Thursday, January 20, 2011

Big Business LOVES Regulations

Not my work, I just strongly agree:

Walmart’s announcement to reduce salt content by 25% and sugar content by 10% with a deadline of 2015 leaves me skeptical. It seems a bit too altruistic. Why, even the Huffington Post didn’t have an angle on it. Surely their resentment of Walmart would find something wrong with this promise. Surprisingly, they mentioned nothing. However, here’s my take. The article notes:

Food makers say they are trying to reduce sodium gradually, making it a more palatable change to its customers and giving the industry time to reformulate products. Most said they support efforts to curb sodium in American's diets but are waiting to see if the Food and Drug Administration decides to mandate a reduction.

In my opinion, the big companies are first hedging against the risk of a possible mandate from the FDA, but the second part of the plan might be the old Chicago meat packers trick. In the early 1900s, the largest meat packers in Chicago were some of the biggest proponents of increased regulation for the meat industry. At first, this seemed like a move out of the goodness of their hearts – just like Walmart’s sodium and sugar reduction.

But the real game plan was to destroy the smaller competition that had been slowly eating away at market share for years. The big companies could easily afford to hire inspectors for their large warehouses. However, small operations were crippled by the additional costs. As a result, the big food producers scored a big win with increased regulation.

I can’t be sure of this, but I think the same thing is happening here. Walmart’s products will “voluntarily” wean customers off salt and sugar with clever R&D over the next several years. And when they’re ahead of the game, they’ll likely lobby for regulations mandating reduced salt and sugar to cripple competitors that didn’t find ways to reduce it. Smaller companies that don’t have the R&D power of the bigger outfits will lose out.

--Vedran Vuk
Casey Research

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