Wayne Crews, Comments to FDA on Food Labeling, Citizens for a Sound Economy, 1991

7/27/2019 Wayne Crews, Comments to FDA on Food Labeling, Citizens for a Sound Economy, 1991

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Submitted to:

Food and Drug AdministrationDockets Management Branch (HFA-305)Room 1-23

12420 Parklawn DriveRockville, MD 20857

Written Comments on the Regulatory Impact Analysis ofthe Proposed Rules to Amend the

Food Labeling Regulationsas published in 56 FR60856

Wednesday, November 27, 1991

Submitted by

Clyde Wayne Crews, Jr.

On behalf ofCitizens for a Sound Economy Foundation (CSEF)

February 25, 1992

Citizens for a Sound Economy Foundation (CSEF), a 250,000-member grassroots organization which promotes economicopportunity for all citizens through advocacy of policiesconsistent with a thriving, vigorous system of free enterprise,is pleased to submit these comments on the proposed rules to

implement the Nutrition Labeling and Education Act Amendments of1990.

I. The Question of Market Failure

The proposed food labeling regulations address what the Foodand Drug Administration (FDA) regards as a failure of the marketto provide the optimal amount of reliable information on foodproduct labels. This failure is assumed to thwart consumers'ability to compare the relative health benefits of foods.Regulators are concerned that if health claims or descriptorterms used on product packages are not monitored, they maydegenerate into puffery at best and outright false assertions atworst, leaving consumers unable to rely on manufacturer-providedinformation.

The agency is also concerned that unconstrained healthclaims or descriptors, even if technically true, may stress apositive product feature while omitting negative aspects,resulting in increased consumption of undesirable components suchas sodium and fat. While FDA's intentions are commendable, itsfailure to appreciate the economics aspects of information flows


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within markets is a certain formula for restricting, rather thanincreasing, the amount of information and the array of healthyfoods available. The proposed rules will make consumers worseoff from a health standpoint because they strip firms of

incentives to produce healthy products. Nor will firms bemotivated by competition to reformulate existing products to makethem healthier, since health attributes are effectively removedas a competitive feature. Instead, firms will emphasizesuperficial attributes like taste and convenience, and theaverage nutritional quality of the overall food supply maydecline. There are far better ways for FDA to regulate the foodindustry, and vigorously prosecute those who defraud the public.

II. Scope of the Proposed Rules

Because the Nutrition Labeling and Education Act Amendmentsare law, alternatives to federal regulation, such as encouraging

recourse against false claimants through the judicial system orallowing states to regulate health claims, are pre-empted to anextent even though these may be preferable in many cases. Thekey features of the NLEA in terms of health claims is that claimsmust meet a "significant scientific agreement" standard and thatpetitioners must adhere to specific and rigid filing requirementsto show their conformity to this standard.

While these provisions are universal for manufactured foods,there appears to be some flexibility and room for interpretationas far as the extent of significant agreement and the degree offiling complexity required in any given application. Alteringthese conditions will change the levels of benefits and costs

from the regulations. The level of consensus and degree offiling complexity need not be the same across substance/healthclaim classes. The 1990 Act states that the Secretary of Healthand Human Services must authorize health claims, but it does notspecify any particular level of agreement or filing complexity --these are variables. Those claims that will be minimal in theirimpact on public health if they turn out to be untrue, or thatpose no health risk potential, should require less substantiationthan those that potentially have a profound public health effector possess an exaggerated potential to mislead, for reasonsdiscussed below.

III. Public Health Costs of the Prohibition of Health Claims

The statutory objective of the NLEA is to increase theamount of information publicly available to consumers and toeliminate deceptive claims, but an overly strict barring ofhealth claims will do exactly the opposite and decrease consumerwelfare by placing poor products on a par with products withsignificant nutritional characteristics. Consumers won't be ableto easily distinguish between them. According to the proposedrule, out of the entire universe of potential links between


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nutrients and a health condition, only fourhealth links betweennutrients and health effects will be permitted, out of tenCongress required the agency to investigate. Because reasonablenutritionists, scientists, and doctors may disagree about the

validity of some health connections, there is unlikely to be anyconsistent emergence of "significant scientific agreement," soFDA will ultimately determine what will qualify as sufficientevidence, based on pluralities rather than majorities.

FDA is obligated in its role as overseer of the public foodsupply to consider and weigh the potentially vast benefits of aprogram that allows claims for which there is a reasonable basiswith the comparatively small benefits of prohibiting theseclaims, especially since our knowledge about nutrition isconstantly advancing. FDA will do the public a grave disserviceby denying consumers access to information about healthrelationships -- in spite of the fact that some of the

information comes from the manufacturers themselves.

1. Consumer welfare loss: The broad-stroke bias againstthe allowance of health claims presupposes that present labelingis on the whole inaccurate and misleading and that consumers arereceiving no net benefit from access to the claims that alreadyexist in the marketplace. This deep-rooted mistrust of freeenterprise as such and disdain for the critical faculties of theaverage individual is apparently a philosophical position of theregulation writers at FDA that is too fundamental to debate inpublic comments. But philosophical differences aside, economicreasoning and empirical evidence suggest that restrictinginformation that emerges from well-meaning manufacturers, as

opposed to the fraudulent ones who deserve prosecution, lessensthe amount of useful information that reaches consumers, removesincentives for manufacturers to improve products, and limitsconsumers' ability to respond favorably way to the latestscientific findings as they emerge.

The Federal Trade Commission (FTC) has provided evidencethat consumer awareness of the relationship between certainnutrients and resultant health states was indeed limited prior tothe introduction of a health claim, but that awareness increasedafter claims appeared in advertising (the specific nutrient inFTC's example was fiber).1 FDA has yet to concur in any suchhealth relationship, but the correlation appears to be supportedby much available scientific evidence. This sort of usefulinformation will be withheld from consumers by a monopolisticFDA. No level of falseness of present claims has been

1Pauline Ippolito and Alan Mathios, The Regulation of Science-Based Claims in Advertising. Manuscript presented at the SecondInternational Conference on Research in the Consumer Interest,August 9-11, 1990, p. 7.


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established by the agency, yet it would restrict the public'saccess uniformly.

The consumer benefits of a well-policed market that permits

responsible health claims far outweigh the cost to consumers ofreacting when responsible scientific claims turn out to bemistaken, a cost which is necessarily limited to the price paidfor a food product. Repeat sales of the product would simply belost (along with the firm's reputational capital). There is noeconomic or reasonable basis for FDA's presumption that consumerswould prefer no health information on the label at all to theinformation that is currently available to them, despite thepossibility that some claims are inflated (which can be policed)or simply mistaken at times. The potential upside benefits arefar too great to forego by an authoritarian policy that, ex ante,suppresses or delays information because it regards allmanufacturers with suspicion at best, or as deliberate cheats at

worst.

FDA has already demonstrated a bias against permitting theuse of claims even when scientific evidence seems to beoverwhelming, and there is no evidence that the agency hasovercome this tendency or will suddenly overcome it in time toimplement the NLEA in a nonharmful way. Despite the frequentendorsement of fiber by scientists, nutritionists, and doctors,the claims for the benefits of fiber in the reduction of heartdisease or cancer are still under "review" by the agency and donot enjoy its endorsement. Further, there is overwhelmingevidence that aspirin aids in the prevention of heart attacks,but the agency has issued warnings against the advertising of

these peer-reviewed findings. Without an abrupt shift in policyadministration, the agency cannot be counted on to allowconsumers widespread access to information that will help them.Consumers will be at the mercy of a monopolistic FDA to reveal tothem what counts as good science.

2. Consumer harm: Closely related to the consumer welfareloss issue is the claim that the restriction of informationdirectly harms consumers because it places nutritionally unsoundproducts on a par with those products that FDA or otherauthorities would prefer consumers select under normalcircumstances. Consumers are less able to tell if a product islikely to be nutritious compared to competing products. Recallthat existing claims or descriptors (such as the "no cholesterol"claim on vegetable oils) are technically true even if arguablymisleading. At the very least, the allowance of claims weeds outthose products that have no basis whatsoever for making a claim:labels simply will not appear on such products.2 (For example,nonfiber products do not claim to be fiber, and foods that

2Ippolito and Mathios, pp. 15-16.


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contain cholesterol do not claim to be cholesterol-free.) Apolicy that forbids or delays health claims, however, will makethese poorer products indistinguishable from those that on thewhole are better for consumers' health. These costs of FDA's

preventing consumers from having access to health claims shouldnot be brushed aside as irrelevant. Such costs are far greaterin scope than the costs of misleading claims. Withholdinginformation is detrimental to consumers' health, especially in anenvironment in which the evolution of scientific information, towhich consumers should have access, is progressing rapidly.Again, FDA should vigorously prosecute the guilty or fraudulent,but should not punish honest manufacturers who, as one part of avast network of information, are providing an important publicservice regardless of intent.

Paul H. Rubin has pointed out how the market process in factinduces firms to actively reveal negative product

characteristics.3

Price itself is a negative feature sinceconsumers would prefer to obtain products free of charge -- yetit is a highly advertised and emphasized feature. One virtue ofadvertising is that it serves the producer's purpose ofdemonstrating his product's superiority when his product has lessof a given negative characteristic than his competitor's. Whereno advertising appears, consumers rationally assume that theproduct is at the lowest level.

Carrying this process over to the competition for healthclaims, Rubin cites the study by Pauline M. Ippolito and Alan D.Mathios of the Federal Trade Commission, which found that theadvertising of cereal fiber content (a good feature) induced some

fiber cereal manufacturers to advertise that their productscontained less sodium and fat than their competitors' offerings.4These other producers then reformulated their cereals. Theoverall result was that the negative features became specificallyrevealed to the public and average levels of the "negatives"sodium and fat in fiber cereals declined during the health claimperiod. One of the most important results of advertising orhealth claims, therefore, is that they underline negative productcharacteristics relative to one's competitors, and in turnmotivate product reformulations toward greater health benefits.

3. Decrease in nutritional qualities of foods: It has beendemonstrated how a dynamic market acts to reduce negative productcharacteristics and provide information to consumers. As theprimary guardian of the food supply, FDA should actively concern

3Paul H. Rubin, "The FDA's Prescription for ConsumerIgnorance," Journal of Regulation and Social Costs. Vol. 1, No.4, November 1991, p. 13.

4Rubin, p. 16.


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itself with the question of which scenario or level of healthclaim deterrence will increase consumption of products with bador lesser nutritional characteristics. The Federal TradeCommission advises regulators to contrast the impact on average

nutritional quality of food in a "world" in which manufacturersare free to communicate the benefits of their productimprovements with a world in which they are not.5

There is little or no incentive for producers to create anddevelop more nutritious products during a period in which theyare hindered or forbidden from marketing them on a nutrition-oriented basis.6 Competition plays an important role in gettinghealthier products to market: if health characteristics are nota competitive feature, food products will compete on the basis ofother relatively superficial characteristics, such as taste orconvenience, and nutrition will no longer be a primary concern ofproducers. Clearly, the consumer loses if the average

nutritional profiles of new foods brought to market decline, butthis outcome is a virtual guarantee if the mention of healthcharacteristics is forbidden. The prevention of health claimswill increase consumption of products with less desirablenutritional features by withholding useful information fromconsumers, and by discouraging the production of products withimproved nutritional qualities.

IV. Responsible Interpretation of "Significant ScientificAgreement"

1. Minimizing filing costs: Any individual may file arequest for a regulation characterizing the relationship between

a nutrient and a state of health, and once it is approved, allmanufacturers using the same substance should be able to make theclaim. This process is useful since it eliminates the wastefulduplication that would occur if each manufacturer were requiredto obtain separate substantiation. The fixed costs of undergoingseparate filing requirements would be a substantially greaterrelative burden on smaller firms. Additionally, eliminatingduplication would lessen the likelihood of already-successfulfirms, with accumulated reputational capital, free-riding on theefforts of small, unknown firms. Otherwise, large firms, with asafety and quality reputation firmly established, could hastilyproduce a copycat product identical in substance to that of thesmall firm engaged in petitioning, but merely advertise otheraspects of the product (like taste) rather than the health claim.In this manner the large firm could shift nearly the entire

5Ippolito and Mathios, p. 9.

6This inability to underline nutritional characteristics willbe especially harmful to small or unknown firms, for reasons thatwill be explained later in the document.


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burden of securing approval onto unknown or small firms, that arelikely to have a greater need to make a health claim in order toestablish a quality/health reputation of their own.7

The preferable public nature of the right to make a claimonce approved by FDA and the feature that permits any individualto make the request provide an economic incentive for all withina substance category to assist in securing approval of theirmutual claim. Obviously, some manufacturers will attempt tofree-ride on the effort required of the filing process itself(i.e., providing data, studies, and other evidence in support ofa claim), but in all likelihood trade associations and otherindustry specifics will induce claimants to internalize thesecosts: the quicker that the FDA gets the required supportingmaterial, the sooner that all may make the health claim, so thereshould be little desire to withhold relevant information.

However, even a general-support filing requirement is stilllikely to have a negative impact on innovation (and consequentlybusiness start-ups and employment), especially in the case ofsmall firms. A firm with a unique product that has yet toregister a reputation for healthfulness must prematurely"publicize" the product's arrival in the marketplace yet isforbidden to market it in the manner necessary for businesssuccess for the duration of the approval process (up to 180days). This gives competing firms ample time to plan for themanufacture and marketing of a copycat product, which they willthen be free to tout the health benefits of if they or the smallfirm is "successful" in securing the claim. Potentially, apublic filing process could eliminate the ability of small firms

to establish themselves in any industry in which perception ofhealth benefits is important to survival: product introductionwill be delayed by the filing period when the small business isat its most critical and vulnerable stage. How will tradesecrets be protected in the approval process?8

The gains of innovative food products may thereby beappropriated whether one or all must secure claim approval, andthis will lower the information flow to consumers. It isdifficult to determine the net effects of a mismanaged filingprocess on innovation, but it would appear to eliminate the

7Similar arguments are made regarding advertisingsubstantiation (as opposed to labeling) in Richard S. Higgins andFred S. McChesney, "Truth and Consequences: The Federal TradeCommission's Ad Substantiation Program," Public Choice andRegulation. Edited by Robert Mackay, James C. Miller III, andBruce Yandle.

8The proposed regulation states that a petition filed for ahealth claim shall be available to the public.


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ability of small firms to gain an edge in a competitivemarketplace. There is little incentive for a small innovator tomarket potentially better products if, in addition to theuncertainty of getting a stamp of approval from FDA, the approval

process itself will encourage others to mount a competitivecampaign of their own. This unfortunate side effect could bemitigated if filing requirements and scientific agreementstandards were more lax within the subcategory of claims in whichthe cost of a mistaken claim is minimal.

2. Deadweight losses of rigid scientific and filingstandards: Deadweight losses occur when governmental actionprevents mutually beneficial exchanges from taking place betweenconsumers and producers. As increasing attempts are made tosecure evidence of the truthfulness of a health claim category --holding risk level constant -- the costs to society of obtaininggreater and greater certainty increase, while the benefits of

knowing more decrease. There is an optimal level of effort thatbalances the amount of verification of a claim with the costs ofsecuring that information. Beyond this point, the costs tosociety of obtaining greater certainty exceed the benefits. Thisoptimal scientific consensus level will rarely, if ever, be 100percent. To maximize public benefits, the threshold level ofscientific agreement for approval of a health claim, therefore,should not be fixed simply to make matters convenient for FDA.For example, perhaps if a substance is known to be harmless (likefiber) and a majority (51%) of scientists (either as revealed insurveys or in published studies) agree that a health relationshipexists, the claim should be allowed. A broader consensus shouldbe required where the effects of the substance are more

questionable or potentially dangerous. The aim should always beto avoid requiring excessive levels of verification where theyare not warranted by or do not serve any public health purpose.

In those instances in which harm to consumers is minimal ornonexistent, a large consensus will be easier to obtain as longas a health claim is credible. Any mechanism that FDA can deviseto tap into the existence of such a consensus quickly, and thatwill perhaps bypass some of the filing requirements that arerequired for more questionable claims should be employed by theagency. This policy will avoid denying consumers the benefit ofthe claim for what potentially could be the duration of theentire statutory filing period. There are likely to be signalingfactors in the scientific community that will assist a regulatorin certifying that a mere simple majority exists on the one hand,and that near-unanimity exists on the other. Where near-unanimity is easily discernable, it should be reflected in thespeed with which the requested health claim regulation isprocessed by FDA. The required level of accuracy is a variablethat the regulator is able to select. If a logjam develops andclaimants are routinely turned away, one may reasonably concludethat accuracy requirements are set at an inefficiently high


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level. Alternative levels of stringency will have a directeffect on social benefits and costs and should be takenseriously.

In its most benign form, a scientific standard requirementwill delay a truthful claim for up to the statutory approvalperiod. Methods of lessening this effect in terms of itsdetrimental impact on small business and consumers have alreadybeen discussed in the above section. In its worst form, a "typeII" error -- rejecting a health claim that is in fact true --prevents a true claim from benefitting the public at all. Ascientific standard, however, is by law required to minimize thepossibility of harm from a false claim. The same calculusdirected at ascertaining a reasonable consensus level to fulfillthis mandate will have a direct impact on the potential for typeII errors: the greater the consensus required the greater thelikelihood of a type II error. Therefore, the carefully

considered selection of a consensus level, given the nature ofpotential risk, is crucial in minimizing the likelihood that avalid claim will be denied. Where a low consensus is requiredfor a substance claim that has unanimous scientific support andposes no risk, type II errors will rarely, if ever, occur.Social losses from delays in the use of a true claim will be oflittle importance as long as a "variable consensus" rule, ratherthan an inflexible standard set at too high a level, is employedby regulators.

Efforts at designing reasonable consensus requirements wouldclearly be a plus for competitiveness in food manufacturing. Thegreater the costs of using the regulatory process (represented by

filing requirements and the need to secure consensus), the morethat efforts at securing approval of a claim will be reduced byall firms, but especially by higher-cost firms -- including thosewho may have a better or safer product. Requiring moreinformation or agreement than is reasonably obtainable poses thepotential for reducingthe amount of health information andhealthy products that are ultimately available to the public,since firms' costs to provide and market healthy goods will beincreased, and output thereby restricted. Additional regulatoryrequirements will always restrict output all else equal, even ofmore nutritious products. To curtail this effect, care should betaken to avoid the improper imposition of a strict, non-variablelevel of consensus that requires unwarranted levels of accuracy.

V. Conclusion

FDA's chief argument for forbidding health claims and theunregulated use of descriptors is that consumers may be deceived.These comments have argued that the level of this deception isdebatable since FDA has not established the degree of truth orfalsity of claims. Moreover, the agency seems unprepared topermit claims even when scientific consensus does appear to


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exist. This bias against health claims will induce firms toadvertise other product features like taste and convenience andnot bother to reformulate current products or develop new oneswith the aim of emphasizing a beneficial health relationship.

Furthermore, it is not apparent that consumers would prefer noinformation whatsoever to the information that emerges throughmarket processes.

Clyde Wayne Crews, Jr.

CSE Foundation470 L'Enfant Plaza, SWEast Building #7112Washington, DC 20024

Wayne Crews, Comments to FDA on Food Labeling, Citizens for a Sound Economy, 1991

Documents

Transcript of Wayne Crews, Comments to FDA on Food Labeling, Citizens for a Sound Economy, 1991