There is a lot to know about the food we eat. The ingredients in a jar of spaghetti sauce, a box of cereal, or a cup of coffee could come from around the corner or around the world; they could be processed by children or by high-tech machines; they could be grown on huge corporate farms or on small family-run farms; or they could be mostly artificial or 100-percent natural.

While a description of a food product could include information on a multitude of attributes, not all of them are important to consumers or regulators. Information on some attributes could affect the health and welfare of consumers by influencing their food choices. Information on other attributes might have no effect at all.

Consumers, food companies, third-party entities, and governments play a role in determining which attributes are described on the label. The interaction of these groups influences which information is labeled voluntarily, which is mandated, and which is not labeled at all. It shapes the way information is presented and the accuracy and credibility of that information. The economics behind food labeling provides insight into the dynamics of voluntary food labeling and the types of market failures best addressed through mandatory labeling requirements.

Companies Will Voluntarily Label If Their Benefits Outweigh Their Costs

Voluntary labeling is one of a food company’s many advertising options. Assuming that companies attempt to maximize profits, they will add information about an attribute to the label as long as each additional message eventually generates more benefits than costs. The primary benefits of labeling for a company come from either increasing profits or maintaining profits in the face of new competition. Either outcome is more likely if consumers use the information to differentiate the labeled product from similar products and then buy it.

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