What Labels Tell Us About How Foods are Produced

Consumers are increasingly considering information on how foods are produced in making their buying decisions. For example, in the United States sales of products labeled as organic were estimated at over $3 billion in 1996. Federal and state governments are facing tough choices in deciding how to regulate what product labels tell us about how foods are produced. Our research highlights the important market-based considerations in making these choices. Many consumers are willing to pay more for products produced in specific ways, but it is often difficult or impossible for them to verify whether a product labeled as such was really produced in that way. Process attributes (e.g., pesticide or hormone use levels, environmental protection practices) usually cannot be judged by inspecting the product or even by consuming it. In this situation, =ethical producers could label their products as being produced in a specific way when they are not, deceiving consumers and causing them to pay for product characteristics they do not get. Ethical producers who have produced the product in the labeled way may find their market undermined by the cheaters. Avoiding these problems may require government or independent third-parties to provide verification for consumers. Someone outside the market may also be needed to set the process standards on which certification and labeling are based. This is often a complex process.