impacts Consumers Consumers Producers Producers Retail Industry Retail Industry International Trade International Trade Government Government

24. SH, Feb 200424 COOL Impacts on U.S. Consumers Proponents Proponents Right to know where their food has been produced Right to know where their food has been produced WTP Studies WTP Studies Belief that American Food Products are safer than imports Belief that American Food Products are safer than imports Traceability Traceability

25. SH, Feb 200425 COOL Impacts on U.S. Consumers Opponents Opponents The right to know argument The right to know argument The labeling exemption of food service establishments & poultry The labeling exemption of food service establishments & poultry Is COOL likely to provide information critical to consumers choices ? 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? What is the social welfare impact affecting an industry segment from consumers making choices opposed to their interests? Higher cost of food to consumers Higher cost of food to consumers

26. SH, Feb 200426 COOL Impacts on Producers Proponents Proponents Creating an identity: Creating an identity: Certified Angus Beef Certified Angus Beef Organic Products Organic Products Dolphin Safe Tuna Dolphin Safe Tuna Washington State Apples Washington State Apples Price premiums Price premiums Increased consumer demand for USA labeled Ag products Increased consumer demand for USA labeled Ag products

27. SH, Feb 200427 COOL Impacts on Producers Opponents Opponents No evidence that price premiums will occur No evidence that price premiums will occur No evidence that increased consumer demand will occur No evidence that increased consumer demand will occur Producers will end up paying the additional cost of labeling Producers will end up paying the additional cost of labeling The required tracking system is excessive, unnecessary and too costly The required tracking system is excessive, unnecessary and too costly

28. SH, Feb 200428 The Food Industry Retailers Costs Costs Record-keeping costs Record-keeping costs Tracking & labeling costs of ground meat Tracking & labeling costs of ground meat

29. SH, Feb 200429 Estimated Industry Costs Related to COOL Exceeding $1.3 billion annually (FMI) Exceeding $1.3 billion annually (FMI) $353 million annually for the meat industry (American Meat Institute) $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) Cost of monitoring COOL for Produces is estimated at $56 million/year by the U.S. General Accounting Office (GAO)

30. SH, Feb 200430 International Trade Issues Most US trading partner countries require COOL at retail for covered foods Most US trading partner countries require COOL at retail for covered foods COOL as relief from foreign competition (more protectionism) COOL as relief from foreign competition (more protectionism) COOL: may be challenged at WTO as a non-tariff trade barrier 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. COOL compliance may be most costly for LDC suppliers to the U.S.

31. SH, Feb 200431 Current Debate two year delay in the labeling requirements two year delay in the labeling requirements Unanswered Questions Consumer willingness to pay for COOL Consumer willingness to pay for COOL Meat sold to grocery stores versus meat for exports or food service market Meat sold to grocery stores versus meat for exports or food service market Producers focusing their advertising thrust on U.S. produced beef Producers focusing their advertising thrust on U.S. produced beef

32. SH, Feb 200432 Unanswered Questions Consumer willingness to pay for COOL Consumer willingness to pay for COOL Meat sold to grocery stores versus meat for exports or food service market Meat sold to grocery stores versus meat for exports or food service market Producers focusing their advertising thrust on U.S. produced beef Producers focusing their advertising thrust on U.S. produced beef

33. SH, Feb 200433 Thank You