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Nutrition Labeling in the Food-Away-From-Home Sector:
An Economic Assessment
Jayachandran N. Variyam
Economic Research Report No. (ERR-4), April 2005
Americans spent about 46 percent of their total food budget
on food away from home in 2002, up from 27 percent in 1962.
USDA’s food intake surveys show that between 1977-78 and
1994- 96, the share of daily caloric intake from food away from
home increased from 18 percent to 32 percent.
While there are clear convenience benefits to consumers for
substituting ready-to- eat foods prepared away from home for
foods prepared at home, there are also costs. Studies suggest
that foods consumed away from home are more calorie- dense and
nutritionally poorer compared with foods prepared at home. Some
studies have found an association between eating away from home
and overweight and obesity in adults and children.
What Is the Issue?
Current nutrition labeling law exempts much of the food-away-from-home
sector from mandatory labeling regulations. Because consumers
are less likely to be aware of the ingredients and nutrient
content of away-from-home food than of foods prepared at home,
public health advocates have called for mandatory nutrition
labeling for major sources of these foods, such as fast-food
and chain restaurants.
What are the potential benefits and costs of a mandatory labeling
policy for both consumers and the away-from-home food industry?
Mandatory labeling could increase market efficiency and social
welfare by allowing consumers to make informed choices. However,
for the policy to be economically efficient, the benefits from
the policy intervention should outweigh the costs.
What Did the Study Find?
This study takes a preliminary look at whether consumers might
make more healthful food choices if nutrition labeling was mandated
for the away-from-home food sector, and how labeling requirements
would in turn affect the foodservice industry.
The costs of a labeling policy will depend chiefly on how much
of the away-from-home food sector is subject to the mandatory
disclosure requirement. Costs can be assessed reasonably well
and include labeling costs, the cost of chemical analysis needed
to determine the nutrient content of offerings, and reformulation
costs.
The benefits of a labeling policy are harder to assess because
the effect of label information on improving nutritional and
health outcomes is uncertain. Research indicates that providing
additional nutrition information in a restaurant setting has
a limited effect on overall diet quality and reduced caloric
intakes.
As a result of mandatory labeling requirements, producers may
voluntarily decide to reformulate products to make them more
attractive nutritionally. This reformulation could ultimately
benefit all consumers, not just those who read nutrition labels.
However, studies have shown that producers behave strategically
in such situations—for example, by reducing the price
of less healthful foods—adding to the uncertainty about
the eventual effect of reformulation on consumer diets.
Perhaps the largest benefit of labeling may accrue when consumers
change their food choices based on the nutrition information
provided by the labels. Although such substitutions may not
change nutritional or health outcomes substantially, consumers
benefit from being able to make food choices that are better
aligned with their preferences.
The distribution of the costs and benefits among producers
and consumers may also influence a labeling policy decision.
Away-from-home food providers have different types of offerings,
economies of scale, and levels of recipe standardization. Thus,
a labeling policy will affect each provider differently. On
the consumer side, the key question is whether those who already
have good quality diets and healthy weights will reap the benefits,
or whether those with poor diets and the overweight will share
those benefits.
How Was the Project Conducted?
Research for this report included a literature review to gather
evidence on the economic theory of information and labeling
and on previous studies on the influence of nutrition information,
labeling, and reformulation on food intakes. The research also
included a statistical analysis of data from USDA’s Continuing
Survey of Food Intake by Individuals (CSFII) from 1989-91 and
1994-96 to estimate the effect of mandatory labeling requirements
on product reformulation.
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