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Mangum Economics in Modern Restaurant Management

Modern Restaurant Management picked up on our analysis of FDA's menu labeling rule. 

Lyle Beckwith, NACS senior vice president for government relations, stated, “This comprehensive study confirms what NACS and our members have asserted all along:  the final FDA menu labeling rule will hit the industry, including small businesses, with huge costs, and in the end they will still have to pay fines because they just won’t be able to comply.”
 
Continued Mr. Beckwith, “We appreciate the action taken by the FDA to delay and re-evaluate the rule.  We hope that these new findings will prove useful to the FDA in guiding the agency re-write the rule to recognize the practical problems that businesses face.”

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National Association of Convenience Stores Releases Our Regulatory Analysis

The National Association of Convenience Stores (NACS) has released our analysis of the cost of FDA’s menu labeling rule. From Convenience Store News

“The way the FDA rule is written makes it virtually impossible for businesses to comply with the regulations even though they will spend billions over the next several years trying to do so,” said economist David Zorn of Mangum Economics, who developed the analysis for NACS. While the FDA rules for calorie disclosures on packaged foods recognize that actual calorie counts vary unavoidably from one package to another, the menu labeling rule makes "no allowance for normal variation from one serving of food to the next in the number of calories and nutrition content." Because of this, enforcement costs of the final rule, which include fines, legal fees and negative publicity, are likely to vastly exceed the $84.5 million total cost that the FDA estimated for all covered industries, NACS said.

FDA allows only a 5-calorie deviation (for foods with over 50 calories) for unit-to-unit variability of the same product. That means that a slice of cheese pizza declared at 270 calories is violative if it has less than 265 calories or more than 274 calories. So, a difference of just 0.07 ounces of cheese on a typical slice of pizza makes it illegal.

Our analysis was part of NACS’ public comment in response to FDA’s interest in reducing the regulatory burden of the rule or increasing compliance flexibility.

Our key findings were:

  • Actual costs of compliance and enforcement of the FDA Final Rule for all covered industries are estimated to be more than 3.6 times FDA’s estimates and for the convenience store industry 7 times FDA’s estimates;
  • Annual costs of compliance and enforcement of the FDA Final Rule are estimated to exceed $306 million;
  • Actual costs of compliance and enforcement of the FDA Final Rule to the convenience store industry alone are almost equal to the total cost that FDA estimated for all covered industries;
  • Because the Final Rule makes no allowances for normal calorie and nutrition variations in foods, more than 93% of foods subject to the rule are likely to be in violation of the Final Rule no matter how much businesses spend attempting to comply; and
  • Enforcement costs (including fines, legal fees, and negative publicity) alone of the Final Rule are likely to vastly exceed FDA’s total estimate of the compliance costs of the Final Rule.

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