In February, the California legislature introduced Assembly Bill No. 418 (AB-418), legislation that seeks to expand the state Health and Safety Code. The amendment would ban the sale and production of edible goods containing Brominated vegetable oil, Potassium bromate, Propylparaben, Red dye 3, and Titanium dioxide; by January 2025.
This bill has gained national attention for prohibiting one of the constituents (Titanium Dioxide) in the popular candy, Skittles. Mars’s use of the ingredient sparked controversy last year. In Thames v. Mars, Inc, the U.S. District Court of Northern California dismissed the complaint. Mars claimed they would stop using Titanium Dioxide in their Skittles candies in 2016. The proposed consumer protection measure is likely a response to candy manufacturers not following through on their publicized commitment.
AB-418, like all consumer protection legislation, is well-intentioned but misguided. Prohibiting certain chemicals in food products is unnecessary when market mechanisms can guide producers accordingly. If consumers are concerned about the hazards of ingesting compounds targeted in the bill, they will choose not to purchase these products. In turn, companies like Mars will respond accordingly to market pressures.
Consumer Sovereignty Can Lead the Way
Consumer Sovereignty is the concept that “…consumer preferences determine the production of goods and services..”; any competitive firm will be responsive to the needs and wants of its customers. If candy consumers are truly troubled by Skittles containing Titanium Dioxide, they will stop purchasing Skittles (other brands impacted by AB-418). Mars will then respond to the dip in sales by accommodating the preferences of their customer base by removing this substance from their products. If consumers are still buying Skittles, we can assume that they are not bothered by the fact, Skittles contains this chemical. Therefore, the implementation of a law banning this ingredient is unnecessary.
But beyond such a law is unnecessary, it also infringes upon the right to choose. An individual should be able to purchase and eat any variety of candy they so wish, even if it is injurious to their health. California’s prospective law could ruin the skittles recipe and impact the flavor. Why should companies manufacturing processed foods be forced to meet such requirements if most consumers are indifferent to these health concerns?
Product Differentiation Can Voluntarily Steer Consumers
Product differentiation is where a firm highlights the attributes of its products or services that set them apart from its competitors. Mars’s failure to fulfill its 2016 commitment is not a reason for more regulation; but a golden opportunity for competing companies to acquire more business. Competitors can either emphasize in their branding that they do not use Titanium Dioxide or voluntarily reformulate their products. Firms placing such a focus on product quality will provide a signal to health-conscious customers; such tactics can persuade candy consumers to switch brands.
The process of product differentiation can also present an opportunity for mainstream candy companies to create multitiered product lines. They may have products containing the same artificial ingredients that compose the Skittles recipe but also offer an ultra-premium line of candies made with more natural ingredients. Such an offering accommodates concerned customers by providing a “healthier” alternative to the original mass-market product, creating a niche market for consumers willing to pay more for quality.
Government Intervention Will Only Lead to Moral Hazard
The state of California banning specific food additives will give the producers and consumers the impression that the ultimate responsibility of ensuring safety will be on the government. This perception can create perverse incentives for firms and customers alike.
This situation will generate what is known as a moral hazard. Moral hazard is the phenomenon where “..people tend to take more risks when they do not bear the full potential negative consequence..”. Since the government took full responsibility for determining what substances are safe to consume in food products, both parties are willing to take more risks. Producers will be little incentive to provide above-average safety quality with their edible products because California will be the ultimate authority making this determination. Because government safety standards only provide minimum standards, they will only meet the bare minimum. Firms may hold higher safety and cleanliness standards when subject to profits guided by consumer preferences. Why? Because companies may want to increase customer loyalty by aiming to exceed their current food safety expectations. In contrast, the minimum mandated criteria imposed by California, firms will have no reason to adopt more stringent standards because there is no profit incentive to exceed government standards. Consumers will credulously accept the lackluster effort on the part of candy producers simply because they have the government seal of approval.
The government prohibiting certain food additives also generates moral hazards for consumers. If the government parentally informs you what substances are safe through legal restrictions, why do you need to do any additional research? Many people believe that products are wholesome because they are legal. But do local, state, and federal government base these determinations on sound medical research? Not always. Health and safety legislation, like other policies, can be subject to the influence of various interest groups hoping to shape regulations to their advantage (regulatory capture). One analogous example is the labeling requirements for genetically modified food because these mandates have little scientific justification. Yet, these requirements continue to be aggressively supported by coalitions that stand to gain from this regulation.