Country of Origin labelling - does it stack up? has been saved
Country of Origin labelling - does it stack up?
This article looks at the cost benefit analysis informing new regulations and the broader debate of Country of Origin labelling of food products in Australia.
Country of Origin labelling - does it stack up?
Last month the Prime Minister and the Minister for Agriculture announced regulations to improve Country of Origin labelling information on food products. While Country of Origin labelling has been the subject of many reviews over recent years, the issue moved up the Government’s priority list in February 2015 when the Prime Minister announced that the Commonwealth was committed to reforming country of origin labelling for food, and Ministers were tasked with bringing forward options to enhance Australia’s country of origin labelling framework. This announcement followed the much publicised Hepatitis A outbreak linked to the consumption of frozen berries imported from China.
Recent months have seen a flurry of work on Country of Origin labelling, with labelling design options developed, consumer surveys on what they want in food labelling, analysis of the costs of different options and, eventually, a cost benefit analysis of different options undertaken by Deloitte Access Economics in June and July 2015.
The regulatory changes to be adopted mean that any products that claim to be ‘Product of Australia’ or ‘Made in Australia’ will now be required to specify the percentage of local and imported ingredients (by volume). Currently food products can claim to be ‘Made in Australia’ with relatively loose qualifications like ‘from local and imported ingredients’. However, the changes mean that these qualifications will now need to be specified by stating the proportion of local ingredients. Click here for examples.
In this article, we reflect on the recent decision, the cost benefit analysis informing it, and on the broader debate of Country of Origin labelling of food products in Australia that has been ongoing for a number of years.
For consumers, the current Country of Origin framework has been widely criticised as being confusing and therefore inadequate for decision making purposes. For example, there is limited awareness on the difference between ‘Product of Australia’ and ‘Made in Australia’ descriptors or what ‘local and imported ingredients’ actually means. Furthermore, some Australian food producers and manufacturers feel that they are not able to adequately differentiate their products as being Australian. These businesses argue that customers who are willing to pay a premium for ‘Product of Australia’ are mistakenly purchasing products that are ‘Made in Australia’. This confusion undermines the competitiveness of ‘Product of Australia’ versus alternatives.
Therefore the key benefits of improved Country of Origin labelling are that it allows consumers to make informed choices through a greater knowledge of where ingredients come from. Country of Origin information is valued by consumers as:
- They want to support Australian businesses, producers and employment
- They want to reduce the ecological footprint of their food choices through purchasing food locally and reducing the distance that food travels
- They are concerned about health, safety or quality (or all of the above) – with Australian quality assurance and food safety systems widely considered to be higher than many other countries.
Note that the debate isn’t about the value placed on Australian versus imported food. Rather, the debate is on the value of the information that allows consumers to know more about where the produce is from.
Importantly, consumer preferences for Country of Origin labelling are widespread, rather than limited to a consumer minority. For example, a survey undertaken by Catalyst Consultancy & Research in 20141 found that six in ten grocery buyers felt that knowing the country of manufacture is ‘very important’ and a quarter ‘extremely important’. A 2012 Country of Origin labelling survey undertaken by Choice2 found that around 80% of respondents said that it was either crucial or very important to know if food was grown or manufactured in Australia. Country of Origin information also appears to be a growing concern with a 2013 Roy Morgan survey3 finding that more than half of the respondents surveyed (55%) said that buying Australian-made had become more important to them in the last 12 months.
A further consideration is that consumers generally value Country of Origin information on products that are less transformed or closer to its natural state (such as fresh or minimally processed) rather than substantially manufactured (such as sauces and condiments).
The improvement of Country of Origin information, however, comes at a cost. This includes labelling costs, compliance and assurance costs associated with maintaining percentage claims, staff training costs and potential productivity impacts.
The largest cost item on food manufacturing businesses is likely to be labelling costs. This includes the initial costs of re-designing and re-printing product labels to make way for enhanced information, as well as more frequent ongoing labelling changes as the source of ingredients change. The higher frequency of label changes is because the current system allows a high degree of flexibility for businesses in their ingredient sourcing arrangements. For example, seasonal and other unforeseen fluctuations can be reasonably managed under the qualification of ‘local and imported’ – so long as the majority of the product’s value is added in Australia and it has been substantially transformed (i.e. not just chopped or packed), the Made in Australia claim can be made.
Under the proposed system, businesses now need to consider how they account for variations in seasonal availability or price fluctuations with respect to their Country of Origin claims. For example, a few options available are that businesses can change a label, change ingredient sourcing to maintain a claim, use a seasonal average claim, or make an ‘at least %’ statement. Naturally, businesses may also make number of behavioural changes in response to new regulations. This includes systematically under-reporting the proportion of local ingredients to avoid the requirement to re-label.
While these options provide some flexibility with respect to seasonal fluctuations, they are less flexible than the current system. For example, a natural disaster may be more difficult to manage compared to normal seasonal variations. Think of a product containing Queensland bananas – a natural disaster, such as Cyclone Larry in 2006 which wiped out 90% of Queensland banana crops, may actually require a label change if the business’ local ingredients claim could no longer be made.
Other key costs associated with the proposed changes are that because the changes only relate to food products that are ‘Product of Australia’ or ‘Australian made’ it means that these products now face an additional regulatory burden when compared to imported products.
Does it stack up?
Beyond our study there are a number of other key considerations namely:
- The extent to which costs are able to be passed on to consumers, which is dependent on the level of competition from imported products and substitutes
- The distributional cost impacts of the Country of Origin labelling changes for each option, particularly between businesses of different size, complexity and products. In particular, smaller and other low margin businesses have less ability to absorb increases to their cost base
- Consumers’ acceptance of food price increases (for different types of consumers and different types of food products).
Overall, the additional costs for improved Country of Origin labelling were in the order of 1 cent for every $5 food purchase. On the benefits side, our analysis found that the majority of consumers would be ‘willing to pay’ at least this amount for better information.
1 Catalyst Consultancy & Research (2014), Country of Manufacture Labelling study Research Report, April 2014
2 CHOICE’s 2012, Country of Origin Labelling Survey, completed in October 2012 by 743 CHOICE supporters
3 Roy Morgan 2013, Consumer Survey Consumer Survey Attitudes Towards Buying Australian