Nutrition facts food label 101

woman in grocery storeDavid Branch, Wells Fargo Sector Manager, Specialty and Non-Grain Crops

The U.S. Food and Drug Administration (FDA) has released its long-anticipated, new and improved nutrition facts label for food and beverages. The established date by which manufacturers will be required to comply with the new requirements is July 26, 2018, although there is speculation that the implementation may be delayed by the U.S. Department of Agriculture (USDA). According to the FDA, smaller manufacturers with less than $10 million in annual sales will be granted an additional year for compliance. Foreign manufacturers that export packaged foods into the U.S. will also have to comply with the new requirements for relevant exports.

Why is this news?

To begin with, the nutrition facts label has not been updated since the Nutrition Labeling and Education Act of 1990 was first implemented in 1993. Given all the advances in nutrition and health research, one would think that the labeling requirements for food and beverages would have been kept current by the government, but this has not been the case. Keep reading to see what changes are being made to labeling requirements for the first time in 20 years, and the reasons why.

What’s changing?

According to the FDA, the new labels will be bigger and bolder, and will contain new details about the quantity of sugars in the item. As shown in the side-by-side comparison chart of the current and new labels below, the new labels are also more comprehensive.

Side by side Label Comparison Branch Feature

Other label changes, illustrated in the below chart, modify the way existing nutrients, vitamins, and minerals are declared. For example, “Sugars” will now be labeled as “Total Sugars” and “Added Sugars” will be listed below it. In addition, the nutrients that are now deemed significant to public health will be labeled in the following order: vitamin D, calcium, iron, and potassium, plus the actual gram amount, as well as the percentage of Daily Value (%DV). Note that the reference values used to determine the %DV have also been revised by the FDA, and now include a daily value for sugar of 50 grams as well as lower sodium, higher vitamin D, calcium, and potassium reference values.

Further, there will no longer be a “Calories from Fat” declaration, a victory for the avocado, nut, protein, and dairy industries since scientific evidence now supports that the type of fat, saturated vs. polyunsaturated, is more important than the total amount of fat when weighing a food’s impact on health and disease prevention.

New Label whats / different

A final major change to the new label, is that “serving size” and “servings per container” will now reflect average portions actually consumed, greater in quantity than formerly represented on the label, and a sad validation that Americans consume greater portions than ideal. Portions will also be reflected in common household measures (ex. “1 cup”), which is now mandated by law.

Food serving sizes get a reality check

Does anybody actually read labels?

The Nutrition Labeling and Education Act (NLEA) was signed into law in November of 1990 and gave the FDA authority to require nutrition labeling of most foods regulated by the Agency, and to require that all nutrient content claims (ex. “high fiber” or “low fat”) met FDA regulations. In line with this timing, The NPD Group, a leading U.S. market research firm, has monitored daily eating habits of U.S. consumers for the past 30 years via its National Eating Trends service. NPD questions consumers about their level of agreement with the statement, “I frequently check labels to determine whether foods I buy contain anything I’m trying to avoid.” In 1990, 65% of consumers said they completely or mostly agreed with this statement. The percentage of agreement remained steady throughout the early 1990’s, coming in at 64% in 1995. Since then, the percentage of consumers in agreement has varied, and dropped as low as 48% in 2013.

According to the 2014 FDA Health and Diet survey published May 6, 2016, half of all adults read the nutrition facts label “always” or “most of the time”. But, when asked whether they looked at the label when deciding whether to buy a food product, the specific breakdown was: always (16%), most of the time (34%), sometimes (27%), rarely (12%), and never (10%).

In a separate survey conducted by Ipsos Research for Coast Packing Company in May 2016, nearly one-half of all Americans said they understand the content of food labels, and less than one-third believe them. According to this survey, food label information tends to be more a deterrent to consumption than a license to eat. Overall, 45% of Americans avoid certain foods based on the content of food labels, with women (54%) more likely to avoid them than men (36%).

To summarize these surveys, most people do read nutrition facts labels at least some of the time; however, those that actually understand the label appears to be significantly fewer. Further, the data highlights that women, college-educated people, and people with a moderate to high socioeconomic status are more likely to read food labels. Thus, the demographic segments that appear to not read these labels are actually the prime targets for healthy diets and obesity reduction.

Does policy follow fact or perception?

With the institution of the new FDA labels, it appears that the FDA is actually catching up to the times, with the new label placing greater focus on sugar, the one ingredient consumers are definitely trying to monitor more closely within their diet. Early in 2017, my wife and I started the “Whole 30” diet, one which eliminates added or processed sugars. I think this was the first time I began to pay attention to the nutrition facts label on every product purchased in order to check the sugar content. I was truly surprised to recognize the volume of sugar in everyday products, particularly ketchup, salad dressings, and breakfast cereals — even those products that claim to be “heart healthy” or “low in sugar”.

According to Nielsen and Label Insight, there are 206 variations of high fructose corn syrup that manufacturers can list on a label, many of which consumers probably don’t recognize as an added sugar. With the new nutrition label requirements, the FDA is hoping to create greater transparency by highlighting the amount of added sugars in a product. As new labeling is implemented, many categories across the grocery aisles stand to be affected as consumers realize how much added sugar many products contain. The following chart outlines the categories of products most likely to be impacted.

Categories that could be impacted by new labeling requirements

Source: Label Insight, Nielsen AOD Dec. 31, 2016, and Nielsen Category Shopper Fundamentals 2015

The current emphasis on sugar is a great example of where public perception and policy intersect. Interestingly, there is evidence that sugar consumption is not the cause of rising obesity, despite assumptions. As depicted in the below graph, since 1974, childhood obesity has more than tripled, and adult obesity has nearly tripled. However, over the same period, per capita sugar consumption has fallen, and per capita caloric sweetener consumption (which includes HFCS) has only increased slightly between 1974 and 1999, but has decreased significantly since 1999. So, does this prove that policy follows both fact and perception? Political persuasion has been linked to both evidence and emotion.

Obesity Chart

According to NPD’s Dieting Monitor, the top 5 items studied by consumers reading labels, in consecutive order, are: calories, total fat, sugar, sodium, and calories from fat. So, in order to stay relevant, the FDA may need to update labels much more frequently as food ingredients evolve, and knowledge of food ingredients impact on health increases. To make the point, gluten, probiotics, and omega-3 were not even on consumers’ radar screens 20 years ago, but today are frequently discussed and called out on food packaging and restaurant menus.

Conclusion

Consumers are the driving force behind food and agriculture. Consumer perceptions, knowledge, and preferences all guide purchasing decisions. When the FDA last revised labels in 1994 to focus on the fat content, this spawned thousands of new low-fat and fat-free products. But, to compensate, food manufacturers increased the sugar content in an effort to maintain the taste of the new low-fat and fat-free products. In effect, reduction of one unhealthy ingredient only increased the quantities of another unhealthy ingredient.

With the introduction of the new Nutrition Facts label, food manufacturers and marketers will be closely monitoring whether the availability of more detailed information has significant impact on consumer purchasing, therefore guiding the manufacturers’ product development and marketing strategies. In my opinion, the increased focus on bolder print calories and added sugar on the new labels will likely result in all kinds of new or enhanced food products that will promote no added sugar, or reduced calories. In reality, the new label could actually help to advance the non-caloric sweetener segment.

Rob Fox

David Branch is a sector manager within the Food and Agribusiness Industry Advisors group with focus on the Specialty and Non-Grain Crop sector.

David has over 25 years of lending experience. Prior to joining Wells Fargo, he worked for the Bond & Corporate Finance Group at John Hancock Financial Services where he was responsible for originating and servicing transactions in the forest products, building materials, timber, and paper industries throughout the U.S. and Canada. Previously, he worked at Travelers Insurance Company in Memphis, Tennessee, specializing in timber mortgage and agricultural loans and also worked for CoBank in Jackson, Mississippi.

David graduated from Louisiana Tech University with a B.S. in forestry (business minor) and earned an M.S. in forest economics from Louisiana State University.