Transcript PMB10: Lecture 5 Food Consumption and attitudes

Lecture 12:
Food Consumption and Labeling
Policies
Kristin Kiesel
UC Berkeley
Motivation and Outline
 Information provision as alternative policy tool to address
externalities
•
Organic labeling
•
Nutritional labeling and the food guide pyramid
•
(non-biotech or non-GMO labeling)
 Policy context as determinant of success
•
Food consumption
•
Interdependencies with marketing efforts and media
coverage
Objective
 Does availability of information insure that it will be
incorporated into consumer behavior?
 If not, which aspects of informational changes under labeling
regulations are most effective in altering consumer behavior?
A better understanding of the interplay between regulation,
media coverage, and product marketing helps determine
which regulatory tools best serve consumers interest and
policy objectives at the same time
Food Consumption
 For any policy evaluation, its history and context need to be well
understood
Traditional analysis of food demand
Two influential models in analysis of additional aspects
Additional determinants of individual food consumption
General trends in food consumption
Traditional Analysis of Food Demand
 Food demand depends on:
• quality (nutritional value, taste, food safety)
• prices and income
 Increase in prices lead to reduction in consumption
(“law of demand”)
 Impacts of income on consumption
• Luxury goods: increase in income results in more than
proportional increase in consumption (filet mignon)
• Normal good: increase in income results in less than proportional
increase in consumption (cheese)
• Inferior good: increase in income results in reduction in
consumption (canned peas)
• Illustration: 5% increase in income will increase consumption of
filet mignon by 8%, increase in consumption of cheese by 4%,
and reduce canned peas consumption by 7%
Traditional Analysis of Food Demand (cont.)
 The demand for a specific food product depends on the
price of other food products
Complements: (peanut butter and jelly, bread and butter)
increase in price of one will reduce the demand for the
other (higher peanut butter price will reduce demand for
jam)
Substitutes: (butter and margarine, corn syrup and sugar)
increase in price of one will increase the demand for the
other (higher butter prices will increase the demand for
margarine).
Traditional Analysis of Food Demand (cont.)
 Seasonality and availability constraints
• Turkey demand surges at Thanksgiving
• Prices and quality of fruits and vegetables:
p
r
i
c
e
Prices of fruits and
vegetables are lowest in the
midst of season when the
quality is best
Middle of season
Time
 Additionally, most people shop at a particular supermarket, limiting
their range to the assortment of that store
Two Influential Theoretical Models
 Household production function (Becker 1965,
Lancaster 1966):
• Logic of production functions applied to consumer side:
products are purchased in the market as inputs, and utility
is derived from attributes after some transformation (e.g.
labor, time)
• Important concept of opportunity costs of time
 Hedonic price functions (Rosen 1974)
• Allows consideration of differentiated goods through a
value (price) function that depends on specific amount of
product characteristics
Household Production Models: A Modern
Approach to Food Demand
 Families purchase food products, and use equipment and time to
produce meals
(eggs versus omelet)
 The demand for food depends on household composition and labor
market considerations
• Increased participation of women in labor force lead to increased
demand for:
Precut meats and salads
Ready to eat meals
Food outside of home (restaurants)
Hedonic Models: What’s in the price of food?
 Hedonic price function: a product price is the sum of monetary
valuation of each of its attributes
 Price of food bundles payments for
• Health (nutritional content)
• Quality and taste
• Convenience
• Example: a $15 entry at a restaurant reflects:
$5 nutritional components (calories, protein, vitamins, etc.),
$4 quality and taste (specific preparation, seasoning, etc. ),
$3 convenience, and $3 atmosphere
 Two main trends: increased willingness to pay for convenience and
taste (quality)
The Power of the Consumer
 Only about 17% of new food products introduced in retail
market succeed
 Costs of failure are high as introduction of a new product
nationally is $5-$10 million or more (Asp 1999)
 Heterogeneity in preferences as important
factor of food consumption
• Implications for marketing, labeling,
certification, and technology adoption
 Factors affecting consumer demand beyond
classical determinants not well understood
and important area of research
• Food consumption as possible political statement and new level of
consumer-producer discourse (Puis 2000)
Lifestyle, Family Dynamics, and Cooking
Skills
 Food habits (cultural standardized set of behavior) and
lifestyle as determinants of food demand
 Family dynamics:
• Women tend to have more control over food choices
• The cook and the grocery shopper determine food purchases: Less
convenience food is purchased when the shopper is not the cook
(when wife cooks and the husband shops, he is less likely to buy
precut chicken than when she shops)
• Eating habits of children in household influence food choices (e.g.
picky eater)
 More skilled and appreciative cooks will buy less preprocessed food like precut vegetables (e.g. “slow food”
movement)
Beliefs, Attitudes, and Perceptions
 Religious and ethical beliefs, social and environmental
considerations can further establish norms and
constraints in food consumption:
• Friday penance by Catholics (required meat abstinence); after
announcement by Pope Paul VI (1966) that it is not binding,
Friday fish consumption declined drastically
• Kosher food for Jewish, and halal meats for Muslims
• Vegetarian, vegan eating habits
• non-biotech and organic preferences
 Economic relevance:
• Better understanding of consumer behavior
• Policy implications
Established and Emerging Food Trends
 Convenient foods
 Fresh foods
 Ethnic foods
 Fusion foods
 Prepared home meal replacements
 Food mixtures
 ‘Natural’ and ‘organic’ food
 Health promoting foods (e.g. probiotics)
 Physical performance foods
Regulatory Settings
 Two types of informational policies:
1. Reactive policies: In response to food trends
• Regulation to ensure consistent and truthful
information provision to consumer
• Development of standards, rules and certification
(e.g. National Organic Program)
Beliefs and perceptions can be invoked and
strengthened by regulation
2. Proactive policies: Aimed at influencing food trends
• Regulation to provide information aimed at directly
affecting consumption patterns (e.g. Nutritional
Labeling and Food Guide Pyramid)
Attitudes and beliefs affect regulatory goals
The National Organic Program (NOP)
 The U.S. organic market is projected to reach a value of $30.7 billion by 2007,
with a five-year compound annual growth rate of 21.4 percent between 2002 and
2007, (Organic Trade Association)
 One of the fastest-growing categories in food business.
 Nearly two thirds of U.S. Consumers bought organic foods and beverages in
2005 (Consumer Reports 2006, CR).
 Organic products sell at a significant price premium compared to their
conventional counterparts at 50% on average which prices often doubling for
milk and meats (CR 2006).
 Organic Foods Production Act (OFPA) of 1990 required the USDA to develop a
national standard to assure consumers that agricultural products marketed as
organic meet consistent, uniform standards
 National organic standard and labeling regulations for organically produced
agricultural products became effective in October 2002
What is Organic Food?
 Definition (from National Organic Program website, USDA):
“Organic food is produced by farmers who emphasize the use of
renewable resources and the conservation of soil and water to enhance
environmental quality for future generations. Organic meat, poultry, eggs,
and dairy products come from animals that are given no antibiotics or
growth hormones. Organic food is produced without using most
conventional pesticides; fertilizers made with synthetic ingredients or
sewage sludge; bioengineering; or ionizing radiation. Before a product
can be labeled "organic," a Government-approved certifier inspects the
farm where the food is grown to make sure the farmer is following all the
rules necessary to meet USDA organic standards. Companies that handle
or process organic food before it gets to your local
supermarket or restaurant must be certified too.”
Addresses positive environmental externalities of
consuming organic food
What is Organic Food? (cont.)
 USDA makes no claims that organically produced food is safer or more nutritious
than conventionally produced food
 Little or no scientific evidence on enhanced nutritional value or health benefits
(e.g. Williams 2000)
 In many studies top motives to buy organic are taste, food safety and health
concerns
Example: organic dairy (McEachern and McClean 2002) purchase motivations
•
•
•
•
•
Improved taste (30%)
Food safety (24%)
Health benefits (17%)
Environmental concern (16%)
Ethical concerns (10%)
 These perceptions might be reinforced by USDA-label:
• Attracts attention to attribute
• Might suggest potential benefits or risks that make it worth pointing out
Acts as an anchor and/or adds intrinsic value (Kahneman and Twersky 2000, Ariely ,
Loewenstein and Prelec 2003)
Cost-Benefit Analysis of the NOP
 How do we go about evaluating the NOP?
1. How do we measure the costs?
2. How do we measure the benefits?
• How do we account for heterogeneous preferences?
• What if consumers choose organic products for the “wrong”
reason?
• How do we account for different informational aspects such as
media coverage, marketing efforts, and actual
labeling change?
Do we see growth because of changes in regulations or were
changes in regulations a result of growth ?
My research: Milk is Milk?
1.
2.
3.
4.
How does the implementation of the NOP and changes in information
provision affect consumer preferences for organically produced milk?
Do these effects vary across consumer segments differentiated by both
heterogeneous preferences and heterogeneity in prior knowledge and
information costs?
How much did consumer benefit from these regulatory changes and how
are these benefits distributed across consumer segments?
How do changes in purchase behavior relate to different aspects of the
information changes, such as prior media coverage of regulatory changes
and actual appearance of the USDA organic seal on milk containers?
Preliminary results indicate a increased probability of organic milk
purchase after the appearance of the USDA seal.
The hedonic price function approach as well as simulations within
discrete choice models suggest that consumers value the changes in
labeling regulations.
A positive relation between organic milk sales relative to total milk sales
and media coverage prior to the appearance of the USDA organic seal is
detected.
Nutritional Labeling and the Food Guide
Pyramid
What is the externality addressed with
these regulations?
 Nutrition, Labeling, and Education Act of 1990 gave FDA
authority to require nutrition labeling of most foods
 In April 1992 USDA’s Eating right pyramid
released after a year of controversy and
$855.000 additional spending
 In February 2006 USDA unveils revised food
pyramid
The Food Pyramid of to a Bad Start
 In April 199, printing of the eating right pyramid was blocked due to
opposition from meat and dairy industry:
final version
preferred version by meat and
dairy industry (non-hierarchical)
 Media coverage of the political background paints a picture of politics
versus sciences
Related Research Findings
 Purchase behavior changed, but purchase of “healthy” products
increased only in some categories (e.g. Teisl, Bockstael, and Levy
2001)
 Nutritional labeling has reduced
and narrowed focus on nutrition in
advertisement
(e.g. Ippolito and Pappalardo 2002)
Back to Food Consumption…
Conclusions
 Some critics say that organic labels takes attention away from
health problems related to obesity and other nutritional issues
 But, evaluation of organic labeling might provide a better
understanding of successful aspects of informational
regulation and ultimately allow to design better health and
environmental related informational policies