Requiring grocery stores to display calories may be too costly for its purported benefits.
The 2012 elections are now in the history books. With President Obama returning to face a divided—and likely gridlocked—Congress for at least the next two years, many observers expect the President to address the biggest public policy issues through the regulatory, rather than the legislative, process.
The decisions agencies make can have enormous consequences for businesses and the public. These wide-reaching effects are one reason why every administration since President Nixon’s has provided some mechanism for centralized review of agency regulations.
The most enduring regime for regulatory review has been Executive Order 12866. Issued in 1993 by President Clinton, and retained throughout the terms of President George W. Bush and reaffirmed by President Obama, E.O. 12866 requires agencies to assess the costs and benefits of their rules and to attempt to minimize burdens. Under this Order, agencies must submit all proposed rules with a significant impact on the economy of $100 million or more to the Office of Management and Budget (OMB) in the Executive Office of the President prior to being published for public comment. OMB is charged with determining whether the rule comports with E.O. 12866. If OMB determines that the rule does not, then it returns the rule to the agency for further consideration.
The manner in which E.O. 12866 will be applied to regulations is one of the key questions in the President’s second term. A major decision that OMB is about to face is what to do with the Food and Drug Administration’s (FDA) proposed menu labeling rule that, pursuant to the Affordable Care Act (ACA), would require restaurants and “similar retail food establishments” to post calorie information and maintain eight records for each standard item that they offer. If, as proposed, the FDA extends this rule to include grocery stores, then the supermarket industry could face a $1 billion regulatory burden in the first year of compliance alone.
It is virtually impossible to conceive of a more perfect scenario in which the principles of E.O. 12866 must be applied. The menu labeling rule has been recognized by OMB as being the third biggest paperwork burden imposed by the federal government in fiscal 2011. Meanwhile, the FDA has not quantified a single benefit accruing from it. This is because it is unable to do so.
The evidence that menu labeling has little or no benefit outweighs the evidence that shows it has any significant effect on public health. Indeed, of the studies the FDA cites in its justification of the rule, most conclude that menu labeling has little or no effect on purchasing habits. Furthermore, none show any link to a reduction in obesity rates, the purported benefit of menu labeling.
The billion-dollar question facing both the FDA and OMB is whether to impose menu labeling requirements on supermarkets. The ACA did not direct the FDA to regulate supermarkets, and the agency acknowledged this fact in its rule. Despite this limitation, the FDA has proposed regulating supermarkets in one of the more sweeping ways conceivable.
Under FDA’s proposed rule, essentially every item of food in a grocery store not already labeled would be subject to menu labeling. This requirement would mean that signs would have to be displayed for every type of roll, bagel, cookie and pie made in the store bakery. Furthermore, a slice of a cake would have be labeled one way, a quarter of a cake another, and a half-a-cake would have to be labeled differently than a whole cake. In the deli, all salads, chicken breasts and every other bit of store-prepared food not in a package would have to be labeled. Likewise, at the salad bar, each container of radishes, carrots, lettuce and cucumbers would have its own sign. A typical store would have 1,500 products subject to these new regulations, while some retailers may be responsible for labeling as many as 10,000-15,000 items.
Testing products for nutritional content, creating nutritional labels, training employees, and purchasing new software and scales are only some of the regulatory compliance burdens that the industry would likely face.
As recognized by OMB, the rule is a potential paperwork nightmare. OMB has estimated that the rule will impose nearly 15 million hours of paperwork on the public. This amount is due to the sheer volume of items covered and extensive recordkeeping requirements.
Reams of records would have to be kept on each regulated item. If the rule goes into effect as proposed, a grocer would have to assemble eight records before offering an item for sale. This burden may unfortunately limit consumer choice by reducing the number of new items introduced in the marketplace.
Many members of Congress have questioned the agency’s authority to regulate supermarkets, and legislation was introduced in both the House and the Senate of the 112th Congress to limit it. The menu labeling law had been promoted by the restaurant industry that sought to have a single national standard to preempt the patchwork of state and municipal labeling laws enacted in the past several years. None of these laws have regulated supermarkets. The federal law was modeled after the New York City law, which excluded supermarkets. Indeed, grocers have been held up by members of Congress as a model for the rest of the food industry in terms of the nutrition information they provide to consumers: more than 95 percent of food items sold in the typical grocery store are already labeled.
FDA has also proposed excluding supermarkets from the scope of the rule to minimize burdens. The agency has acknowledged that it is significantly more costly for grocers to comply with the rule than it is for restaurants.
E.O. 12866 requires agencies to “propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs [and to] tailor its regulations to impose the least burden on society, … consistent with obtaining the regulatory objectives.” With a billion dollar burden weighed against not a single cent of benefit, it is clear that the FDA must adopt the alternative it has proposed that would exclude supermarkets from the menu labeling rule.
Let’s hope the second Obama Administration robustly enforces the requirements of E.O. 12866 over the next four years. Doing so would send a clear message to the business community that it is serious about both reducing regulatory burdens and providing the certainty needed to accelerate job growth.
