Integrity -- The Weakest Link in the Global Food Chain

An address to International Food and Agribusiness Management Association's
11th Annual World Food and Agribusines Forum
held in Sydney, 26 June 2001

I first involved myself in food regulation almost 5 years ago when I was struck by the extraordinary degree of regulation of the industry's products by what is now the Commonwealth Office of Regulation Review.  The degree of regulation was remarkable for this industry because the need for regulation were not present.  There was:

• little evidence of food being unsafe -- the vast majority of food poisoning cases were and are traceable to careless handling of food once bought (e.g. eating food that has deteriorated) or from restaurant, take-away food etc.
• the industry was fiercely competitive at the production end and even if the retailing approached a duopoly, it was one that was and is highly rivalrous and open to new entrants.
• the products are low cost frequent purchase goods where the supplier relies on enticing the consumer to buy but can survive only by obtaining repeat purchases;  misleading statements, while they may get an initial purchase could not sustain a successful product category and could undermine the reputation of the whole of a supplier's product line.
• related to this, branding and creating a favourable brand image was essential to maintaining a successful business
• there were niche markets sometimes called fad markets for a minority who wanted to be certain of the ingredients and the way things they were eating were prepared;  such markets had always existed, perhaps most strikingly, with kosher or halal products.
• to meet elements of this and a wider market for "natural" or "healthy" products, manufacturers were starting to make such claims and the authorities were either preventing them doing so or forcing them to justify the claims.
• these requirements were being imposed on the already highly prescriptive regulations defining what a particular product must comprise, often going into considerable detail with de facto recipes.

So what has changed?  Well some would say "very little".

The basic functions of food remain the same as they have been for a long time

For the consumer these are the one primary goal followed by the seven Deadly Sins:

For business the imperative is to make money from selling the products this means meeting consumer needs, particularly for repeat purchases, establishing favourable brand images ensuring that no product in the stable adversely impacts on others and doing all this in the context of a regulatory environment.

And the regulatory environment has as its basis:

One of the matters that pushed the food laws into public awareness was a largely accurate debate that was taking place in the European Union on sausages that Yes Minister Jim Hacker got himself embroiled within.  The whole concept of the sausage differs markedly across cultures.  And at the same time our own laws led to a consignment of Italian sausages, which did not meet our 50% meat content, being ricocheted back and forth until they spoiled before the consumer could be wilfully misled.

Pillorying regulations in the Yes Minister way is a potent force to bring re-thinks.  What these and other incidents demonstrated was that in the name of providing information, consumers were being denied information -- and even products -- that allowed them to make the choices they preferred.

The appropriate criteria for regulations are as follows

With all this in mind, the present review of the food standards codes is conducted under the framework of policy established over the past decade namely,

• reduce the level of prescriptiveness of standards to facilitate innovation by allowing wider permission on the use of ingredients and additives, but with consideration of the possible increased need for consumer information;  a case of one step forward two steps backwards
• develop standards which are easier to understand and make amendment more straightforward;
• replace standards which regulate individual foods with standards that apply across all foods or a range of foods;
• consider the possibility of industry codes of practice as an alternative to regulation;  and
• facilitate harmonisation of food standards between Australia and New Zealand.

The review will also be carried out in accordance with the competition policy principles which have been adopted by the Council of Australian Governments and the draft Code of Good Regulatory Practice (New Zealand).  These principles require the review of all business regulation "to remove unnecessary obstacles to competition, and an assessment of the social, environmental, and economic impacts as well as the impacts on health of proposed regulation on all affected sectors of the community."

As a postscript to the Eurosausage debacle, Australian regulations have marched on oblivious to the initial consternation.  Under pressure from a number of interested parties the Authority has retained the existing Australian requirements that sausages contain at least 50% meat and less that 25% fat.  While some interested parties seek to use the regulations to assist sales -- in this case of meat -- it is surely the role of regulators and those selected to serve on committees supposedly to represent consumer interests to be alive to and combat this.  Unfortunately there seems to be a disposition among those selected to represent consumer interests and some bureaucrats to regard the consumer as stupid and the seller as unprincipled.  This reflects an inadequate understanding of the consumer's wisdom in selecting the products she wants or in the necessity of producers to formulate and brand goods and proffer information that their target markets find attractive.

The goals of regulation are the prevention of sale of unwholesome food and the avoidance of fraud.  Added to this is a third one:  the provision of meaningful information to consumers.  This is a relatively recent requirement on sellers but is justifiable in the context of the migration of the common law from the notions of caveat emptor "let the buyer beware" to caveat venditor "let the seller beware".  That shift occurred as a result of the complexity of foods and as the ability to verify wholesomeness became easier for the seller than the buyer.  Requirements to present meaningful information to the market seems innocuous enough.  But it has spawned a whole new area of mandatory information provision and consequent inflexibilities.

Thus, in the case of meat and other foods, use of a specific terms like "lean" trigger the requirement to provide information on the fat content.  Fair enough.  But it seems that the nutritional and content panels are being required of all packaged foods.

FALLACIES AND COSTS

This brings me to some issues that the present arrangements create or perpetuate.  They include:

The whole issue of ingredient labelling and nutritional panels was challenged under the government's guidelines of generating a positive cost benefit.  One study sponsored by the industry and undertaken by KPMG came up with a cost of about $400 million.  A rival analysis sponsored by the regulators and undertaken by the Allen Group came up with a cost of about $100 million.

In neither case was there any assessment of the benefit entailed.  What we have with the plethora of required information is overload for the vast bulk of consumers who do not know whether they need more or less of particular ingredients.

In this respect it is claimed that nutritional information panels are necessary to assist people in choosing more healthy foods.  Yet something like 70% of foods already carry such panels largely because the seller wants to promote this feature.  Those that do not are appealing to hedonistic self indulgence or perhaps have a product that varies in these attributes thus making labelling difficult.  There is also research that only about 12% of the buyers ever read the nutritional label or the percentage ingredient panel.

Coupled with this is the inflexibility mandatory labelling can build into formulations

Ministers being ministers sought some alleviation of the burden they were imposing on those in the community with votes or with public sympathy.  Big business can be kicked at will because in the public psyche the only cost seen is to some rich people's profits.  Politicians, especially those controlling the junior portfolios under which food regulations usually fall, are able to proceed as if their actions are costless.

Small business is considered to be different, irrespective of the fact that small and big business compete head on in a great many theatres and offering one an advantage is deliberately increasing costs, tilting the playing field and harming competitiveness.  In the event the politicians were able to gain the political kudos from making soothing noises about the alleviation of future burdens on small business but when push comes to shove they cannot adequately define small business or justify exemptions.  This did however limit the opprobrium with their initial statements.  But decided not to ask the next question, "If we are imposing costs that need not be imposed on small business, who is paying the costs that larger businesses incur?"  The answer is in the end the consumer.

One of the seldom said facts about nutritionists is that many of their judgements are dictated by fashion.  Some of us remember when salt was called "the staff of life" prior to its contemporary dethronement.

Sugar is the latest in a long line of ingredients that were once considered unhealthy but are now seen to be no different to other carbohydrates.  Yet, pressed by nutritionist ideologues, Ministers have reversed expert advice and required specific labelling of sugar.  Where the science says it is the same how can ministers require a myth be perpetuated?  If any supplier wished to include sugar content as well as other carbohydrates, they should be free to do so.  But requiring this be done is an abandonment of the scientific processes that are the cornerstones of good regulatory practice.

The long standing prohibition against health claims in food may be relaxed under the new code.  Even so, it seems the ability to make a truthful claim will undergo such extensive vetting and be subject to so many restrictions as to severely devalue its worth.

For example making a claim may not be allowed if the health claim does not apply to large parts of the population.  And sometimes the benefit of a product requires other additional measures, like exercise for example.  Some basis of the concerns behind limiting such statements is the possibility that it might lead to reckless behaviour -- people would over-indulge in the healthy good.  On this basis a great many statements regarding other products and activities should be banned.

• Urging people to get into sport may be deleterious for those with heart conditions or who as a result push their bodies to excess.
• Introducing and promoting as such safety switches in electricity may encourage people to recklessly undertake their own maintenance
• Introducing traffic lights may cause people to be less careful in crossing the road

We would scornfully and rightfully dismiss opposition to such improvements to out health and safety yet food seems to be somehow different.

Fellow speakers have adumbrated the global hoax that consumerist and environmental activists are perpetrating on the public in their luddite games against biotechnology.  Sadly, regulatory officials and ministers in most countries are bowing to the anti-science forces and changing their labelling requirements to allow the demonisation of new technology that offers vast technological and even health improvements and which as David Aaron of the Commerce Department has made clear, "13 years of US experience with biotech products have produced no evidence of food safety risks -- not one rash, not one sore throat, not one headache".

The opposition to GM foods cite the following sorts of statements:

"This process changes the properties of the food.  Possibly dangerous substances could be formed" "This process could be carelessly done.  Accidents could happen" "This process will increase the price of the product.  It is not necessary.  We have direct and prompt food distribution systems" "We must not meddle with nature"

"This process diminishes the nutritive value of the food"

All those statements were made about pasteurisation of milk.  That process was firmly established as bringing vast savings in health by the first decade of the twentieth century but took a further 30 years before it became near universally adopted.

Far from sticking to their own principles, Ministers bow to the ideological zealotry that certain groups seem so able to whip up and make policy changes on the run to cater for them.

While the world has changed in terms of the regulatory requirements placed on business, the future must be anchored on some basic principles.  These are that

• there is a massive incentive for suppliers to ensure their product is attractive to the consumer, is wholesome and is attractively priced
• hence the supplier is constantly researching consumer preferences and means of supplying these more cheaply
• this is the very definition of an efficient industry and things that impede it are likely to cost the consumer and perhaps the economy as a whole.
• The best judge of the consumer's interest and preferences is the consumer herself.  While there can be any number of advisers about healthy living and good value those selecting and eating the products are the only ones holding the unique consumer preferences that must prevail.
• and in pursuit of these preferences, the supplier will seek to tailor products and provide information that attracts the consumer, products and information that are tested daily and that will lead unsatisfactory products to be rejected in repeat or word-of-mouth purchases.

All this counsels against government requirements for labelling and composition, other than insistence that nothing misleading be offered.  And the best guardians against misleading statements and compositional deficiencies, other than the consumer herself, are the supplier's rivals.  There is a great deal that can be left market forces and people's normal pursuit of self-interest.

Indeed, the departure point of regulatory oversight would do well to re-visit the goals set of the 1991 ANZFA Act

This essentially deregulatory policy chapeau soon gets watered down in the details.  Hence, as it is most unlikely that we will see an early disengagement by the regulatory authorities of the food industry and its labelling, it would be useful for it to devise a conceptual framework around which its labelling decisions might be considered.

The following could form one such framework: