Discuss The Likely Impact Of The Mandatory Labelling Of Fast Food On Public Health In The Uk

Discuss the likely impact of the mandatory labelling of fast food on public health in the UK

Market failure occurs when the market fails to provide full efficiency (when SMC does not equal SMB). Labelling is a form of information campaign the aim would be to fully inform the consumer about the costs and benefits of consumption.

Fast food might be a de-merit good in the sense that consumers might not fully realise the benefits and costs of consumption. For example, they may not realise that excessive consumption of fast food can lead to heart disease and obesity. This means that they might consume at too high a level, such that PMC (which assuming there are no negative externalities is the same as SMC) does not equal SMB, as this diagram shows:

DIAGRAM: DEMERIT GOODS CLEARLY LABEL THE OVER-CONSUMPTION

The diagram shows that, due to information asymmetry, fast food may be consumed at a level which is not efficient for society there is over consumption of q2 q1 and therefore market failure. In terms of public health, the information asymmetry may be causing more people to become unwell, with a consequential drain on NHS resources.

On the one hand, a programme of mandatory labelling might correct the market failure and improve public health in the UK. If the labelling clearly identified the calorie, saturated fat and sugar content of the fast food, then this might correct the information gap. This would cause a shift in consumer tastes away from fast food, as people realised the full private costs of consumption, causing demand to shift left as this diagram shows:

DIAGRAM: DEMAND SHIFTS LEFT

The above diagram shows that the left shift in demand D to D1 causes the quantity of fast food to fall from q2 to q1, correcting the overconsumption and market failure. In short, public health may improve.

Then again though, there are a good many potential problems with this policy:

Firstly, the effect would depend on what labelling was required. If the legislation was not clear, firms might use the labelling to emphasise aspects of the fast food that were thought to be appealing to consumers. For example, Kellogg s might label Frosites as a cereal which contains no saturated fat (which is correct), but omit to mention that it contains a great deal of sugar. This type of labelling might actually shift demand for unhealthy fast foods to the right as consumer tastes change in favour of them, increasing the over-consumption and worsening the market failure.

Next, the requirement might be very difficult to enforce. There are thousands of outlets selling fast food in the UK, and it would be expensive to monitor and police all of them, especially at a time when government spending is already under considerable pressure. Then again though, quite a proportion of total fast food sales in the UK are probably accounted for by a few large firms such as McDonalds and KFC, so focusing on them only in the first instance might have quite a large impact.

Also, the programme would take time to work firms would need to create the systems to measure the fat, sugar and calorie content of the fast food they sell, and prepare labels. There would also need to be tests to ensure that consumers can actually understand the labelling, and this too would take time.

lt;/p>Another major barrier to food labelling actually improving public health in the UK is that information failure might not be the cause of the market failure at all. People may be well aware of the full private costs of consumption, but not really care therefore, the food labelling would bring only costs to firms and to the government in the short and long term, leading to government failure. This seems quite likely most people probably do realise that excessive consumption of fat-rich fast foods is not good for their health.

The main cause of the market failure might therefore be negative externalities rather than an information gap over-consumption of fast food may be causing obesity and heart disease the cost of treatment of which is paid for by the NHS, and therefore the government, and therefore taxpayers, all of whom are third parties. This can be seen on a diagram:

DIAGRAM: NEGATIVE EXTERNALITIES IN CONSUMPTION

As the diagram shows, a negative externality of a b leads is ignored by the market when price is set, leading to overconsumption of q2 q1 and market failure (SMC does not equal SMB). No amount of food labelling would correct this market failure instead a tax might well be required to eliminate the overconsumption and improve public health as this diagram shows:

DIAGRAM: TAX APPLIED

The diagram shows that a tax of a b, the same size as the externality, would increase the cost of production causing supply to shift left S to S1, causing consumption to fall q2 to q1 and correcting the market failure. Incidents of obesity and other illnesses caused by the over-consumption of fast food would reduce in the UK.

One other major benefit of this policy compared to that of food labelling is that it could be cash positive revenues from the tax could be very considerable as the marginal propensity to consume fast food in the UK population is probably quite high. The revenue gained could be used to fund public health programmes which would further improve public health overall in the UK.

Then again though, there would be potential problems with this policy it brings the complexity of having to accurately gauge the size of the tax to make it equal to the size of the negative externality. Errors here would lead to only a partial correction of the market failure at best. This does seem a real issue not all fast food is the same in terms of the effect it has on public health some fast foods such as vegetable smoothie drinks may also have merit good qualities and positive externalities in consumption. Reducing the consumption of these may further worsen the market failure. A tax might need to be devised for each type of fast food, and the administration and collection costs of this would be excessive.

The effect of the tax, unlike the effect of the labelling, would depend on the PED for fast food:

DIAGRAM: COMPARING THE IMPACT OF A LEFT SHIFT IN SUPPLY UNDER PRICE ELASTIC AND INELASTIC CONDITIONS

The diagram shows that, where the PED for fast food is inelastic, an increase in price resulting from a tax would have a less than proportional effect on quantity demanded than where there is a price elastic condition. Fast food is generally quite a small percentage of disposable income, especially for middle and high income families, so even a significant tax might not drive down consumption as much as might be expected. Fast food can also be quite addictive which again suggests that it is often price inelastic in demand.

The extent to which fast food causes third party costs by worsening public health in the UK depends on the proportion of the population which consumers them and the size of the externalities involved. We might assume that a large percentage of the population does consume fast food, especially in cities where access to fast food is generally very easy. This market probably is therefore worthy of some form of government intervention.

In judgement, the argument that people are unaware of the full private costs of fast food and that food labelling is the answer seems quite unconvincing. Cigarettes carry information labels, yet consumers still choose to consume them despite in most cases knowing that they are harmful to them the same might well be true of fast food which is generally far less expensive than a smoking habit. Much of the market failure in this market seems likely to be caused by negative externalities, and a tax on fast food seems like a sensible approach in order to correct the market failure, despite the problems of setting accurate tax levels and enforcing the tax. In reality, a combination of food labelling paid for by firms, and a tax the revenue from which is hypothecated to promote public health seems like the best policy solution in this case.