When West Virginia recently banned seven artificial food dyes in products to be sold within their borders, they joined an increasing number of individual U.S. states issuing their own regulations about food manufacturing practices, allowable ingredients, or product labeling. Consequently, food manufacturers must decide how to deal with different requirements in multiple markets. A new study from the University of Illinois Urbana-Champaign examines the various ways manufacturers respond to state regulations and what drives their choices.
- Marianne Stein
"States have a lot of power constitutionally to protect the health and wellbeing of their citizens; however, a state-level food regulation approach can lead to a complex patchwork of regulation. That creates challenges for food manufacturers that sell their products across state lines. We wanted to examine how firms adhere to different rules across markets," said Maria Kalaitzandonakes, assistant professor in the Department of Agricultural and Consumer Economics (ACE), part of the College of Agricultural, Consumer and Environmental Sciences at Illinois.
Kalaitzandonakes and co-author William Ridley, assistant professor in ACE, developed a modeling framework outlining potential responses, then consulted with food manufacturers to ensure their model aligned with actions producers were actually taking to address policy changes.
"Food manufacturing is an important industry in Illinois and across the country," Ridley said. "After developing our model, we asked several food manufacturers about how they were responding to a variety of state laws, and we were excited to see that our model did a good job explaining firm strategies."
The researchers identified four options food manufacturers selected in response to state food regulation: First, manufacturers can update their product to comply with the strictest standard and sell the new version across markets. Second, they can maintain two separate versions of the product - one sold to the regulated state or region and one for the rest of the country. Third, they can remove their product from the stricter market altogether and sell their original product in the remaining states. Finally, they may ignore the regulations and continue selling the original product with the potential for legal consequences.
Which response a firm chooses will depend on a number of factors, including the cost of compliance, the size of the market of the regulating state, the cost and likelihood of penalties, and consequences for consumer demand. The researchers applied their model to three different case studies, examining manufacturers' responses in each scenario.
In 2014, Vermont implemented a law that required mandatory labeling of genetically modified ingredients. Most firms created one version of their product, which met Vermont's requirements, to be sold across the country. However, because Vermont is a smaller market, some producers chose to exit the state temporarily, until they had made production changes to comply with the law.
In 2019, Illinois enacted a law requiring allergen labeling for products containing sesame. Because the consequences for non-compliance with the law were minimal, some firms ignored the requirement.
The third case study addressed California's recent ban of four food additives, which was enacted in 2023 and will take full effect in 2027. California's market size makes stopping sales to the state unlikely for most firms. Keeping separate production and distribution lines would be complicated and costly. For most firms, reformulating products to comply with the law and selling the new products nationwide was the optimal course of action. However, this strategy becomes more complex as more state regulation on food additives - including West Virginia's recent expansion on food dyes - proliferates, the researchers note.
"When multiple states legislate on a similar issue but the rules are not harmonized, the complexity is likely to increase dramatically. When state laws differ - for example in the ingredients covered, the exemptions, and the timelines - this can create additional hurdles and uncertainty for firms trying to comply with the rules," Ridley said.
Sometimes, state regulation leads to eventual federal government involvement. For example, Congress passed both a national mandate to label genetically modified ingredients in food and expanded allergen labeling regulations to include sesame. This is an expected outcome, as the federal government is tasked with easing interstate commerce.
"State regulation can also be a powerful motivator for federal regulation. We're increasingly seeing advocacy for changes to food regulation at the state level, both to change firm behavior and to drive changes to national regulation," Kalaitzandonakes said.
The paper, "Food Manufacturers' Decision Making Under Varying State Regulation," is published in the Journal of Food Distribution Research.
