On Monday, December 1, 2014, the Federal Drug Administration (FDA) published its final rule requiring nearly 300,000 retail food establishments and approximately 9,000 operators of food vending machines to post calorie counts at the point of sale, and provide additional nutrition information. The regulation, required by the Affordable Care Act of 2010, is designed to enable consumers to make better decisions about their diets by giving them calorie information about the food they consume away from home at the moment they make decisions about what to order.
The regulation is an effort to stem the health problems associated with overweight and obesity. In the US, 34% of adults are obese, and 34% are overweight. Among children and adolescents (2-19 years old), nearly a third are overweight or obese. Targeting restaurants (and cafes, grocers, vending machines and other places to buy ready-to-eat food) is critical because Americans consume an increasing percentage of their daily calories away from home — up from 18% in the 1970s to about 1/3 today. Moreover, the meals we buy ready-made away from home are higher in calories than those prepared from scratch at home (134 more calories/meal for those purchased by non-overweight consumers and 239 more for those purchased by obese consumers). (For sources see the Regulatory Impact Analysis of the rules.)
An article published by Reuters today noted that in assessing its costs and benefits, the FDA included the estimated loss of benefits to consumers as they switch from higher to lower calorie foods. FDA estimated that disclosing calorie information would mean lost benefits (or “consumer surplus”) in the range of $2.2 billion to $5.27 billion because there would be a reduction in food dollars spent as the posted calorie information encouraged consumers to switch to lower calorie menu items. This dollar value of reduced consumption of higher calorie food is considered a “cost” in the analysis because the shift in spending is attributed to lost utility (or value and pleasure) to the consumer reflected by our purchasing choices, rather than a gain in satisfaction, taste, pleasure, mental health, and estimated future life benefits that consumers may derive from lower calorie options (or by not purchasing an order of fries at all).
It seems to be a mis-application of the concept of consumer surplus to treat a shift to healthier eating as a consumer loss rather than an indication that consumers derive greater benefits — psychic, gustatory, and health-wise — from eating lower calorie items rather than higher calorie items. Willingness to pay for high calorie food in the absence of information about the caloric content of that food doesn’t indicate consumers are deriving “consumer surplus” by eating that food.
Despite the inclusion of this measure of consumer surplus loss in the cost-benefit analysis, the estimated benefits of the calorie labeling requirement still exceed their costs by $477.9 million over 20 years (at a discount rate of 7%). The regulations are set to take effect a year from now.