Effects of Food Stigma & Labeling

1. Effects of Food Stigma & Labeling Frank Nti Rebecca Manes Dustin Shearer

2. OUTLINE • Unsubstantiated or adulterated evidence • Effects of stigma in consumption decisions • Players involved: consumers, firms, & government • Cost-benefit calculations in decision-making process • Case studies

3. FOOD STIGMA • A psychological phenomenon in which an object becomes viewed in a negative manner even when no actual problem or health risk has been identified. • Stigma is passed on via direct contact with a contaminated object in a phenomenon known as contagion Effects of stigma in consumption decisions (Golan, et. al., 2001)

4. EXAMPLES OF STIGMA-INDUCING LABELS • Country of Origin labels • Idea that domestically produced labels are superior • Local production, ethnocentricity, safety in recognized regulation • Nutrition Content • e.g. differentiating as fat free • rBST Free Milk • inherent connotation that rBST is harmful • GM Free • Perception of ‘frankenfood’ Effects of stigma in consumption decisions

5. ORGANIC FOOD Unsubstantiated or adulterated evidence (Rosen, 2010)

6. ORGANIC FOOD Unsubstantiated or adulterated evidence (Rosen, 2010)

7. EMPIRICAL EVIDENCE: rBST MILK 3 Part Experimental design PART 1: introduce the Becker-DeGroot-Marschak (BDM) bidding mechanism which uses induced “cash values” PART 2: submit bids using BDM to purchase a pencil PART 3: eliciteWTP values with the BDM mechanism for milk labeled with three production techniques (conventional, rBST-free, and organic) and three fat contents (0% skim, 1% low fat, and 3.25% whole) Effects of stigma in consumption decisions (Kanter, et. al., 2009)

8. RESULTS (Kanter, et. al., 2009)

9. RESULTS (Kanter, et. al., 2009)

10. (Kanter, et. al., 2009)

11. BENEFIT OF LABELING TO CONSUMERS • Differentiates the product from otherwise similar products • Enables economic efficiency • Ensures quality and safety, both in production and consumption Players involved: consumers, firms, & government (Golan, et. al., 2001)

12. PRODUCT ATTRIBUTES • Search goods • Characteristics which consumers can examine and compare • Experience goods • Characteristics which consumers seek out after previous purchase and evaluation • Credence goods • Consumers must trust the label, since the attributes are not observable Players involved: consumers, firms, & government (Golan, et. al., 2001)

13. Misleading Ingredients Players involved: consumers, firms, & government (Silverglade, et. al., 2011)

14. Misleading Claims on Functional Foods Players involved: consumers, firms, & government (Silverglade, et. al., 2011)

15. More Unrelated Health Claims Players involved: consumers, firms, & government (Silverglade, et. al., 2011)

16. Will adding an additional regulated but more encompassing label be more effective? Or add to confusion? • Total Fat: <= 35% of calories from fat (or <= 3 grams per serving) • Saturated Fat: <= 10% of calories from sat. fat. (or <= 1 gram per serving • Trans Fat: <= 0.5 grams per serving (labeled as 0 grams per serving) • Cholesterol: <= 60 mg per serving (not including meat & poultry) • Added Sugars: <= 25% of total calories (except for breakfast cereals) Players involved: consumers, firms, & government (Silverglade, et. al., 2011)

17. Improved Front-of-Package Labeling Schemes Being Tested by FDA Players involved: consumers, firms, & government (Silverglade, et. al., 2011)

18. WHEN ARE LABELING POLICIES APPROPRIATE? Players involved: consumers, firms, & government (Golan, et. al., 2001)

19. FIRMS: Voluntary Labeling Problem Complexity in preferences Considerations If revenue generated outweighs cost Allows the firm to sell more without reducing the price or to raise the price without losing sales or market share (Schmalensee,1972) Spillover effect: one firm includes information that applies to all similar products Players involved: consumers, firms, & government (Golan, et. al., 2001)

20. ATTRIBUTE AWARENESS WITHOUT LABELING • Consumer Cynicism: belief that firms will be as “optimistic” as laws allow and anything not mentioned is negative or low quality • Warranties: allow for testimonial of product quality for credence goods • Competition: compels firms to reveal information Players involved: consumers, firms, & government (Golan, et. al., 2001)

21. ECONOMICS OF MANDATORY LABELING • Mandatory labeling can result in higher additional per-unit costs for small firms leading to competitive disadvantage • Elasticity of demand and supply determines how much of the labeling cost will be passed onto consumers • Which consumers are impacted most? • Robin Hood Effect Players involved: consumers, firms, & government (Golan, et. al., 2001)

22. ROLE OF GOVERNMENT • Type of information involved • Distribution of the cost and benefits • Establish mandatory labeling laws • Correct asymmetric and imperfect information • Correct externalities (social welfare consequences) Players involved: consumers, firms, & government (Golan, et. al., 2001)

23. ROLE OF GOVERNMENT CONT’D • Providing services to enhance voluntary labeling • Standard setting • Testing • Certification • Enforcement • Not intervening at all Players involved: consumers, firms, & government (Golan, et. al., 2001)

24. Players involved: consumers, firms, & government (Golan, et. al., 2001)

25. REASONS FOR THIRD PARTY INVOLVEMENT • Consumer choices &social objectives • Intelligibility and credibility of information • Fair competition among producers • Consumers’ access to information • Reduced risks to individual consumer safety and health Players involved: consumers, firms, & government (Golan, et. al., 2001)

26. COSTS • GOVERNMENT: • Cost of program initiation • Administration • Enforcement (government) • FIRMS: • Administrative: interpreting rule • Costs of testing: determining nutrient content • Printing costs: changing printing plates • Inventory costs: labels made that can’t be used • Reformulation, changing product recipes • Changes to industry structure • CONSUMERS: • Higher prices Cost-BenefitCalculation (Golan, et. al., 2001)

27. BENEFITS • Socially-desirable changes in consumption behavior • Economic efficiency in consumer choices • Product reformulation • Consumer confidence in product quality Cost-BenefitCalculation (Golan, et. al., 2001)

28. CASE STUDY: DOLPHIN-SAFE TUNA FISHING 1972 1980’s 1990 1990 1992 1997 Case study (Golan, et. al., 2001)

29. BIBLIOGRAPHY Works Cited Golan, Elise, Fred Kuchler, and Lorraine Mitchell. "Economics of Food Labeling." Journal of Consumer Policy 24 (2001): 117-84. Print. Kanter, Christopher. "Does Production Labeling Stigmatize Conventional Milk?" American Journal of Agricultural Economics 91.4 (2009): 1097-109. Print. Rosen, Joseph D. "Nurtrition Claims Made by Proponents of Organic Food." Comprehensive Reviews in Food Science and Food Safety 9 (2010): 270-77. Print. Silverglade, Bruce, and Irene R. Heller. Center for Science in the Public Interest. Rep. no. 54321. CSPI, Mar. 2010. Web. 7 Feb. 2012. <http://cspinet.org/new/pdf/food_labeling_chaos_report.pdf>.