Wednesday, January 23, 2008

Is the Government half-right for once? Labels and food 

A huge problem with our current Government is micro-managing targets.
So is the current push for an unified food labelling system yet another example? Well possibly not, if we all take a deep breath and settle for achievable aims.

HMG wants one system of food labelling for nutrients instead of a multitude of competing commercial submissions.

Now, there are two ways of evolving standards in any field – ‘de facto’ and ‘de jure’. We are seeing the evolution of a de facto standard with videodiscs right now as one commercial solution becomes dominant. This is a pretty effective way if there are dominant economic players and if monopolisation can be contested. The other ways is for key players including governments to get together and publish a standard – as happened for colour TV in Europe and with the DIN standards for electronic components.

‘De facto’ can be brilliant, but it falls down as a process if the relevant competitors have the incentive and the market clout to segment the market by using competing standards. And the big food retailers do have such an incentive as it makes it harder to make comparisons between their offerings in their competing stores.

They often work very hard to make it difficult to make comparisons with other items in their own stores as it is.

Taking prices as an example:

Have you noticed that supermarkets often charge ten times as much for fresh chilli peppers in a package as for loose fresh chillies? That’s because the typical customer buys such small quantities that he doesn’t think to check whether they cost 4p or 40p. Randomly tripling the cost of a vegetable is a favourite trick: customers who notice the mark-up just buy a different vegetable that week; customers who don’t have self-targeted a whopping price rise.

Harford 2006 p 47

And beware of some of the bargain money-off offers especially on fresh foods. Often when the bargain ends a new price rather higher than the original is imposed, and the experience is that most people don’t notice.

Bottom line I think: supermarkets are likely to want their customers who are conscious of nutritional labelling to become familiar with their in-house systems, and feel less comfortable when dealing with their competitors systems. That helps ‘loyalty’ to stores. The chances of a de facto system evolving are slight. But an imposed central system is not necessarily going to be the best.

The question is therefore what do shoppers who care about nutritional information find most useful, and can we use central influence to evolve a standard to help future shoppers who may want to make choices based on this kind of information, forcing competitive retailers to respond to these choices?

So yes there is a place for a central initiative on this. But no sensible person is going to trust the current government on one of its central preaching sprees, so, unfortunately, we may be along way from getting such an useful aid to market choice.

Harford quote is from the chapter ‘What Supermarkets don’t Want You to Know’ in Harford, Tim ‘The Undercover Economist’ Little.Brown (2006)

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