Law For Food: The law affects what you eat. What you buy to eat affects the law.

A Bright Side

Is American Cheese the new American Wine? Is the faltering dollar good for the domestic artisanal food industry — or at least those parts of it which don’t rely on imports?

What has been good for wine has been good for cheese. The rising wealth and strong dollar of the 1990s sent Americans flocking to Europe, returning with a new understanding and appreci­ation of continental eating. Food has emerged as hip entertainment, with its own vibrant press, TVnetworks, and rock-star chefs. Movies about food and wine have found large, sophisticated audi­ences (“Eat, Drink, Man, Woman,” “Sideways,” “Big Night,” “Like Water for Chocolate,” “Ratatouille”). Increased concern for health and a growing sus­picion of conventional agriculture, spurred by crises like mad cow, bird flu, and tainted spin­ach, have focused the nation on small-scale local farming and the sustainability and traceability of our food supply. Meanwhile, Whole Foods Market has planted 263 stores around the country (many through acquisitions of regional chains) since the first opened in 1980. And who could have pre­dicted the French Paradox—the notion, according to a bestseller about the eating habits of France, that you can eat plenty of fat and stay slim? Or Dr. Atkins urging eager dieters to eat pork and but­terfat? More recently, the flaccid dollar and robust euro have made American wines and cheeses seem veritable bargains.

I have for a while maintained that there is more excitement and energy in the U.S. artisanal cheese industry than there is in European cheese. In part, this is surely due to our having farther to go: try speaking, reading, or typing the words “American cheese” without picturing something gummy, preternaturally orange, oversalted and individually wrapped.

However, I also suspect that european cheesemakers and regulators have done the industry a disservice in the long term due to the AOC/PDO/DOP/DOC system of trademark regulation. (Each of these terms, in a different language, stands for “Controlled Name of Origin” and I shall refer to them all under the term “DOP” for simplicity’s sake.) The DOP system sets characteristics that must be met if a product is to be referred to under a traditional name; i.e., if you want to call your blue cheese Stilton you have to use milk from these sorts of cows, and make it into wheels this big and age them for this long and so on. In a number of cases, qualification is tied to a region: you can’t call your blue cheese Rocquefort, for instance, unless you have made it from sheep’s milk and then aged it in caves in the department Aveyron, where they will be exposed to the airborne, naturally-occurring penicilium rocqueforti that lives there. This system allows for the same sort of protection that individual firms get through trademark law, but enables the protection to be shared by every firm that makes a product meeting the qualification.

However, there are times and occasions in which the DOP system can backfire. Because the definitions are backed by law, it can be difficult to adapt them to new circumstances. Last year, Newcastle Brewing Company ran into this problem. Newcastle had successfully petitioned for the creation of a DOP defining “Newcastle Brown Ale” as ale that was, inter alia produced in the city of Newcastle-upon-Tyne. When the brewco decided to move its operations across the river to Gateshead, it was required to petition again to expand the legal defintion of “Newcastle Brown Ale” so that ale produced in its new facilities could be marketed under the same label.

As another example: the DOP for Stilton was written some years ago and requires that “Stilton” be made with pasteurized milk, despite the fact that pasturized Stilton is a historical latecomer, and that the cheese had been made with raw milk for centuries prior to industrial cheese production. When Joe Schneider and Randolph Hodgson revived the traditional stilton recipe, they were prohibited by law from calling the product “Stilton” and instead have had to market it under the name “Stichelton”, which is the Middle English name for the city of Stilton.

DOP protection has done some good in protecting quality standards for traditional food products, and I certainly do not oppose its use. However it seems to me that, absent DOP protection, artisanal cheesemakers in the U.S. have more opportunities to innovate in their cheesemaking techniques which are driving quality and variety in American artisanal cheesemaking. I have little doubt that if the DOP system were introduced into the U.S., it would in short order be co-opted by industrial producers, and thereby used to constrain this innovation, and I have some fears that European cheesemaking, which enjoys DOP protection, doesn’t have the same opportunities to innovate.

Pasturization and School Lunches

New to me, but back in 2003, Maciej over at compared a week’s worth of school lunches in the U.S. to a week’s worth of school lunches in France. His observations are twofold: 1) in France, all meals have cultural significance, and 2) pasturization has had the effect of lowering our standards as to what’s consumable by humans.

First, and briefly, the article notes that the French lunch is highly structured in a way that leads him to conclude that it is considered a part of the education. The U.S. lunch, on the other hand, is centered around a bread-and-meat entree (usually a hamburger, chicken fingers, or pizza) with optional (usually terrible, readers will recall) hot vegetables or salad. What is interesting is that school lunches prove to be a part of the U.S. education as well, but because teachers and administrators don’t think about it as education, we wind up sending all kinds of terrible messages about food:

Finally, notice how hard it is to eat a healthy diet at the American school. You would be relegated to a ghetto of garden salads, ‘soups of the day’, and whatever nutritious innards you could pull out of the breaded main dish. The message American kids get is that healthy food is second-rate and tastes bad, that they should eat lots of meat, cheese and potatoes, and that eating fast food every day is a normal diet.

(Emphasis added.)

The second observation is related to something I posted yesterday about pasteurization and accountability. Pasteurization, as you know, is a way of killing the bacteria that are on or in our food by heating the food to above 160° fahrenheit. Pasteurization can reduce our exposure to bacteria that will cause illness by reducing our exposure to bacteria period. However, the economics of commodity food production have turned pasteurization into a panacaea for any and all structural flaws in the production of food. Because they can cook the germs off, producers don’t take the same care with food. From the article:

The dirty fact about American school lunches is that they are a dumping ground for surplus and substandard beef, chicken and dairy products. Many of these foods cannot be served fresh because they would be too dangerous to eat. This is especially true for ground meat, which is at times so contaminated with bacteria that it would not be legal to sell it in a supermarket. A couple of hundred years ago, Louis Pasteur (a Frenchman, of course) discovered that you can kill bacteria in many foods by heating them to an elevated temperature for a certain period of time. Pasteur’s discovery was revolutionary. Pasteurized foods (like milk, honey, cider or wine) could be stored longer without going off. And of course pasteurization can render dubious foods safe. But the legacy of Pasteur’s invention, in this country, has been perverted. Instead of improving the quality of our food supply, we’ve used techniques like pasteurization and antibiotic prophylaxis to make it possible to create food on an industrial scale, artificially fighting back the disease and contamination that would otherwise make modern factory farming impossible.

The process shows no signs of slowing, either. The current push for irradiating meat (under the euphemism of ‘cold pasteurization’) is an attempt by the beef industry to make meat safer not by improving hygiene at the slaughterhouse, but by rendering contaminated meat harmless. Presumably, it doesn’t matter whether meat in school lunches has been in contact with cowshit, as long as it is no longer infectious.

I haven’t looked at the specifics, but I suspect that pasteurization is one of the reasons we have seen so many millions of pounds of meat recalled in the last few months. If that seems counterintuitive, just bear with me.

Pasteurization does not eliminate bacteria from food. What it does is yeild a logarythmic reduction bacteria counts. When you have an ordinary amount of bacteria, reducing them to a fraction of their number by pasteurization may render the food safe because your immune system can handle the bacteria in this smaller amount. However, since in 2002 the FDA approved the use of the term “cold pasteurization” to refer to irratiation of meat, meat producers have been able to rely on irradiating their meat as a means of killing bacteria. Meat packing is a highly competitive business, with ever-narrowing margins and faster production times. Because we can use cold pasteurization to kill bacteria at the end of the process, it is not worth the expense of introducing safeguards against bacteria throughout the process.

However, as noted above, pasteurization isn’t a catch-all. It doesn’t kill all the bacteria, only the vast majority of them. So, the more bacteria that the meat is exposed to before pasteurization, the more that will be there after pasteurization. Between this and the absense of colonisation effects discussed yesterday, I think we are looking at a cure that costs more than it benefits.

COOL and Consumer Demand

A recent Consumer Reports poll apparently finds that 92% of Americans want to see origin information on their food. This seems like pretty considerable demand, and is in response to the recent rash of food-borne illness outbreaks of the last year or so.

Opponents of COOL will doubtless point to their own studies which show lower demand for this information, and may also point out that polling techniques can be used to promote or diminish a desired response. In addition, it is unclear from the MSNBC report whether the poll asked customers how much extra they would be willing to pay for this information.

The argument that the market can provide COOL information on its own to meet this demand (and by implication would if demand made it likely that costs could be recaptured) is somewhat disingenuous. If reliable origin information were making it all the way to the retailer (who is after all the party most directly able to respond to consumer demands), certainly some retailers would already be providing origin information and including those costs in retail price, giving consumers the ability to choose.

The various industries are structured so that origin information is being lost long before it arrives at the retailer. The only likely way for a single firm to provide voluntary COOL is if that firm is a) vertically integrated from production through retail and either b) only buys meat from a single origin country or c) already has in place reliable segregation and tracking procedures throughout the chain of supply. A single firm which doesn’t meet those requirements is unable to initiate a market-driven solution, no matter how much consumers might demand it.

Additionally, as demand for COOL grows, the failure to provide origin information becomes a market failure: the market is structurally unable to allocate resources in accordance with consumer preferences (i.e., to allocate them efficiently). This may be a situation similar to the Dolphin-Safe Tuna issue of the 1990s.

Via Kate at the Accidental Hedonist.

Food inspectors and business savvy
11 July 2007, 3:37 pm
Filed under: Economics of Eating, labeling

This post from Serious Eats explains why good food can come from dirty market stands, and how clever business owners prefer being called dirty.

Update: This is a real-world example of the Two Barbers Problem which I remember from a book of logic puzzles when I was a kid.

Some thoughts on mandatory COOL

I’m having some trouble with the various arguments in favor of mandatory country-of-origin labeling as proposed by the 2002 Farm Bill. The groundwork is as follows:

Critics of COOL (specifically, the USDA, which will have to enforce the requirement; meat and produce processors, and grocers, who will have to institute tracking systems to ensure the accuracy of labeling information) argue that mandatory COOL imposes substantial costs on the industries. (Cost estimates to follow in subsequent post.) Some of these costs will be passed on to consumers, which means, as I understand it, that there will be some marginal reduction in demand at new consumer prices (this depends on the cross-elasticity of covered products relative to uncovered substitutes). Other of these costs will be absorbed by the channel (i.e., the processor or retailer) and will therefore come out of profits, slowing growth. To the degree that growth is slowed while demand is reduced, we should expect some firms to exit these markets. Insofar as initial compliance costs are substantial, and do not scale, small firms may be put at a disadvantage relative to larger firms, and it may be the smaller processors and grocers which are forced to exit the market.

Supporters of mandatory COOL (i.e., U.S. producers and foreign producers of goods which can command a premium due to origin labeling [e.g., New Zealand lamb]; consumers) argue variously that the compliance costs are overstated, that consumer demand for origin information is sufficient to encourage mandatory COOL, and that there exists a consumer “right to know” the origins of products one buys, and that this right is enforced on most retail products in the U.S. Additionally, some argue that COOL may correct for certain externalities such as the social costs of widespread food-borne illness (the thinking being, I suspect, that consumers can correct for news of an illness when they have origin information.)

I am supportive of COOL, and could be persuaded that it should be mandatory, but these arguments do not as yet persuade me. I will treat as a piece the arguments that a) implemenetation costs are overstated and b) consumers desire origin information, primarily because I have found that these arguments often accompany one another. To my mind, this argument fails. If the costs of providing origin labeling are low, and consumer demand for that information is high, then any firm which does not voluntarily provide such information is at a competitive disadvantage relative to firms that do. Indeed, the more strongly one argues that costs are overstated, or the demand is understated, or both, the more we should expect the market already to provide this information. Given that the market does not provide it, we require some argument c) that another, greater countervailing interest weighs against firms providing this information. Such an interest should not be primarily of a economic or indeed quantifiable nature lest it be incorporated back into argument a) costs.

Without considering the following arguments, it seems to me that spending money on providing mandatory COOL could be wasteful if consumer demand for that information is low. Consumers still need to be educated about why the origin of their food matters, and that education will, if successful, raise demand for COOL: it may be the case that education will cause the market to provide that information voluntarily. Mandatory COOL may [I stress may] be spending money that it doesn’t need to spend.

My next project is to examine the contours and nuances of what consumers in the U.S. have a “right to know” but my understanding from my one sales class is that such a right is fairly restricted. More on this shortly.

The third argument seems most persuasive: specifically, that there are social costs to the absence of providing COOL information, and that those costs are borne by neither the buyer nor the seller of unlabeled foods. Economists call these costs externalities, and mandatory labeling is one of the ways that a government can correct this sort of market failure.

The greatest cost, according to the SPARKS estimate, will be bourne by the beef industry, which will likely have to implement individual animal tracking. However, there are a number of benefits to individual animal tracking which go beyond satisfying a consumer’s right to know. The best argument for individual animal tracking, I suspect, (although my research up to now has been on the direct costs and benefits of mandatory COOL) is a food-safety argument. If the FDA were to require individual animal tracking as a means of responding to food-borne illness outbreaks, mandatory COOL could become a lot less costly.

Credence Goods
5 July 2007, 1:20 pm
Filed under: Economics of Eating, food politics, labeling, Regulation

Sorry I’ve been quiet the last months. I am working on a paper about the mandatory Country-of-Origin Labeling program that was proposed in the 2002 Farm Bill and might be implemented in the 2007 Farm Bill, and I’ll share research on that in the upcoming days. Right now I wanted to use this post to introduce the idea of “Credence goods” to the discussion. Credence goods, as I understand it, are products or aspects of a product for which the consumer would be willing to pay more if she trusted that they were present, but which the consumer has no way of verifying. The importance of government or third-party trusted verification of credence goods ensures that consumers are able confidently to choose according to their true preferences.

Two examples of credence goods in food: Fair Trade Coffee, Tea, and Cocoa; Dolphin-Safe Tuna. In the first example a private, third-party certifying organization places its seal of approval on products which meet standards, and the value of the seal depends on the consumer’s trust of the certifiers. In the second example, the standards are verified by the U.S. government, as evidenced by Dolphin-Safe branding, and non-complying goods are banned from import.

Anyway the article shows how, in the absence of credible independent verification, markets devalue credence goods.

Update: I learned how to spell “credence.”

The Farm Bill and Country of Origin Labeling
26 April 2007, 1:23 pm
Filed under: Import/Export, labeling, Regulation

The Ethicurean has an interesting article about sourcing hazelnuts from Turkey, which contains, in an aside, the following information about mandatory country of origin labeling:

Mandatory country-of-origin labeling (COOL) for meat, seafood, vegetables, fruits and peanuts (but not other nuts) was part of the Farm Bill that passed in 2002. However, after an outcry from the food industry, Congress put the program on hold for everything except seafood until 2008 (seafood labeling began in 2005). There is talk of using the 2007 Farm Bill to lift the hold on COOL (perhaps in exchange for a deal on the national animal ID system), but powerful forces are aligned against it — the big meat packers and giant chains like Wal-Mart, to name a few. COOL would require expenditures by manufacturers and might make labels more complicated, but I think that consumers deserve to know where their food comes from.

For kicks, I’m looking for any information that predicts the ways people’s buying habits would change if country of origin were written on every label.