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August 5, 2011

Food Labeling; Calorie Labeling of Articles of Food in Vending Machines

Proposed Rule

Score: 28 / 60

RULE SUMMARY

To implement the vending machine labeling provisions of the Patient Protection and Affordable Care

Act of 2010 (Affordable Care Act), the Food and Drug Administration (FDA) is proposing requirements for providing calorie information for certain articles of food sold from vending machines. The Affordable Care Act, in part, amended the Federal Food, Drug and Cosmetic Act (FD&C Act) to, among other things,

require that for an article of food sold from a vending machine that does not permit a prospective purchaser to examine the Nutrition Facts Panel before purchasing the article, or does not otherwise provide visible nutrition information at the point of purchase, and is operated by a person engaged in the business of owning or operating 20 or more vending machines, the vending machine operator must disclose the

number of calories for the article of food.

To implement the vending machine labeling provisions of the Patient Protection and Affordable CareAct of 2010 (Affordable Care Act), the Food and Drug Administration (FDA) is proposing requirements for providing calorie information for certain articles of food sold from vending machines. The Affordable Care Act, in part, amended the Federal Food, Drug and Cosmetic Act (FD&C Act) to, among other things,require that for an article of food sold from a vending machine that does not permit a prospective purchaser to examine the Nutrition Facts Panel before purchasing the article, or does not otherwise provide visible nutrition information at the point of purchase, and is operated by a person engaged in the business of owning or operating 20 or more vending machines, the vending machine operator must disclose thenumber of calories for the article of food.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year	2009
Time Horizon (Years)	10
Discount Rates	3%	7%
Expected Costs (Annualized)	$12.1-$39.6 million	$12.5-$39.8 million
Expected Benefits (Annualized)
Expected Costs (Total)
Expected Benefits (Total)
Net Benefits (Annualized)
Net Benefits (Total)

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion	Score
Openness
1. How easily were the RIA , the proposed rule, and any supplementary materials found online? The agency's website and regulation.gov both contain direct links to the proposed rule and the RIA, both of which can be found through a keyword search of the regulation's title.	5/5
2. How verifiable are the data used in the analysis? Very few tables (four) are displayed and all are summary. Raw data is rarely shown or displayed in documents. While general data sources are mostly listed, data are not clearly sourced for the specific use.	3/5
3. How verifiable are the models and assumptions used in the analysis? Models and assumptions are pretty clear. Despite FDA's many comments about how few studies are available that pertain to its rule, there is surprisingly little discussion of how its assumptions were chosen or what alternatives had been considered.	2/5
4. Was the analysis comprehensible to an informed layperson? Analysis could be easily followed by an interested layperson. Generally, the analysis is easily readable with relatively few abbreviations and little jargon, though the latter is probably a result of relatively little analysis conducted.	4/5
Analysis
5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?	3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life? Providing calorie disclosures for food sold from vending machines would assist consumers in making healthier dietary choices. FDA uses Quality Adjusted Life Years (QALYs) to measure loss of well-being individual suffers due to obesity. But, FDA notes estimates used for annual lost QALYs of all obese adults are not estimates of benefits of the proposed requirements.	4/5
Does the analysis identify how these outcomes are to be measured? Instead of estimating the reductions in obesity or medical costs and the increase in QALYs, FDA conducted a breakeven analysis that determined what proportion of the U.S. obese-adult population would need to attain a "minimal response" (100-calorie per week reduction per individual) from the proposed rule in order to yield a positive net benefit.	3/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes? Theory is that obesity and poor dietary choices are connected and a reduction of excess calories lessens excess weight gain. Vending machines are believed to be a likely source of high-calorie snack or discretionary foods and high-calorie meal items. FDA estimates there is one vending machine for every 40 adults and up to 5% of money spent outside the home is spent on vending machine food. FDA hypothesizes that providing calorie information for covered vending machine food decreases calorie intake, obesity prevalence, and thus cost of health care and lost productivity. FDA predicts the rule will lead to (1) increased awareness of caloric content that reduces present-bias in preferences and encourages lower calorie eating; (2) increased consumer demand for lower calorie options which may encourage manufacturers to reduce calorie content of foods and provide more lower calorie formulations.	4/5
Does the analysis present credible empirical support for the theory? FDA admits literature on access to vending machines and its relation to body weight is very limited. Analysis in NOPR contains only 28 literature citations. It uses literature on soft drink consumption, with emphasis on how soda taxes impact demand, because obesity and consumption of common types of vended foods (e.g., candy, cookies, chips) is similar. FDA admits research not based on representative samples and, thus, might overestimate or underestimate amount of calorie intake. FDA also admits calorie labeling may not necessarily drive substitution toward lower calorie items. It is also unclear why taxes on soda are an appropriate corollary to food labels on vending food.	2/5
Does the analysis adequately assess uncertainty about the outcomes? FDA acknowledges reduced calorie intake may be partially offset by increases in calorie intake during other meals or snacks. FDA admits it lacks data on how consumers will substitute among caloric sources and so benefit estimations have a degree of uncertainty. To compensate, it constructs a "plausible" individual effect (100-calorie per week reduction) of the proposed rule and then estimates a breakeven point (0.02% of obese population) that would elicit a minimal response that yields a positive net benefit.	1/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?	2/5
Does the analysis identify a market failure or other systemic problem? FDA argues the typical market failures used to justify regulation (e.g., market power or ill-defined property rights) do not apply because of low entry costs for firms and low switching costs for customers. But, FDA argues intervention is necessary because of systematic biases in how consumers process information and weigh current benefits (from consuming higher calorie foods) against future costs (higher probability of obesity). A market failure is said to occur because at the time of purchase, consumers do not value calorie information as much as they do later. They also argue vending machine operators have limited time and space in which to convey information to consumers and there are substantial opportunity costs since adding more information means operators need to downplay or remove other information that may be more profitable. FDA also points out that "some vending machine operators are voluntarily providing more healthful choices and additional information on machines" but it does not elaborate on whether this behavior is already dealing with the supposed market failure.	3/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal? FDA argues their research confirms consumers have present-based preferences, even though they may later experience regret. FDA suggests this may explain why consumers have not demanded calorie and other nutrition information and then predicts the rule mitigates this market failure, but not necessarily the tendency of consumers to underutilize information. The proposed solution is to require operators to provide signs in appropriate colors in close proximity to food. Providing information may highlight the potential future costs of additional calorie consumption and raise consumer demand for more lower-calorie options. FDA does not distinguish between obese and non-obese customers in their discussion of the market failure.	3/5
Does the analysis present credible empirical support for the theory? FDA admits, "Studies of consumer response to vending machine calorie disclosure have been difficult to find. Restaurant menu studies of calorie disclosure have found that responses were often small or insignificant, but varied widely across different subgroups, ranging from increases in calorie intake for some populations to reductions of up to approximately 50 calories per meal for other groups." Nonetheless, FDA takes a rough, unweighted average of the range of observed consumer responses for restaurant menus that suggests that a 10-percent reduction in additional calories consumed may be possible. It is unclear how this decision was made or why they ignore current research concluding restaurant menu disclosure exerts small or insignificant effects on customer demand. No discussion of why suppliers would not provide "healthier" items, though FDA appears to assume time preference bias is so pervasive that customers have no interest in watching their weight at the time and point of purchase.	2/5
Does the analysis adequately assess uncertainty about the existence or size of the problem? FDA does not present evidence to support its contention that customers of vending machines suffer from time preference bias or that fuller disclosure will reduce caloric intake associated with vending machines or that reductions would not be overturned by consumption elsewhere. FDA does not distinguish between obese and non-obese customers even though they may react differently to fuller caloric disclosure or from time preference biases. It is not clear why the new rule would decrease the time preference problem given that many products already have caloric information. So, uncertainty is mentioned, but it is unclear how it affected the analysis.	1/5
7. How well does the analysis assess the effectiveness of alternative approaches?	2/5
Does the analysis enumerate other alternatives to address the problem? In addition to a baseline (no new regulation), FDA has identified four regulatory options for this proposed rule: (1) the proposed rule, allowing a sign in close proximity to the article of food or selection button; (2) requiring that calorie declarations be immediately adjacent to the article of food or selection button for all calorie disclosures; (3) an additional year in the compliance period for vendors with less than $500,000 in annual revenue from vending machines; and (4) coverage extended to bulk vending machines without selection buttons.	4/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)? There is a fairly narrow range of alternative options FDA believes are legally viable, but all are based on government regulation. No mention of taxing vending machine purchases, bans in various locations, or information campaigns or other commonly considered government interventions.	2/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved? Only estimated annualized compliance costs for each option are presented. Compliance is assumed to be perfect.	1/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future? Imposing no new nutrition labeling requirements for covered vending machine food is the baseline. This is not believed to be a legally viable option. FDA expects some state and local jurisdictions to begin requiring nutrition information disclosure on vending machines, in the absence of this regulation, costs to industry could be several times the cost of this proposed rule, and benefits to consumers may be lower because of incomplete coverage and fragmented presentation of nutrition information. These issues did not elicit any apparent adjustments to the analysis. This does not address what the state of the world would likely be in the absence of this regulation. Moreover, considering the fact that vending machine owners are increasingly providing calorie information and healthier options, it seems that the market is evolving and that the future is likely to be different with or without the proposed rule. Consumers and producers are implicitly assumed unresponsive.	1/5
8. How well does the analysis assess costs and benefits?	2/5
Does the analysis identify and quantify incremental costs of all alternatives considered? Compliance costs are estimated for four alternatives using 3% and 7% discount rates.	4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation? Costs of complying with the proposed requirements have been estimated for three major areas: cost of nutrition analysis, cost of new signs or posters, and labor costs. FDA estimates 10,800 operators affected, controlling between $4M-$5.6M worth of machines. The initial mean estimated compliance cost is $25.8M, with an estimated mean ongoing cost of $24M. Mean annualized costs are $24.5M at a 7% discount rate, and $24.2M at a 3% discount rate. Per operator costs are estimated to be $2,400. FDA estimates average per machine costs are less than $10 annually.	4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services? FDA notes, "given the low profit margins in the vending machine industry, and given that most of the regulated vending machine operators will be small businesses, FDA anticipates that almost all operators will, at least initially, choose to include calorie information on signs, including posters adjacent to vending machines" and that this can cost less than $1 per year per machine. The FDA implicitly asserts the cost will be small enough so as not to increase the costs of the food in vending machines. There is no discussion of the possibility that producers might shift costs onto consumers in higher prices or fewer options.	1/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation? Given low profit margins and that most vending machine operators are small businesses, FDA anticipates most operators will initially choose to include calorie information on signs but, later, manufacturers of vending machines and larger machine operator may use more integrated and expensive signs as part of regular updates and replacement of machines. There is no discussion of how demand for machines or vending locations might change. Consumers are implicitly assumed to consume fewer calories.	1/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis? High and low estimates of costs of the proposed rule are provided using 3% or 7% discount rates. Little discussion of the uncertainty surrounding theory or previous empirical analysis finds its way into analysis of the rule.	2/5
Does the analysis identify the alternative that maximizes net benefits? FDA conducted a breakeven analysis to determine the proportion of obese adult population needed to attain minimal response for the proposed rule to yield a positive net benefit. However, FDA admits it does not directly estimate benefits and thus does not clearly measure net benefits, nor does it present analysis of net benefits for the four options.	3/5
Does the analysis identify the cost-effectiveness of each alternative considered? Annualized compliance costs of each of 4 options are estimated. No other costs are provided for all 4 options. FDA presents a breakeven analysis that is suggestive of cost-effectiveness analysis. Perfect compliance is implicitly assumed.	3/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs? Compliance costs are estimated. There is little to no discussion of who bears burdens (e.g., customers, vending businesses, landlords, manufacturers of food and machines, maintenance companies) of all costs associated with the rule. Enforcement costs for the government are not discussed.	1/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits? Benefits are assessed for the adult obese population, but not for obese children. No benefits are assessed for the overweight, but not obese, population with BMI of 25-29.9.	2/5
Use
9. Does the proposed rule or the RIA present evidence that the agency used the analysis? The analysis estimates a breakeven cost point, but the four options are highly correlated to the rule FDA proposes. The RIA does not attempt to tailor its rule to information provided or developed.	1/5
10. Did the agency maximize net benefits or explain why it chose another alternative? FDA does not directly assess benefits of its proposed rule due to many acknowledged complications. It estimates the percent (0.02%) of the adult obese population that would need to reduce caloric intake by at least 100 calories per week for a breakeven point on annualized costs.	2/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future? FDA estimates that at least 0.02 percent of the adult obese population would need to reduce caloric intake by at least 100 calories per week for benefits to reach the breakeven point. Future changes in obesity rates or food offerings and consumption at vending machines might be used to track success, but this is not clearly discussed. There is no discussion of problems associated with the effects on obesity prevalence given that many other factors may affect obesity prevalence.	1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so? FDA does not directly assess this issue, though RIA indicates access to relevant data that could be used to assess the regulation's future performance.	1/5

Total	28 / 60

Additional details

Agency: Department of Health and Human Services
Regulatory Identification Number: 0910-AG56
Agency Name: Department of Health and Human Services
Rule Publication Date: 04/06/2011
Comment Closing Date: 07/05/2011
Dollar Year: 2009
Time Horizon (Years): 10