Written testimony submitted to the U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Commerce, Manufacturing and Trade and Subcommittee on Health

Wednesday, October 12, 2011

Summary

The Interagency Working Group (IWG) on Food Marketed to Children is developing guidelines with the dual “goal of improving children’s diets and addressing the high rates of childhood obesity.”

• The proposed guidelines are voluntary, and thus there is no automatic reduction in advertising as a result of the guidelines.
• If companies choose to adopt the voluntary IWG guidelines, a primary change that could result is a shift in consumption across food categories; for example, from foods with high levels of fats, sodium, and sugars, toward foods lower in those nutrients.
  • This shift—in either advertising dollars and/or sales—could occur across product lines within a single firm, or across firms within the industry.
  • It is also possible that advertising dollars would be shifted from marketing to children, towards advertising on other products and/or towards advertising on the same products to other people, such as parents.
• Over time we can expect firms and the industry to respond to the guidelines by establishing new, healthier products and product lines that could be marketed to kids.
  • A surge in advertising might result as companies seek to expand product recognition for new product lines among kids and parents.
• Industry advertising is often designed to compete with other brands, transferring market share across companies, but resulting in little to no change in final sales.
• A 2008 analysis of food marketing by the Federal Trade Commission found that in 2006, $1.6 billion was spent by 44 large companies on food and beverage marketing to children and adolescents aged 2-17.
  • This represented just 17% of the companies’ marketing budget for just the brands that are, in part, marketed to kids. The share of the overall marketing budget within those firms—which includes marketing for other products that are not marketed to kids—would be significantly smaller.
  • The 17% figure is for advertising on all foods marketed to kids, not just those that fail to meet the IWG criteria.
  • The final impact on overall food and beverage advertising would likely be far smaller than this amount.
• Even if it were the case that the advertising reduction led to fewer sales in the food and beverage industry, consumers would simply shift some or all of those expenditures to products in other industries.

A realistic assessment is that the proposed guidelines would have, at most, a modest impact on overall advertising levels, and an even more modest impact on industry-level sales and employment. Even if there were a job impact at the industry level, then shifts to other industries would yield job increases that would offset some or all of the impact on the food and beverage industry.

Remarks as Prepared for Delivery

Thank you for the invitation to speak with you today about this important topic.

My organization, the Economic Policy Institute, has been a leading nongovernmental voice emphasizing the need for more jobs in this weak economy. As an economist, I am very concerned about the impact of high and prolonged levels of unemployment on families and on the long-term health of the economy.

As you know, the Interagency Working Group on Food Marketed to Children is considering a set of voluntary guidelines to improve the nutrition quality of foods marketed to children.

With the current economic weakness in the labor market, it is important to assess the economic and employment effects of the voluntary marketing guidelines.

Let me briefly outline the prime impact of the proposed guidelines on employment.  In my view, to the extent that companies follow the guidelines, the impact would be primarily a shift in advertising and a shift in product sales, not necessarily a reduction overall in these industries.

First, to restate the obvious, the IWG proposed guidelines are voluntary, and thus there is no automatic reduction in advertising as a result of the guidelines.

Second, if companies do choose to adopt the voluntary IWG guidelines, a primary change that would result is a shift in consumption across food categories; for example, from foods with high levels of fats, sodium, and sugars, toward foods lower in those nutrients.

This shift—in either advertising dollars and/or sales—could occur across product lines within a single firm, or across firms within the industry. There might not be a net reduction in advertising, in sales, or in employment even within the industry.

It is also possible that advertising dollars would be shifted from marketing to children, towards advertising on other products and/or to advertising on the same products to other people, such as parents.

Over time we can expect firms and the industry to respond to the guidelines by establishing new, healthier products and product lines that could be then marketed to kids.

In fact, a surge in advertising might result as companies seek to expand product recognition for new product lines among kids and parents. For example, as the FDA was considering adopting regulations to require trans-fat labeling, many companies reformulated products to remove trans-fat and invested in marketing those reformulated products.

For example, Frito-Lay launched an advertising campaign in 2003 placing print ads in top-25 newspapers announcing “zero grams of trans-fat” in their products.

Further, industry advertising is often designed to compete with other brands, transferring market share across companies, but resulting in little to no change in final industry sales.

A report by IHS Consulting has been cited widely that claims to show that the guidelines could result in a 20% reduction in ad sales and a loss of 74,000 jobs. My submitted testimony includes a more detailed critique, but let me summarize that the assumed 20% reduction in ad sales would seem to be a significantly exaggerated response given existing advertising patterns, the voluntary nature of the guidelines, and the likely shifting of ad dollars to other products or to targeting other age groups.^[1]

Even if it were the case that an advertising reduction led to fewer sales in the food and beverage industry, consumers would simply shift some or all of those expenditures to products in other industries.

A realistic assessment is that the proposed guidelines would have, at most, a modest impact on overall advertising levels, and an even more modest impact on industry-level sales and employment. Even if there were a job impact at the industry level, then shifts to other industries would yield job increases that would offset some or all of the impact on the food and beverage industry.

As I said earlier, as an economist, I am concerned with the health of the economy.

However, as a father, I am primarily concerned with the health of my two daughters. I am well aware of the challenges of getting a 3 year old to eat healthy – in my house fruit and vegetables too often means ketchup and french fries.

I realize that my girls will see thousands of ads while they grow up, but I would much prefer that the advertising that they do see, be for healthier products.

As an economist, I believe that the IWG guidelines would primarily result in a shift of ad dollars towards healthier products, and not a reduction in overall industry advertising, sales, or jobs.

Thank you.

Supplemental: Economic Policy Institute Issue Brief #317