Labelling, information asymmetry and functional foods : a case study of omega-3 enriched eggs

Abstract

Currently, the labeling of functional food products is highly regulated in Canada. Although certain nutrient content claims and five generic health claims have been allowed, the inability to make additional nutrient content and health claims decreases functional food firms’ incentives to produce and commercialize new and healthy food products. This, in turn, has consequences for functional food demand, consumer welfare, and health care costs. The primary objective of this thesis is to examine the potential welfare implications of functional food labeling for Canadian society.A benefit cost analysis is conducted to examine a specific case study of omega-3 enriched eggs. The benefit cost analysis evaluates the welfare effects of functional food labeling policy and helps realize the magnitude of potential benefits that could be gained if not for restrictive and complicated labeling regulations. Based on a range of assumptions and using three different scenarios to cover a range of estimates, the health benefits from the reduction in the risk of coronary heart disease due to the current consumption of omega-3 enriched eggs, and the production and labeling-related costs are estimated. By comparing the estimated benefits and costs, the results indicate that the current consumption of omega-3 enriched eggs provides a considerable net economic gain. Therefore, labeling information on health components can contribute to facilitating a healthy lifestyle with reduced medical costs, stimulating agricultural innovation, and increasing economic welfare.Realizing the positive overall impact that the current consumption of omega-3 enriched eggs has on consumers’ health and economy in Canada, a possible policy that could regulate all eggs to be enriched with omega-3 fatty acids is proposed. This policy could potentially be used to correct not only information asymmetry but also the negative externalities that are created by health and disability insurances. The benefit cost analysis show that the health benefits would be greatly increased while costs would slightly increase due to reduced labeling-related costs. Therefore, the results indicate that the net economic gain is even stronger if the mandatory development of omega-3 enriched eggs were required.