Health Claims Regulation to cause significant negative economic impacts

Published on: 30th September 2010
Published By PG Economics

Press release: 30 September 2010: Brussels, Belgium

A new Economic Impact Assessment of the EU’s Nutrition and Health Claims Regulation suggests that the current way in which this Regulation is being implemented is likely to cause substantial, mostly negative, economic impacts. 

“There is widespread expectation in the EU food supplement sector that if the many negative health claim opinions, so far made by the European Food Safety Authority (EFSA), lead to decisions not to allow these claims, the EU market for food supplements may decrease significantly in size, resulting in important reductions in profitability and employment levels” said Graham Brookes, author of the report. “Barriers to entry into the sector are expected to increase, levels of innovation will fall, third country suppliers will increase their EU market share and the viability of many EU businesses (notably SMEs) would be threatened. Consumers would also lose out from reduced choice and possibly higher prices”.

Previewing the findings of the study, the key findings are: 

Current impact

1. To date, the authorisation process for health claims has not yet had a significant sector level impact mainly because none of the ‘general function’ (Article 13.1) claims on which EFSA has given opinions have yet been formally allowed or prohibited by legal decision.

2. Levels of business uncertainty have, however, already increased. Some companies have already incurred costs of adjustment associated with negative opinions/assessments by EFSA and levels of research/development and new product development are ‘on hold’ in some businesses.

3. Resources invested by the sector to compile the entries of the Article 13.1 list for submission to the European Commission amounted to a cost of between €4.51 million and €7.65 million.

4. In comparison, the cost of submitting an Article 13.5 or Article 14 health claim application (inclusive of a human clinical trial) is likely to be €0.26 million to €1 million plus per application.

Projected impact 

5. The majority of the food supplement sector expect the economic impacts to be substantial and largely negative :

• There is expectation that the ‘other substances’ part of the EU market for food supplements may decrease in size by about 25% (€645 million at the ex-production facility level or €1,031 million at retail level) and result in a 30% loss of gross profitability (€242 million);
• Additional costs associated with, for example, stock and packaging write offs and changes, would likely add €291 million resulting in total short term losses equal to two-thirds of annual gross profits in the ‘other substances’ market and 41% of total gross profits in the broader market, including vitamins and minerals;
• Employment generation is expected to fall by about 13,300 full time equivalents (FTEs), equal to 18% of total employment in the ‘other substances’ part of the sector (this excludes employment impacts in the retail sector);
• Levels of net profitability are expected to fall substantially for companies with relatively high levels of dependency on ‘other substances’ sales. This is likely to threaten the viability of a number of businesses, most of which are small-medium enterprises (SMEs);
• There is expectation in most companies that the costs of bringing and sustaining a product in the market will increase significantly, raising the barriers to entry in the market;
• Research and development expenditure, levels of innovation and new product development are expected by most companies to decrease;
• The majority of companies perceive that EU consumers will lose out from decreased choice, less competition in the market and potentially higher prices;
• The relative market share of products originating outside the EU and supplied via the internet or mail order is expected to increase, because such products would not be subject to the requirements of the EU Nutrition and Health Claims Regulation in their country of origin and therefore would be free to continue to use health claims, denied to EU suppliers, and be easily accessible to EU consumers.

Overall, if the economic impacts highlighted above occur, the Regulation will also fail to achieve most of its key economic-related objectives, notably relating to stimulating research and development, protecting innovation, encouraging SMEs, facilitating fair competition and achieving a high level of consumer protection. In addition, levels of income and employment generation within the EU would likely be lower than they might otherwise have been in the absence of this Regulation”

For additional information, contact Graham Brookes Tel +44(0) 1531 650123. graham.brookes@btinternet.com

PG Economics: 30th Sep 2010 10:32:00