Tuesday, August 25, 2015

Food Labels and the Informed Consumer

Product labels are an important part of communicating product information to consumers. For a long time, regulators and politicians have been in the business of mandating the content of labels for a whole range of products, especially food. While other reputation mechanisms are important to being fully-informed, we all rely on labels to some degree.

But mandated labeling has its share of pitfalls. Regulators might require too much information on a label, increasing costs to consumers with little upside. They might reduce the amount of information on a product label by increasing the costs of using certain language. More bizarrely, they might require completely misleading information to be put on a label. Arguments in favor of different labeling requirements can come from consumer pressure groups, but often they come from within industries.

An example of the first problem is mandatory country-of-origin labeling (or MCOOL) of meat products. Though there are efforts in congress to repeal MCOOL, it is currently the law of the land. A fact sheet distributed by K-State concludes:
The overriding finding of limited awareness of MCOOL, narrow use of origin information in purchasing decisions, and no evidence of a demand impact following MCOOL implementation is consistent with the argument that voluntary labeling by country of origin would have occurred if it were economically beneficial to do so. More broadly, the findings of this project generally support the assertions of MCOOL opponents who have asked “where is the market failure?” 

MCOOL creates international trade issues and increases costs to producers, processors, and retailers with little to no upside.

Regulation of labels might also reduce the amount of information communicated to consumers. In his book Everything I Want to Do is Illegal, Joel Salatin documents the negative effects of government control of labels. He describes a situation in which he was legally barred from using the term "organic" in any description of his operation whatsoever because he hadn't gone through a mandated (and convoluted) certification process.

He writes:
Since certification has matured over the past decade and a half, of course, it has done precisely what I predicted would happen. It has locked out small producers. It has pitted the ins against the outs. It has added another whole layer of food police. And it has aided and abetted the empirization [sic] of organics. (pp. 113)
After discussing the myriad components of certification (which almost no regular consumer understands), he notes:
What the certification process has done is automatically shut down the inquisitiveness into all these variables, creating hardening of the categories. The bad part is that when a person says they are organic, the conversation ends because everyone assumes they know what that means. Clearly, a whole lot of questionable practices can happen under the auspices of organic.
The point here is that consumers end up with less information because some people are kept from using a specific term in the description of their product. Consumers are less informed because they assume that, since the government presides over the certification process, anyone with that specific word on their label produces the product in ways the consumer approves of. According to Salatin, this is not always the case.

Finally, the information on a label might have little to do with informing consumers. A small dairy in the Florida panhandle has been told by the Florida Department of Agriculture and Consumer Affairs that it must label its skim milk "imitation" because it hasn't artificially re-introduced certain nutrients back into the milk after skimming. The owners of the creamery are fighting the requirement, claiming that milk that comes out of a cow can't be "imitation" milk. It sure seems like an example of regulatory capture. A dairy that pulls in $1,000 to $1,500 per week in milk revenue probably can't afford the sophisticated machinery required to operate like larger dairies.

Of course, none of this is to say that consumers shouldn't be informed or that all large businesses fight for and win legal protection from competition. However, giving government agencies free reign to establish whatever labeling requirements they wish is not a recipe for creating informed consumers.


  1. Similar reasoning might apply to proposed GMO labels. In most cases I have seen, they are formulated as non-scientific political speech and seem to actually thrive on information assymmetry in order to promote special interests: http://ageconomist.blogspot.com/2012/11/california-proposition-37-capitalizing.html They are more shibboleth than label, using buzzwords like 'GMO' or 'genetically modified/engineered' to actually instill fear in consumers and shut down critical thinking and information seeking behavior. As you say, consumers in the end would make less informed choices about the health and safety of their foods because of these kinds of labels if they were mandated. So called 'right to know' is very clever political double speak.

    1. Great points as always, Matt. I hope GMO labels are *allowed* but I certainly don't want them mandated.

  2. Solid post! I think you make a good point that these certifications can actually privilege incumbents. Plus it isn't always clear that labels work as intended. One recent study found that participants were more likely to say they would purchase a product with a label on it, regardless of what the label said. Or as this summary article describes it: “This result indicates that consumers use FOP labels of whatever type or status as a non-dimensional, but positive, indicator of product desirability”

    Here's how the authors summarize their results: "As such, it represents a complete functional failure of both of these FOP label types in this specific instance. This result supports calls for further research on the performance of these FOP labels before any move to compulsory deployment is made"

    1. Thanks, Dallas.

      You make a good point and that research sounds quite interesting. It almost feels to me like a Peltzman Effect, though I'm sure there is some other term for this specific phenomenon.