Academic journal article The Cato Journal

Health, Sustainability, and the Political Economy of Food Labeling

Academic journal article The Cato Journal

Health, Sustainability, and the Political Economy of Food Labeling

Article excerpt

Public choice theory is used to explain regulation of telecommunications, transportation, and other complex production systems (Buchanan 1986). My goal is to show that public choice theory explains a set of regulations that consumers interact with on a daily basis: food labels. I argue that organic labeling serves primarily to protect the organic industry from competition.

"Organic" lacks an unambiguous definition but literally refers to the "farm as organism" (Pauli 2006). In the early 20th century, English agriculturalists realized that manufactured nitrogen fertilizer depleted nutrients in soil over time. A movement began to conserve and regenerate soil by encouraging farmers to fertilize with plant residues and animal manure. Today, "organic" has a broader meaning, but the theme is that new technologies undermine the integrity of agriculture. Oregon established the first organic standards program in 1973. Between then and 1990,21 other states adopted a heterogeneous set of organic standards. The industry believed the multiplicity of standards was causing confusion and undermining the value of the organic label. Through vehicles like the Organic Trade Organization and the American Farm Bureau Federation, the industry petitioned Congress for a set of national organic standards. The Organic Food Production Act of 1990 (OFPA) created the National Organic Standards Board (NOSB) and directed it to propose regulations to the U.S. Department of Agriculture. The USDA finalized its set of rules in 2000, which are periodically amended upon recommendation by the NOSB. (Ellsworth 2001; Pollan 2006; USDA 2000)

Public choice theory is key to explaining the organic standards that emerged in 2000. As Cohrssen and Miller (2016) wrote in Regulation magazine, the organic label is "a valuable stamp of approval" from the government, meaning that many people stood to gain from it. No other prospective regulation has received as much input from the public. The USDA was forced to withdraw its first proposal in 1997 after it received an unprecedented 275,603 comments (USDA 2000). The National Organic Program (NOP) is also a striking example of a regulation demanded by its target industry. Consider Secretary of Agriculture Dan Glickman's comments at the unveiling of the NOP: "The organic label is a marketing tool.... It is not a statement by the government about food safety. Nor is [it] a value judgment by the government about nutrition or quality" (USDA 2000). Organic labeling is a transparent rent-generating scheme. The question is whether the rents increase social welfare. For this reason, public choice theory is the best way to understand why we have organic standards.

The Organic Standards: Reality and Perception

Like any marketing tool, an organic label is a form of product differentiation. In 2015, organic food sold for an average 47 percent premium (Marks 2015). Clearly, consumers believe it is a better product. But, as Secretary Glickman said, labeling is about managing perceptions, not objective criteria. In this section, I discuss what the organic label means and whether it corrects an externality or information asymmetry problem.

Organic standards are complex but fall into three broad categories: crop standards, livestock standards, and handling standards. Crop production standards prohibit the use of most synthetic pesticides. Synthetic pesticides are organic compounds not produced by a known living organism. Organic pesticides, on the other hand, are typically inorganic metals, like copper and sulfur, or organic plant toxins. Exceptions to the prohibition are granted based on "need" by the NOSB. In addition, organic crops cannot be genetically modified in a lab, or irradiated, a sterilization process that prolongs shelf life. According to the regulatory text that governs the NOP, published in the Federal Register, organic farms must obtain certification from an accredited private body to confirm that farming practices "maintain or improve the physical, chemical, and biological condition of the soil and minimize soil erosion" (NOP 2011). …

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