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Truth in food labelling

9th September 2017

Food labels are supposed to increase consumer knowledge about the nutritional content of food. However increasingly labels confuse more than they inform, exploiting fears to extract a premium price. Brandon McFadden, Assistant Professor of Food and Resource Economics at the University of Florida uses “premium” water to illustrate the point. Labelled free of GMOs and gluten and certified kosher and organic- not a single drop of water anywhere contains either property, or is altered in any way by those assurances.

Misleading labels exploit a consumer knowledge gap, taking advantage of the willingness to pay for “process labels”. According to McFadden, such fake transparency does nothing to inform consumers about the nature of the food they are purchasing. These labels are largely the result of the consumer desire to know more about the way food is produced—and the willingness to pay more for the claims, spurious or not.

These labels are an example of asymmetric information, a concept that is well developed in economics, which often leads to terrible market outcomes. Food companies will always know more about their products, and consumers would often like more information to inform their decision. Absence labels “free from” are often applied to foods that could not possibly contain that ingredient. These labels serve no purpose but to differentiate the product and attract a premium price – based on unfounded and unnecessary concerns.

According to McFadden, new laws that make GMO labelling of some foods mandatory in 2018 will compound the problem. An economic theory related to information asymmetry is a signalling effect – when a buyer receives and implicit message from an explicit cue. As an example, a food labeled “low sodium” may implicitly communicate that salt should be avoided. When the government is involved in the signaling effect, such as when a label is mandatory, the impact tends to become stronger.

Therefore, the new GMO labelling law will send a signal to consumers that bioengineered foods are bad, despite the FDA’s finding “credible evidence has demonstrated that foods from the GE plant varieties marketed to date are as safe as comparable, non-GE foods.” Companies selling non-GMO foods will probably put on a “GMO-free” label even though the law doesn’t apply to those foods. Consumers perceive products with labels that read free-from as safer than equivalents with no such labels.

The “Peel back the label” campaign, an initiative of the National Milk Producers Federation (NMPF) aims to tackle fear-based labelling. According to the campaign website, consumers have a right to both truth AND transparency in food labelling. Examples are cited: Hunt’s canned tomatoes and Florida’s Natural orange juice, both of which prominently feature GMO-free labels, despite the fact that there are no GMO tomatoes or oranges on the market. “It’s time to peel back the label on food manufacturers’ trickery in the name of profits.” The campaign asks consumers to tweet pictures of fear-mongering labels with the hashtag #peelbackthelabel. Of course, it’s not all about helping the consumer, dairy and other farmers keen to adopt biotechnology to improve yields and sustainability are being stymied by concerns about GMOs that are stoked by the “signalling” in this type of labelling.

Food labels increasingly cross a line between filling knowledge gaps and exploiting them. The fake transparency and signalling is exploiting consumer fears not allaying them.