Effects of the FDA's sodium reduction strategy in the U.S. market for chip products

Matthias Staudigel and Sven Anders

Journal of Economic Behavior & Organization, 2020, vol. 173, issue C, 216-238

Abstract: Recent policy proposals have favored product reformulation to reduce excess sodium intake, a risk factor for cardiovascular diseases. The U.S. Food and Drug Administration (FDA) has published draft guidance with target values to encourage sodium reduction in processed food, spawning widespread discussion. Points of uncertainty are expected consumer responses to and market outcomes from sodium reductions affecting industry incentives and profits. The objective of this article is to simulate the effects of two reduction scenarios on sales, revenue, and total sodium intake, with a focus on industry-wide versus market-leader-only reformulation. Using a nested-logit demand framework, we derive product-level demand estimates and explicit “sodium elasticities” in the highly differentiated U.S. market for potato and tortilla chips and simulate two sodium reduction scenarios based on the FDA's current proposal. Key findings of our simulations are that a 10% reduction in sodium content for products exceeding the FDA's target sales-weighted mean would lead to an overall decrease in sodium intake of more than 7%. Adverse effects on reformulating manufacturer sales and revenues are ambiguous and vary by product category. Our results only partly support the “unhealthy = tasty intuition” hypothesis in the literature, indicating that the adverse effects of product reformulation on demand and industry benefits are not as guaranteed as often portrayed.

Keywords: Differentiated products; Nested-logit; Policy simulation; Product reformulation; Retail scanner data; Sodium reduction (search for similar items in EconPapers)
JEL-codes: D12 I18 L15 L81 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:173:y:2020:i:c:p:216-238

DOI: 10.1016/j.jebo.2020.03.006

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