U-M Report: America’s Food, Beverage Industry is a Market Failure

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A new study from the University of Michigan looks at the obesity epidemic in the United States as a market failure, in which the food and beverage industry is not an efficient market where people act in society’s interests.

Aneel Karnani, a professor of strategy at the University of Michigan's Ross School of Business and the author of the report, along with other colleagues, says food is a necessity — unlike tobacco and alcohol — but there are subjective views about what’s unhealthy. He says consumers are not well informed about the causes of weight gain nor the long-term consequences of obesity.

“We need some form of government regulation to solve (the obesity epidemic), but that’ll only happen after we get a sensible public debate going,” Karnani says. “That’s what we're trying to do with this research.”

He says corporate social responsibility, industry self-regulation, and social activism have largely failed in the food and beverage industry. Karnani says industry messaging focuses on physical activity as the main culprit of weight gain, while studies show diet is the primary cause. He says self-regulation has been ineffective because the industry continues to market unhealthy foods to children, and he says social activism hasn’t been effective because activism runs the risk of shaming overweight people.

Karnani says government intervention is the last solution, but that is often unpopular and seen as political. He says one effective step in other countries such as Sweden and Norway has been banning or restricting food advertising to children. He says strategies such as sugar and fat taxes, along with bans on trans fat, have seen mixed results.

“The industry lobbies hard against any government regulation, and the American public isn't fond of them, either,” Karnani says. “People want to be left alone to exercise their good judgment. That's usually the best case, but when it come to obesity the market is failing them.”

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