Lost Pleasure

I'm confused by this article by Sharon Begley that appeared in Reuters yesterday.  She writes:

“U.S. health regulators estimate that consumers will suffer up to $5.27 billion in “lost pleasure” over 20 years when calorie counts on restaurant menus discourage people from ordering french fries, brownies and other high-calorie favorites.

The lost-pleasure analysis, which is criticized by some leading economists and public health groups, was tucked into new regulations published last month by the U.S. Food and Drug Administration which require chain restaurants, grocery store chains selling prepared food, large vending machine operators, movie theaters and amusement parks to display calorie counts.

Public health advocates alerted Reuters to the inclusion of the analysis, which they say makes such regulations more vulnerable to challenges by industry because it narrows the gap between the government’s projections of a regulation’s benefits and costs. ”

Here's the problem - I can't find any evidence the FDA did such a thing in relation to calorie counts on menu labels.  Here is the FDA's final rule, which puts total costs at about $1.7 billion, which is far less than the $5.27 billion from "lost pleasure" cited in the article.  Indeed, the net benefits cited in the final rule are only $510 million - far less than the supposed "lost pleasure". Maybe there is another cost-benefit analysis not mentioned in the federal register?

Also, the article makes reference to a paper by Jason Abaluck, but the only paper of his I can find that seems to have any relation to this topic is this one, and it includes no such "lost pleasure" calculations that I see in my quick look at it.  Again, the paper may very well be out there and I've overlooked it. 

What I can find, after a bit of internet searching, is much concern about including "lost pleasure" in relation to tobacco labeling policies from back this summer, including the concern mentioned by some economists about using "lost pleasure" in this context.  

It's clear why many public health advocates don't like the idea of "lost pleasure" in a cost benefit analysis.  However, a good cost benefit analysis needs to include ALL the costs and ALL the benefits; and it must also consider the longer-term second order effects.  Moreover, many of the articles seems to suggest that "good economists" would never include "lost pleasure" in a cost benefit analysis - an implication that is wholly false.   

A lot of the discussion in these articles, including the one in Reuters, seems to suggest that "consumer surplus" is an invalid way to measure the benefits/costs of a policy.  That's baloney.  And, indeed I think you'd have a hard time finding many economists who wouldn't say that any policy analysis of food (or tobacco) taxes or bans SHOULD use "consumer surplus" which captures "lost pleasure" from being unable to consumer the same consumption bundle as was the case pre-policy.    

At issue seems to be the question of whether the same holds true for a mandatory labeling policy.  The argument is that information does not change prices or available options per se, and as such more information can only make consumers better off (more consumer surplus).  On the surface that's true - and I suspect that is the point the cited economists are making in objecting to using "lost pleasure" in this particular context.  However, it is not unreasonable to include "lost pleasure" in a cost benefit analysis of a label or information policy if:

• food/tobacco companies respond to the new law by removing some options;
• food/tobacco companies respond to the new law by changing prices; or
• consumers continue making the same purchases after the policy, but only do so now with more "guilt" (there can only be a value of information if people change behavior; if you just reduce the pleasure they get from buying a product without changing behavior, then there is indeed "lost pleasure").

When is Mayonnaise Mayonnaise?

A lot has been written recently about the lawsuit Unilever has filed against a new upstart Just Mayo made by the company Hampton Creek.

At issue is the fact that the FDA defines mayonnaise as containing egg yolk, and Just Mayo is a vegan alternative that uses yellow pea instead of egg. Unilever claims that Hampton Creek is falsely advertising their product as mayonnaise (even though it only uses the term "mayo"), as the word is defined by the FDA. By the way, you now have a hint as to why Miracle Whip isn't labeled as mayonnaise.

Most of what I've read on the web has been harshly critical of Unilever. This piece in Mother Jones is one example, framing the issue as a David vs. Goliath (or "Big Mayo"), and an NPR piece is titled "Bit Mayo vs. Little Mayo".

I've been interviewed by a couple reporters about the suit (e.g., see this CBC story), and I have to admit to having mixed feelings about the case. I have found it a bit surprising that many of the folks I normally think about as being in favor of consumer protection have been sided with Hampton Creek, I suspect because it is more appealing to take the position against any food giant.

What are the issues?

Going back to some of the concerns over 100 years ago that led to the passage of the Pure Food Act, there have been attempts to regulate the usage of certain terms and labels. The idea is that if you see a food labeled "mayonnaise", for example, that you can be sure it hasn't been adulterated - that food processors haven't watered down the product or used sawdust or some such nefarious substance to reduce cost. These sorts of rules exist for all kinds of food products (here, for example, is a list of approved labeling terms for meat from the USDA).

From Unilever's perspective, they're just following the FDA labeling rules that have ostensibly been created to protect the consumer against fraudulent labeling. Thus, I can see their point of view that Just Mayo is "unfairly" competing by implying they're making a product that does not conform with the FDA guidelines. While this may seem like a silly case, the implications could be much wider; when should a firm be able to use labels with the term "organic" or "free range" or "milk" or "bread"? Should certain standards be met to use these terms so that consumers aren't mislead?

On the other side, these sorts of rules could very well prohibit innovation and competition. I haven't tasted Just Mayo, but supposing it is comparable to "regular" mayonnaise, they've created a process that removes an animal ingredient, which is appealing to a segment of consumers. Moreover, what if a company can create a less expensive, non-egg based mayonnaise that consumers find tasty? Wouldn't the upstart have a hard time entering the marketplace and competing if they are unable to describe their product using word that best fits it? A lot of the labeling rules seem to be just plain bureaucratic overreach, and they seem to do more to line the pockets of lawyers and regulators than protect the consumer.

Ultimately, I have a hard time seeing how these kinds of name or labeling rules make much sense for products like mayonnaise. These are branded products. If a consumer buys Just Mayo and doesn't like the taste as well as conventional mayonnaise, they can go back to their old brand. In econ-speak, these are experienced goods, and firms have reputations that allow consumers to easily search and identify eating satisfaction with different brands. There seems little reason the market couldn't work this out.

Ultimately, I think there are good arguments on both sides of this case, and it isn't obvious what would be the consequences of the unraveling of these sorts of "food purity" laws. Sometimes it's hard to know when consumer protection becomes protectionism.

The Food Babe

I first ran across the Food Babe several months ago when I came across her ridiculous assertion that everyone should avoid "Monsanto Butter."

The Food Babe appears, in the intervening time, to have gained ever more followers and media attention.  But, her most recent campaign against an ingredient in beer, by drawing the attention of actual experts on the topic, may turn one of her greatest successes (getting Anheuser-Busch to disclose ingredients and alter their production process) into a credibility stumbling block that she is likely to have trouble overcoming.   

Indeed, it's been a bad few days for the Food Babe.  Her latest campaign has even spawned several new phrases from the blogosphere.

• From Trevor Butterworth at Forbes: "quackmail" - as in using quack-science to blackmail food companies 
• From David Gorski at Science Based Medicine: The "Jenny McCarthy of the food industry" 
• From Tom Cizauskas at Yours for Good Fermentables:  "Food McCarthyism"
• From Jay Brooks at the Beer Bulletin:  "Yellow journalism", which is “a type of journalism that presents little or no legitimate well-researched news and instead uses eye-catching headlines to sell more newspapers. Techniques may include exaggerations of news events, scandal-mongering, or sensationalism.”

Each of the above links roundly criticize and debunk the fear-mongering and pseudo-scientific approach taken by the Food Babe.  To those I'll also add posts by Hank Campbell at Science 2.0 and Maureen Ogle,  author of Ambitious Brew.  There really isn't much left to add to these critiques.

While there has been some positive discussion of the Food Babe's activities (e.g., see this article in Business Insider), mainly focusing on the power of social media to force food company change, one must ultimately ask whether the change is good or bad, and whether the methods used to obtain such change are justifiable.  And, when we see the Food Babe's other writings against GMOs or against the flu vaccine, there is cause for concern (those efforts have also been criticized, for example, see here and here).    

New FDA Nutritional Facts Panel Explained

Adding to their already fantastic farmdocdaily blog, the department of agricultural and consumer economics at the University of Illinois has just launched a new policy blog.  

The most recent post is on proposed changes to the nutrition facts panel by Brenna Ellison, one of my former students at Oklahoma State.  In the link at the bottom her post (which jumps to a brief survey), Brenna created the best visual illustration I've seen to date of the proposed changes.  I've reproduced it here with Brenna's permission. 

I should also note that the results from our Food Demand Survey (FooDS) suggest most people prefer the new label to the old.  

Do USDA Quality Grades Mislead Consumers?

If you've ever seen the words "Choice" or "Prime" advertising a cut of beef, then you've been influenced by the federal beef quality grading system, which is administered by the Agricultural Marketing Service of the USDA.  From "best" to "worst" the grades are Prime, Choice, Select, and Standard.  

In a paper forthcoming the Journal of Animal Science, Eric and Megan Devuyst and I report the results of a study revealing that the USDA beef quality grading system likely sends confusing and misleading signals to final consumers (which is exactly the opposite of the purpose of the grading system).

The key determinant of quality in current grading system is "intramuscular fat" - the amount of fat inside the muscle of the steak.  Steaks with more fat get higher grades, primarily because of the large amount of research showing that consumers prefer the taste of steaks with more intramuscular fat.

But, do consumers know this?  And do they understand the information communicated by the grade names? Based on results of two nationwide surveys (both with over 1,000 people), we believe the answers are clearly: "No".

Most people thought the grade name "Prime" was the leannest, while also expecting it to be juiciest.  When looking just at the pictures (the same ones shown above but without the names), most people thought the picture of the Prime steak would be the cheapest, and they were most likely to associate the picture of the Prime steak with the name "Select."  

Only 14% of respondents correctly ranked the grade names according to leanness, and only 14% correctly matched the pictures with the respective grade names.  That's worse than random guessing (16.67% would be correct just by pure chance given that people had to match three items).   

We conclude the paper with the following:

if the current grading system fails to adequately inform consumers of the relative quality of grades, there remains the likelihood that consumers’ expectations will be unmet. There are three potential methods for addressing this lack of understanding. First, the current quality grading system could be dropped in lieu of private or third-party systems. . . .Second, an educational program could be  developed to promote knowledge of the link between higher marbled beef and taste. . . . The costs of such an effort, however, are likely to be large, and it is unclear what effects they may have particularly when one realizes the existence of many prior educational efforts that have been undertaken in the 70 year existence of the Prime-Choice quality grade nomenclature. . . . Finally, consumers could likely benefit from more descriptive nomenclature. . . . for example, “USDA Prime—Higher Fat, Most Juicy,” “USDA Choice—Juicy,” and “USDA Select—Less Fat, Less Juicy.” 

You can read the whole thing here.