Functional Foods, Health Benefits and Health Claims

The growing burden of health care cost remains a key policy issue. The potential effects on public health care costs of increasing the consumption of functional foods in diets through the ability to make new health claims is of major policy relevance. However, there are also multiple potential market failures associated with functional foods. This paper outlines a number of issues and market failures related to the consumption and production of healthier foods, including labelling of health claims. The paper also evaluates the potential magnitude of health-related cost savings by allowing new health claims, using the example of “soluble fibre from certain foods (barley and psyllium) and coronary heart disease” and “soy protein and coronary heart disease” health claims. The preliminary results suggest that an increased consumption of functional food due to new health claims could result in significant health cost savings. Despite this, the existence of production and consumption externalities could result in an inefficient outcome rather than the socially optimal level of consumption of foods with health benefits. Policy implications are discussed.