Shifting terrain

According to classical market theory, consumers are presumed to be acting rationally when they make purchases, acting in their self-interest with full awareness.  In order to act rationally, they need all the relevant information. Having all the relevant information allows the market to send clear signals to buyers and sellers.

When considering consumer food information needs, regulators have focussed primarily on price, quality and convenience. These parameters have been fairly narrowly defined.  For example, food quality has been defined primarily by the safety of the product and, particularly with fresh foods, its cosmetic appearance.  Convenience is about the speed and simplicity of preparation.

For their part, the majority of food firms are largely silent on the social, environmental and health impacts of food production, processing and distribution. For example, how a product’s nutritional profile might have been affected by agricultural, storage and distribution practices has not traditionally been seen as relevant to consumers. According to market theory, this absence of full information helps to create a dysfunctional food marketplace in which partial and contradictory signals are sent to both producers and consumers.  In turn, these distorted signals mean that resources in the food system are improperly allocated, particularly, those that help to ensure health, environmental sustainability and equitable access.

A traditional positive role of government is to shape, monitor and correct deficiencies in the market place.  Regulation is one of several tools used by government to carry out this role.  In particular, regulation serves to influence the actions of market players, define products and processes, determine what is allowed in the market under what conditions, and provide penalties for non-compliance.

However, policy makers have generally failed to implement strategies based on how more fully informed consumers can help achieve public policy objectives (e.g., improved health and sustainability). The policy tradition is to manage food supply, rather than actively managing demand (Hedley, 2006). The traditional market view is that prices convey accurate and sufficient information on costs and value that permit consumers to act rationally.  In reality, the very conditions required to convey accurate information do not normally exist in modern markets (Victor, 2008).  Economists have long recognized that information asymmetry is a chronic problem in food markets, related to issues of limited competition, the absence of accurate prices and incomplete state regulation. Many have devised theory to explain firm and consumer behaviour in asymmetrical environments. Unfortunately, while this evolving theory explains behaviour, it has not advanced policy changes in Canada that have substantially improved the consumer information environment. While asymmetric information is the norm, the regulatory system does not fully recognize this, neither by regulating to fully correct asymmetry nor by actually normalizing it in regulatory approaches.

As well, this approach to regulation assumes that businesses have no broader social obligations, aside from those related to food safety and product promotion regulations. Yet historically, those obligations arose from public demand for regulation. Health and environmental concerns can be viewed as a contemporary equivalent.

Given this narrow view of business obligations, it is unlikely that many food firms will provide, without state oversight, the information that consumers require to make informed decisions.  In interviews conducted for the TFPC (1998), food marketers stated that they had the interests of consumers at heart. It seems though that most marketers are caught up trying to achieve sales and brand share targets, keeping within budget and satisfying the demands of more senior management. Most marketers have not spent many hours critically thinking about what it really means to satisfy consumer needs. In fact, many of those interviewed were not familiar with issues that began to preoccupy some consumers from the late 1990s, including gene manipulation, antibiotic and hormone usage, pesticides, and farm worker rights. It seems, then, that there has been a gap between intention and practice. Also, interviewees indicated they were not really willing to pay for consumer education. Particularly with regard to nutritional and environmental concerns, they hoped that the media and government would do most of that work for them.

Ultimately, though, it is the marketers who determine which products consumers have to choose from, and, within existing guidelines, what information about them is conveyed in packaging and labeling.  If there is no obvious advantage (as measured through potential increased brand sales and brand market share) to providing the information, then there is no incentive to do something that could ultimately mean increased product costs and lower profits. The degree of incentive changes if a competitor changes tactics and provides different information to consumers. Then a marketer may react to keep the playing field level.

So a contradiction emerges.  Business appears to want informed consumers if it suits their marketing approach, but is not able and sufficiently informed and motivated to provide them information around broader social objectives. As well, firms have known for some time that consumers are confused about the information provided (TFPC, 1998). But in the absence of clear information, consumers may not be able to articulate what they want. In many cases, not enough consumers are vocalizing concerns in a manner that reaches and resonates with food marketers. Hence, marketers have not reacted in any significant way with new products or product modifications.  All in all, vocalized consumer needs/demands that allow managers to meet product target profit margins, with products differentiated from those of the competition, drive much of what marketers do.

There has, however, been an explosion of third party health and environmental organizations involved in consumer information provision, in part because government and business approaches are viewed as inadequate. According to Busch (2007):

To be sure the role of the State has changed and perhaps diminished. Nation-states are now far less likely to regulate directly and far more likely to delegate regulatory authority to other organizations. Moreover, the opening of the world economy has restricted the ability of nation-states to intervene in markets without significant and often negative consequences.

From organizations involved in disease prevention, to food production certifiers, these organizations have evolved what are often called private systems of regulation. These organizations are typically non-governmental, or represent association of businesses. Such approaches allow farmers and firms to create a niche for themselves in food markets, and to ensure the authenticity of their claims, many producers and processors are going to third party certifiers that require changes in production, including low chemical use, the humane treatment of animals, preservation of biodiversity and wildlife, and just labour practices.

Howard and Allen (2006:439) claim that these third party eco-labels serve....

three primary functions:

  • They provide consumers with information about product characteristics that are not immediately apparent or verifiable by consumers themselves.
  • [They may be a possible instrument] for implementing public policy objectives, such as reducing the use of pesticides.
  • [They are able to] increase producer revenues, either through facilitating a price premium for growers or by providing a market niche for increased sales.

There are some efforts to reconcile state intervention with these new private regulatory initiatives. Sometimes referred to as regulatory reconfiguration (Gunningham, 2005), such new governance regimes embrace a wide range of coordinated and integrated instruments (including some traditional command and control regulations), well matched to the desired effect, and implemented by an equally wide range of state and non-state actors to have the best chance of success in the long run.