Health Claims Regulation and Welfare

Regulation (EC) No 1924/2006, 20 December 2006, requires functional foods manufacturers operating in Europe to provide evidence that the health claims reported on the packaging are truthful. However, most applications reviewed by the European Food Safety Authority (EFSA) have been rejected, leaving food manufacturers with the option of either selling products deprived of their claims or discontinuing their production. This paper analyzes changes in welfare (both producers’ and consumers’) that would occur if the implementation of Reg. (EC) No 1924/2006 resulted in a large-scale health-claim de-labeling of functional food products. To that end, we use one year (2007) of monthly scanner data of sales of conventional and functional yogurt in the Italian market and a discrete-choice random coefficient logit demand model which accounts for consumers’ heterogeneity using the MPEC algorithm developed by Dube et al. (2009) to improve numerical efficiency and accuracy, to assess the issue. Preliminary results show that both producers and consumers can be severely impacted if reporting health-claims on functional products is not allowed; as our results indicate that consumers’ welfare losses are twice as large than producers’ a loosening of EFSA’s requirements might be required to avoid such losses.