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How Enhanced Labeling Regulations Affect the Global Food Industry

arlier this month the Obama administration unveiled the most sweeping update to nutrition labeling on food packages in more than two decades, giving Americans a reality check about how many calories and how much sugar they are consuming. Whether this will affect consumer behavior remains to be seen, but how this regulation affects the food industry across the supply chain was the focus of APCOs International
Former U.S. secretary of agriculture Dan Glickman stated the recent regulation provides consumers with more accessible information on packaged foods and related items. These rules are not without some controversy in the food industry, and it is not clear how they will be transitioned in, but this regulation fits within the broader issue of increased disclosure of the composition of food, particularly fats, calories and sugar and sodium will likely be next. The real question regarding this regulation is how will it affect American manufacturers? Also, how will this affect international trade? This regulation will have a relationship with other labeling issues, including genetically modified (GMO) labeling, which this current regulation does not address. The Obama administration is not directly engaged in the GMO debate yet, but the rest of the world has very much engaged on how much disclosure should be required on packaging to deal with that issue as well. This regulation is somewhat consistent with what other countries are doing, especially in the area of sugar, but it reflects a new era in terms of both governments and food. Various participants in the food industry are trying to get more information to consumers. The World Health Organization (WHO) has been involved in the sugar issue for some time, but companies, perhaps unrelated to this latest regulation, are going to try to get ahead of the game. A lot of organizations, such as the Grocery Manufacturers Association, that represent
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all the grocery companies have different views. They are not completely aligned with what the Food and Drug Administration (FDA) has proposed. They do not agree with the location of the labeling, and they would much prefer to have voluntary labeling. Over the next few years, food companies around the world are going to step out in front of governments on this issue. One of the hot topics is the role of chronic disease and non-communicable diseases, which includes diabetes, heart disease and cancer, and whether the evidence is absolutely clear or not linking calories, and sugar particularly, to these diseases. Governments will be seeking ways to regulate this issue and the questions are: Will the regulations be sensible? Will there be good transition periods? Will good science prevail or not? As most countries begin to deal with health care costs more aggressively, governments and the private sector are going to respond by dealing with food labeling as it relates to the issue of non-communicable and chronic disease. More and more companies are going to stake out individual actions to address these issues. Some will be resistant to the government telling them what to do; some will want to be free to experiment; and some smaller, natural organic companies will be pushing the envelope. As a whole, the food industry has come into its own. If you look at how food industry stocks have performed in the last couple years, they have been some of the highest performing stocks, which was never the case before. In Europe, there is also an ongoing debate on food labeling regulations. Consumers receive a lot of information on the components of food and a new EU regulation will come into force in December 2014 with mandatory nutrition information on processed food, including: more country of origin labeling, improved date marking, clarity and legibility of food information, labeling of non-pre-packed food and allergen information. However, the UK is the only country in Europe with a traffic light food labeling system: the UK introduced a front-of-pack nutrition labeling system in June 2013, which classifies food as red, yellow or green according to the fat, salt and sugar content. In February 2014, EU regulators launched an inquiry to examine whether the traffic light system is compatible with EU rules on the free movement of goods after other EU member states, led by Italy, complained it was unfair. Britain argues that the scheme is voluntary and fully legally compliant with EU food law. Italian food producers also claim that the traffic light system fails to take into account southern culinary traditions that use high-fat foods sparingly and as part of a balanced diet. Secretary Glickman indicated that the industry should begin driving this agenda to some form of more uniform labeling. The real issue right now, and likely over the next few years, is how the genetically modified foods are labeled. This is where there is a great difference between the United States and the rest of the world, especially in Europe.

Christian Murck, former chairman of the American Chamber of Commerce in China, remarked that the biggest issue inside China is not food labeling; it is simply food safety and the danger of eating something that could poison you. The Chinese government has a rather weak regulatory system, and they place much of the focus on the point of sale. So the retailer who delivers it to the customer takes most of the responsibility for the entire food chain. One of the challenges in China is developing a more articulated regulatory system that assigns responsibility all the way back to the producer and has a better capacity to trace items through the supply chain. Finally, there are a large number of pending agriculture trade issues between the United States and China, some of which revolve around science and the way in which food issues can be used for trade protection. The one commodity that has drawn attention recently is corn. Most U.S. corn is genetically modified and right now is being rejected in China because the Chinese have not yet approved the latest GMO innovations. The new U.S. ambassador to China, Max Baucus, former U.S. senator from Montana, has a longstanding interest in food and agricultural issues, so there may be an opportunity to work more closely in terms of dealing with agricultural and food issues between the United States and China. Tim Roemer, former U.S. ambassador to India, remarked that India is facing critical food preservation challenges in terms of getting food from the farm field to the kitchen table. In India, more than 30 percent of the food is wasted along the cold supply chain. India needs to improve its warehousing and infrastructure. Accordingly, large companies trying to brandish their image in places like India and enter into the retail sector are trying to come up with programs where they can get credit for helping farmers improve their cold chain and bring their food directly to the stores more effectively and safely. This is a corporate social responsibility opportunity for business, especially given the new law passed in India mandating investment. In sum, the three main takeaways from the meeting were: 1. It remains to be seen how the new labeling regulation in the United States will affect consumer behavior, but it may have a ripple effect on company behavior going forward, particularly as the debate over GMOs intensifies in the coming months. 2. Food companies are performing well in the stock market, which is incentive for companies to continue to stay in front of labeling and other regulatory issues. 3. There may be an opportunity for increased cooperation between the United States and China on food supply issues, particularly if an agreement can be reached on genetically modified corn.
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