# The Impact of the New Food Labeling Law on Product Sales in Chile

Valeria Scapini Sánchez, Cinthya Vergara Silva

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## To cite this version:

Valeria Scapini Sánchez, Cinthya Vergara Silva. The Impact of the New Food Labeling Law on Product Sales in Chile. 2017, 10.22370/rpe.2017.3.1218. hal-05511557

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# The Impact of the New Food Labeling Law on Product Sales in Chile

Valeria Scapini Sánchez*
Universidad de Valparaíso

Cinthya Vergara Silva†
Universidad de Chile

2017

*Note:* This is an English translation of the article originally published in Spanish as: Scapini V., & Vergara, C. (2017). *El impacto de la nueva ley de etiquetados de alimentos en la venta de productos en Chile*. *Perfiles Económicos Num. 3, Julio 2017*, pp. 7-33, ISSN 0719-756X - DOI:

https://doi.org/10.22370/rpe.2017.3.1218. Both authors contributed equally to the writing and model building of the article.

*The authors acknowledge the collaboration of Víctor Gallardo: Student of Business Administration, Universidad de Valparaíso*

## Abstract

Since the 1980s, obesity in Chile has tripled, generating economic problems in both the public and private health sectors. This made it necessary to provide information to consumers about the ingredients in each product and its nutritional value. The Law "On nutritional composition and its advertising" of 2012 constitutes part of a comprehensive policy that includes promotional actions, education, primary care programs, and regulations for front-of-package labeling that alert consumers with "HIGH IN" warning labels on relevant nutrients that exceed limits determined as risky for health. We provide early empirical evidence based on firm-level sales data from a food company that added warning labels to its products within the first 6 months of the law's implementation. Using a descriptive regression framework, we explore the short-term association between warning labels and sales volume. The results show that the Law is associated with modifications in consumers' purchasing preferences and that the number of warning labels is also a variable to consider when purchasing a product.

**Keywords:** Food labeling, Nutritional policy, dietary habits, consumer behavior, front-of-package warning labels.

## Résumé

Depuis les années 1980, l'obésité au Chili a triplé, générant des problèmes économiques dans les secteurs de la santé publique et privée. Cela a rendu nécessaire de fournir des informations aux consommateurs pour les informer sur les ingrédients de chaque produit et sa valeur nutritionnelle. La loi "Sur la composition nutritionnelle et sa publicité" de 2012 constitue une partie d'une politique globale qui comprend des actions promotionnelles, l'éducation, des programmes de soins primaires et des réglementations pour l'étiquetage qui alertent les consommateurs avec des étiquettes d'avertissement "ÉLEVÉ EN" sur les nutriments pertinents qui dépassent les limites déterminées comme risquées pour la santé. Nous fournissons des preuves empiriques précoces basées sur des données de vente au niveau

<footnote>*valeria.scapini@uv.cl</footnote>

<footnote>†cvergarasilv@ing.uchile.cl</footnote>
de l'entreprise d'une société alimentaire qui a ajouté des étiquettes d'avertissement à ses produits au cours des 6 premiers mois de mise en œuvre de la loi. En utilisant un cadre de régression descriptive, nous explorons l'association à court terme entre les étiquettes d'avertissement et le volume des ventes. Les résultats montrent que la loi est associée à des modifications dans les préférences d'achat des consommateurs et que le nombre d'étiquettes d'avertissement est également une variable à prendre en compte lors de l'achat d'un produit.

**Mots-clés** : Étiquetage alimentaire, Politique nutritionnelle, habitudes alimentaires, comportement du consommateur, étiquettes d'avertissement sur le devant de l'emballage.

# 1 Introduction

The well-being of a society and living conditions in a country are closely linked to the daily consumption of food and the entire food production chain. The diet of a country's population and the quality of consumed products are closely related to the health and performance of each individual. Globally, it is increasingly important to review dietary habits due to the rise in diseases linked to the intake of poor-quality products and/or with ingredients that are harmful to human health. Factors such as the intake of unhealthy foods, sugary drinks, high energy-density snacks, "fast food," and sedentarism have been shown to have effects on the rapid increase in overweight in the population (World Cancer Research Fund, 2009; World Health Organization, 2003).

Overweight and obesity are defined as an abnormal or excessive accumulation of fat that can be detrimental to health. Several studies show that it is associated with problems of self-esteem, depression, and social insertion, as well as diseases such as type II diabetes, a wide range of cancers (such as prostate and pancreatic cancer), cardiovascular diseases, asthma, gallbladder disease, sleep apnea, stroke, respiratory problems, liver and gallbladder diseases, hypertension, and osteoarthritis, among others.

According to figures from the Food and Agriculture Organization of the United Nations (FAO), there has been a worrying increase in obesity and overweight. Since 1980, obesity has more than doubled worldwide, and by 2014, more than 1.9 billion adults aged 18 or over were diagnosed as overweight, of which more than 600 million were obese and 41 million children under five were overweight or obese. In relative terms, this is equivalent to 39% of adults aged 18 or over being overweight, and 13% being obese. According to data from the 2010 National Health Survey (MINSAL, 2011), in Chile, 67% of the population shows some degree of overweight, of which 39.9% have mild overweight, 25.1% are obese, and 2.3% are morbidly obese. It is also estimated that 1 in 11 deaths are the result of or linked to overweight.

Consequently, overweight problems have generated economic problems worldwide in the public health and private sectors (Withrow and Alter, 2011). Within the public health sector, there is evidence of higher costs due to admission rates, greater number of days of stay, and cost per person, while for the private sector there is a direct loss of productivity due to a higher rate of medical leave (Korda et al., 2015; Fudin, 2013). Overweight and obesity problems represent a higher risk factor in non-communicable diseases and, moreover, induce higher costs for the health system (Kopelman, 2000; Guh et al., 2009; Katzmarzyk et al., 2003; U.S. Department of Health & Human Service, 2016; Cuadrado, 2016). In Chile, it is estimated that obese people generate 67% more health care expenses than people with normal weight (Cuadrado, 2016).

It is estimated that Chile spends around 0.81% of GDP and 5% of health expenditure due to the collateral effects of obesity, such as medical treatments, underlying diseases, disability pensions, work absenteeism, loss of productivity, and premature mortality. The Chilean Safety Association (ACHS)
together with Universidad Mayor (2016) estimated that people with overweight have a 31% higher
probability of having a work accident, while another study conducted by the Faculty of Economics and
Business of Universidad de Talca estimates that an obese worker is 6.34 times more expensive and in
terms of medical leave, they present an average of 1.37 days of absence versus 0.12 days for non-obese
workers (Tello, 2015).

Chile ranks fifth in the world in obesity rate and first in Latin America, being the second country with the highest consumption of ultra-processed foods in the region and the highest consumer of sugary drinks in the world (FAO, 2016).

As a measure to mitigate the worrying overweight rates, in 2007 on a motion by Senators Guido Girardi, Carlos Kuschel, Evelyn Matthei, Carlos Ominami, and Mariano Ruíz-Esquide, a bill on "Regulation of unhealthy foods" was presented. In this framework, the First Report of the Health Commission (BCN, 2011), following WHO guidelines on the matter, showed data to justify a special regulatory framework on food security and healthy eating:

"Obesity is the most prevalent chronic disease in all Chilean population groups (8% in children under six years old, 17% in first-grade schoolchildren, 33% in pregnant women, 28% in women and 23% in adult men) and is, in turn, a risk factor for other diseases, such as hypercholesterolemia (35% of adults), arterial hypertension (33.7% of adults) and type 2 diabetes mellitus (4 to 12%)."

Subsequently, Law 20.606 on "Nutritional Composition of Foods and their Advertising" was published in 2012 (BCN, 2011). It came into force on June 27, 2016, as the "Food Labeling Law." This regulation addresses the nutritional composition of foods and their advertising. It seeks to indicate the excess of critical nutrients in foods high in sugars, sodium, saturated fats, and calories according to the Food Sanitary Regulations (MINSAL, 1999).

All things considered, obesity is considered the most important public health problem today, and there is great concern about changing the dietary habits of the population with a view to improving both health and quality of life. Therefore, it is expected to have a direct effect on the decrease in the consumption of unhealthy products, which, for processed food producing companies, would mean a decrease in sales.

This has generated a series of discussions and opposition from several companies in the sector that are
not willing to reduce their profit margin in favor of a better quality of life for the Chilean population.

Given the above, this study seeks to discuss and measure the possible effects of the Law during the first 6 months of its implementation. It analyzes, on the one hand, public studies conducted on the topic of labeling and, on the other, the actual sales data from a processed food company that markets candies, sweets, cookies, chocolates, alfajores, and cereals with added sugar, ice cream, among others. The main focus consists of determining the impact that this new labeling law has on product sales and verifying whether the consumer penalizes products according to the number of warning labels on their labels, or whether they are indifferent when making a purchase. To determine this effect, a series of linear regression models were estimated that allowed identifying the sign on sales units and amounts, and in which cases it is significant or not.

## 2 Nutritional Labeling

Nutritional labeling consists of providing information on a label indicating the content of food materials that a food product possesses and its nutritional characteristics. In such a way that consumers easily know what ingredients it contains and its nutritional value.
From the consumers' perspective, the primary objective of the nutritional label is to provide nutritional information that facilitates comparison between similar products and, from this, consumers can make informed choices. In this way, they can avoid harmful products or products that do not respond to their consumption preferences (González et al., 2012). Food nutritional labeling potentially represents a valuable tool to help consumers make conscious decisions about their diet in order to improve health and prevent chronic diseases (Babio et al., 2013; Hennebery and Armbruster, 2003).

We can then identify that nutritional labeling belongs to a system that involves a group of actors who control, use, and regulate it, where the main actors of this system are three: the State, as regulator and planner of the system; the Industry, as supplier of products and nutritional information on packaging; and the Consumer, as receiver of the interactions and regulations of the other actors.

Globally, food nutritional labeling has been increasing in application and complexity, as well as consumer demands regarding the information present on labels, such as country of origin, production method, whether it contains GMOs, among others. Furthermore, there are also a series of aesthetic elements such as the languages of the information; the way of presenting information such as numbers, symbols, categories, absolute quantities, percentages, tables, etc., which are necessary to adequately reach consumers. Indeed, the ability to understand labels can vary according to countries, people's health status, public health objectives, and the dietary patterns of different population groups within the same group of consumers (FAO, 1993; Cowburn and Stockley, 2005).

## 2.1 Labeling Law in Chile

The Labeling Law in Chile has its origin in the bill on "Regulation of unhealthy foods" presented in the Senate on March 21, 2007 by Senators Guido Girardi, Carlos Kuschel, Evelyn Matthei, Carlos Ominami, and Mariano Ruíz-Esquide with the objective of creating a

"[...] special regulatory framework on food security and healthy eating that incorporates international principles and guidelines and makes them applicable at the national level, orienting the consumer towards healthy behavior patterns and warning them at the same time about the risks of consuming foods harmful to their health."

This allowed the establishment of minimum rules for the production, distribution, and commercialization of foods to be adequately informed to consumers and, in case of being a source of health problems, to provide clear information about the quality and quantity of what is being consumed (BCN, 2011).

According to data presented by Senator Adolfo Zaldivar, different studies endorsed by the World Health Organization show that implementing policies focused on increasing physical activity and improving diet prevents 90% of coronary diseases, 90% of heart attacks and about 70% of strokes, and almost totally, diabetes cases and the use of medications to treat them, which also correspond to the first and most costly causes of death in Chile and the world (BCN, 2011). Among the measures identified as cost-effective to combat obesity were identified:

* Front-of-package labeling for informed purchasing

* Regulate advertising directed at children

* School interventions

* Healthy lifestyle counseling in primary care
* Taxes on foods high in critical nutrients

* Promote physical activity

Law 20.606 "On nutritional composition and its advertising" was then enacted in 2012, which corresponds to a modification to the Food Sanitary Regulations and is constituted as part of a comprehensive policy that includes promotional actions, education, primary care programs, fiscal measures, and other public health strategies to combat obesity.

Subsequently, after a series of discussions, Decree 13 of 2015 "Modifies Supreme Decree No. 977," of 1996, of the Ministry of Health, which approves the "Food Sanitary Regulations" dated June 26, 2015, was enacted. This decree indicates that:

> Article 120 bis: When sodium, sugars or saturated fats have been added to a food or food product, and its content exceeds the established value, the food or product must be labeled with the nutritional characteristic(s) related to the added nutrient. In the case of energy, its content must be labeled when sugars, honey, syrups, or saturated fats have been added, and the value established in said Table is exceeded.

The regulation establishes limits for the content of sodium, sugar, calories, and saturated fats called critical nutrients in foods. In case the products exceed them, they must carry a black octagon with white letters, warning that the food is "HIGH IN" the corresponding nutrient (see Figure 1) with the exception of foods to which sugar, sodium, or saturated fat has not been added, such as cereals with their derivatives in flours or starches, extruded, ground, crushed, hydrolyzed, noodles and related products, and legumes.

<figure><img src="image_3.png" /><figcaption>Figure 1: Diagram of the Chilean labeling system. Extracted from Decree No. 13 official journal of the Republic of Chile, modifying supreme decree No. 977, Chile, 2015</figcaption></figure>

It also considers mainly 3 axes of action:

1. Regulation of advertising directed at children under 14 years of age,

2. Implementation of warning labeling on foods that exceed the limits of critical nutrients established for these purposes, and

3. Regulation of the sale of foods that exceed the limits inside schools.

Given the discussions that occurred in the Senate, the need to separate some specific aspects through a new legal initiative that would define aspects related to food advertising and promotion was verified, thus creating Law No. 20.869 "On Food Advertising," published in November 2015, which mainly legislates on food advertising and promotion and defines minors as persons under 14 years of age.
Foods that have the “HIGH IN” label may not be advertised through dissemination channels oriented to children under 14 years of age, such as posters, radio, Internet, or television programs when they capture an audience equal to or greater than 20% of people under 14 years of age. The law also prohibits the use of characters, children’s figures, cartoons, people, or animals that attract the interest of children under 14 years of age to advertise this type of products.

As of June 26, 2016, and progressively, all solid foods that have more than 275 calories, 400 grams of sodium, 10 grams of total sugars, or 4 grams of saturated fats per 100 grams will carry “HIGH IN” warning labels. Meanwhile, in the case of liquid foods, all those that exceed 70 calories, 100 grams of sodium, 5 grams of total sugars, or 3 grams of saturated fats per 100 milliliters (ml) will carry warning labels.

## 2.2 First Effects of Labeling in the Chilean Market

The labeling law had high parliamentary consensus regarding its significance and importance for the health of the Chilean population. However, it was not exempt from opposition, especially from the food industry.

One of the main industry representation groups, the Association of Food and Beverages of Chile A.G. (AB Chile) and Chilealimentos, defined as:

> "A private association of food companies in Chile that brings together and represents companies of processed foods and machinery, equipment, and service companies linked to food processing whose objective is to promote the development and protection of activities that are common to its members and the defense of their interests, in Chile or abroad, before public or private authorities and entities" (Chile Alimentos, 2008; Alimentos y Bebidas de Chile A.G. (AB Chile), 1943).

where its founding members are Andina, Embonor, Coca-Cola, CCU, Carozzi, and Nestlé, showed great discontent with the Law, arguing that the approved Regulation does not make sense as public policy and does not encourage food reformulation due to the following reasons (Leiva, 2014):

1. The Law Decree proposes limits that have no scientific evidence or support for success, as they have not been applied in any country in the world.

2. The proposal stigmatizes processed foods, when they represent only 30% of daily consumption in Chile.

3. Disincentive for innovation, research, and development in the food industry.

4. The Stop sign is in disharmony with the Codex Alimentarius according to its Nutritional Labeling Standards.

5. Impact on intellectual property and trademark rights, especially in international industries.

6. The proposal generates an unnecessary technical barrier to trade.

Highlighting as consequences that, in summary, the Law and the Regulation do not allow discrimination, do not educate, frighten, discourage product innovation, generate impact on intellectual property and trademark rights, and even argue that it does not respect agreements signed by Chile before the World
Trade Organization by labeling foods that use international children's images, since most food categories will be affected, many 100%, reaching an average close to 90% of formulated-packaged foods.

Another point most objected to by the food industry was the measurement criterion based on the amount of critical nutrients per 100 grams or 100 ml of each product and not based on the recommended portion. However, the Law was supported by international studies, relevant actors from the health world, and research centers that allowed the Law and Regulation to be approved despite the industry's displeasure.

Once the Law was approved, a series of evaluations were conducted with the objective of measuring its impact, taking into consideration that there are short- and long-term effects given the nature of the Law that seeks to change dietary habits rooted in Chilean society.

According to a study conducted by the In Situ research center, initiated one month after the law came into force at the request of Chilealimentos, 41% of them modified their dietary habits. Of which the declared changes were: 1) Decrease in consumption of products with warning labels (48%); 2) Substitution for similar foods with fewer warning labels (46%); 3) Substitution for similar foods without warning labels (26%); 4) Elimination of consumption of foods with warning labels (14%); 5) Others (3%). In addition, 63% of respondents identified the number of warning labels on a product as relevant or very relevant when purchasing it (InSitu, 2016).

Another study of interest conducted by the Retail Studies Center (CERET) found that when asking the question about the labeling law: Do you consider that this new nutritional information helped you make healthier eating decisions? 48.1% of respondents answered that it has helped them versus 38.6% who said it has not. Then, when identifying how labeling affected purchasing, it was identified that 49% did not modify their purchasing behavior while 39% did with actions such as stopping buying products (11%), changing brands (12%), and reducing quantity (16%), the rest of the respondents do not know or do not answer (CERET, 2016).

The survey conducted by CADEM (2016) showed, in terms of opinion, that 77% of respondents believe that the law goes “in the right direction because it will improve people’s dietary habits” while only 17% believe it goes “in the wrong direction because it is an excess of regulation on companies.” Additionally, among those who have seen the labeling (82% of the sample), 51% believe it “will have a positive impact because it will improve people’s quality of life” and 46% indicate that they have stopped buying some product of their usual consumption after seeing that it has a black warning label that says “HIGH IN” versus 52% who have not. Finally, 31% of this group shows brand loyalty and “would continue buying because it is their preferred brand” while 66% “would eliminate the product from their consumption definitively” (28%) or “would change brands to one that does not have a warning label” (38%).

For its part, the Ministry of Health (MINSAL, 2017) warned that the changes expected with the new law will not be instantaneous, indicating that the effect on the nutritional status of the population, thanks to a change in behavior in their dietary habits, can be evaluated in the long term, around 10 years.

In its first evaluation of the law, it used the Citizen Perception study conducted jointly by the Institute of Communication and Image (ICEI) and the social evaluation consultancy Demoscópica. This study indicates that 92.4% of respondents evaluate as “good” or “very good” the obligation to label foods with “HIGH IN” warning labels. Regarding restrictions on the sale of foods “HIGH IN,” 91.3% of interviewees considered that it is “good” or “very good” to prohibit their sale in school establishments. And, regarding the prohibition of advertising directed at boys and girls under 14, 74.5% consider it “good” or “very good.”

Selecting within the sample those who compare the number of warning labels,
"91.6% of consumers consider that the existence of warning labels on packaged foods influences to some extent their purchasing decision, and only 8.4% state that warning labels do not influence and they buy anyway"

of the former, 67.8% modify their purchasing decision towards foods with fewer warning labels, 14.1% state that they buy less food than they would have bought if they did not have warning labels, and 9.7% do not buy foods with warning labels. Those who declare not to be affected by warning labels in their purchasing decision correspond to 8.4% of the subsample.

Additionally, regarding the effects on the industry, the Ministry of Health (2017) identified that as of December 2016, 64.4% of establishments complied with the Law's indications. On the other hand, and according to data provided by the Society for Manufacturing Development (SOFOFA), 17.7% of food products made changes in the composition of some foods (MINSAL, 2017).

Thus, after 6 months of implementation of the Law, we see that the Chilean population shows interest in it and even willingness to change their purchasing behavior in response to the warning labels. MINSAL identifies this law as a pioneering public policy worldwide in matters of healthy eating without leaving aside the permanent challenges of improvement, such as including messages in Braille, evaluating its effects to combat overweight problems, and promoting healthy eating.

## 3 Effect of “HIGH IN” Warning Labels on a Food Company

The main focus of this article is to quantify with econometric techniques the real effect of the labeling law, using sales data from a Chilean food company.

The company under study has 400 products for sale in supermarkets, which were divided into 4 groups according to the number of warning labels. The company has products with 0, 1, 2, and 3 warning labels. From each group, 3 products were selected plus one product without warning labels that corresponds to a product without added sugar (the only product sold by the company with zero warning labels). The selection of products was according to those that represented the highest sales, that did not have seasonal bias, and that remained available throughout the study period.

The database corresponds to a time series with 10,861 records of daily retail sales within the supermarket chain that presents the highest sales participation in the Metropolitan Region. Each record has costs, units sold, number of warning labels on the package, sales, the date of implementation of the Law, and date. Of the records, 907 days correspond to sales before the start of the law and 179 days of sales after the start of the law.

<table><caption>Table 1: Description of the database</caption><thead><tr><th colspan="2">Database Characterization</th></tr></thead><tbody><tr><td>Observations</td><td>10,861</td></tr><tr><td>Products</td><td>10</td></tr><tr><td>Period observed</td><td>January 2014 to December 2016</td></tr></tbody></table>

### 3.1 Methodology

To perform the analysis, it was first necessary to clean the received database. For this purpose, records where any of the fields were blank were removed (listwise deletion strategy), obtaining a new data set (see Table 2) with 10,678 valid records equivalent to 99% of the original database.
<table><caption>Table 2: Summary of data used for model fitting</caption><thead><tr><th>Product ID</th><th>#Warning labels</th><th>Total Rec.</th></tr></thead><tbody><tr><td>Product 1</td><td>2</td><td>1074</td></tr><tr><td>Product 2</td><td>0</td><td>1002</td></tr><tr><td>Product 3</td><td>2</td><td>1073</td></tr><tr><td>Product 4</td><td>3</td><td>1077</td></tr><tr><td>Product 5</td><td>1</td><td>1075</td></tr><tr><td>Product 6</td><td>1</td><td>1075</td></tr><tr><td>Product 7</td><td>1</td><td>1077</td></tr><tr><td>Product 8</td><td>3</td><td>1075</td></tr><tr><td>Product 9</td><td>2</td><td>1075</td></tr><tr><td>Product 10</td><td>3</td><td>1075</td></tr><tr><td>Grand total</td><td>-</td><td>10678</td></tr></tbody></table>

The data were processed with the R language using the R-Studio graphical interface. We employ descriptive linear regression models (Wilkinson and Rogers, 1973; Chambers, 1992) to explore associations between the law's implementation and sales patterns by analyzing the regression coefficients.

In this study, different Ordinary Least Squares (OLS) linear regression models were estimated that consider as the explained variable the logarithm of sales (units and amount) to smooth the curve. Warning labels, the law's entry into force, and products are used as explanatory variables. These models allow us to identify short-term associations rather than establish definitive causal relationships.

## 3.2 Data Analysis and Model Estimation

The average annual sales per year reach $8,694,864,317 monetary units for the year 2014, $9,074,476,731 for the year 2015, and $9,969,820,305 for the year 2016. It is possible to see a small seasonal variation in sales and a sustained increasing rise for each year. In terms of units sold, the behavior is less homogeneous than that of sales; however, on average there are no large jumps in value, remaining around 7,365 average units sold per month.
<figure><img src="image_4.png" /><figcaption>Figure 2: Monthly average sales by year (2014-2016)</figcaption></figure>

The annual sales of the sample products remain within the same range with the exception of products 4 and 10, which show an abnormal increase in the year 2016.

<figure><img src="image_5.png" /><figcaption>Figure 3: Sales by product</figcaption></figure>

The first model developed corresponds to a simple evaluation of the law variable on sales and units. The result indicates that the law does partly explain the behavioral changes in sales and that both for units and for amounts it affects positively, and in greater proportion, the units. This simple analysis, however,
may be affected by the sustained growth of sales of the selected products, which would explain the sign of the coefficient, so it does not by itself allow generating conclusions regarding the effects of the law.

<table><caption>Table 3: Effect of law on sales and units</caption><thead><tr><th rowspan="2">Y ~ X</th><th colspan="2">Sales (amount)</th><th colspan="2">Units</th></tr><tr><th>Estimate</th><th>Pr(&gt; |t|)</th><th>Estimate</th><th>Pr(&gt; |t|)</th></tr></thead><tbody><tr><td>(Intercept)</td><td>14.2341047</td><td>&lt;2e-16 ***</td><td>8,256</td><td>&lt; 2e-16 ***</td></tr><tr><td>Law</td><td>0.1158168</td><td>1.19e-05 ***</td><td>0.13018</td><td>4e-05 ***</td></tr></tbody></table>

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘’ 1

Then, two other models to evaluate the effect of the law and the number of warning labels on sales and units sold according to the following regressions:

$$ \log(\text{sales}) = \text{law} + \text{warning labels} + \text{law} \times \text{warning labels} \quad (1) $$

$$ \log(\text{units}) = \text{law} + \text{warning labels} + \text{law} \times \text{warning labels} \quad (2) $$

The results obtained (see Table 4) indicate that for the entire period, the law does have a significant effect on both sales and units; in both cases the effect is negative and there is a greater impact on sales amounts than on units sold. Regarding warning labels, there is also evidence of a significant negative effect in relation to sales and units sold, with less impact on units than on sales.

<table><caption>Table 4: Joint effect of law and warning labels on sales and units</caption><thead><tr><th rowspan="2"></th><th colspan="2">Sales (amount)</th><th colspan="2">Units</th></tr><tr><th>Estimate</th><th>Pr(&gt; |t|)</th><th>Estimate</th><th>Pr(&gt; |t|)</th></tr></thead><tbody><tr><td>(Intercept)</td><td>14,592</td><td>&lt;2,00E-16***</td><td>8,367</td><td>&lt; 2e-16 ***</td></tr><tr><td>Law</td><td>-0,185</td><td>0.000705***</td><td>-0,058</td><td>0.3822</td></tr><tr><td>Warning labels</td><td>-0,1972</td><td>&lt;2,00E-16***</td><td>-0,061</td><td>4.42e-06 ***</td></tr><tr><td>law:warning labels</td><td>0,1655</td><td>5.25e-10***</td><td>0,104</td><td>0.0013 **</td></tr></tbody></table>

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘’ 1

Then, to better understand the problem, a model was developed to analyze the relationship between sales and products and identify what behavior products show during the entire period, before the law and after the law according to the model:

$$ \text{sales}_i = \beta_i \cdot \text{products}_i \quad (3) $$

with *i* products under analysis. To avoid the problem of perfect collinearity between variables, the omitted category Product 1 is used as a baseline. The results obtained are shown in Table 5.
<table><caption>Table 5: Joint effect of law and products on sales and units</caption><thead><tr><th rowspan="2">Variable</th><th rowspan="2">No. Warning labels<br>(Ref.)</th><th colspan="2">Sales (amount)</th><th colspan="2">Units</th></tr><tr><th>Estimate</th><th>Pr(&gt; |t|)</th><th>Estimate</th><th>Pr(&gt; |t|)</th></tr></thead><tbody><tr><td>Intercept</td><td>-</td><td>1,367</td><td>&lt;2,00E-16***</td><td>7,827</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 10</td><td>-</td><td>0,127</td><td>1.50e-06***</td><td>-0,738</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 2</td><td>-</td><td>0,623</td><td>&lt;2,00E-16***</td><td>-0,709</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 3</td><td>-</td><td>-0,395</td><td>&lt;2,00E-16***</td><td>-0,355</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 4</td><td>-</td><td>1,791</td><td>&lt;2,00E-16***</td><td>1,303</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 5</td><td>-</td><td>0,627</td><td>&lt;2,00E-16***</td><td>1,929</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 6</td><td>-</td><td>0,773</td><td>&lt;2,00E-16***</td><td>1,041</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 7</td><td>-</td><td>2,169</td><td>&lt;2,00E-16***</td><td>1,444</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 8</td><td>-</td><td>-0,081</td><td>0.002036**</td><td>1,189</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 9</td><td>-</td><td>0,000</td><td>0.994767</td><td>-0,910</td><td>&lt;2,00E-16***</td></tr><tr><td>Law</td><td>-</td><td>0,046</td><td>&lt;2,00E-16***</td><td>0,589</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 10:Law</td><td>3</td><td>0,508</td><td>6.36e-15***</td><td>0,537</td><td>1.72e-14***</td></tr><tr><td>Prod. 2:Law</td><td>0</td><td>-0,462</td><td>1.53e-12***</td><td>0,016</td><td>0.82094</td></tr><tr><td>Prod. 3:Law</td><td>2</td><td>-0,882</td><td>&lt;2,00E-16***</td><td>-0,902</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 4:Law</td><td>3</td><td>-0,239</td><td>0.000236***</td><td>-0,220</td><td>0.00166**</td></tr><tr><td>Prod. 5:Law</td><td>1</td><td>-0,527</td><td>6.25e-16***</td><td>-0,540</td><td>1.21e-14***</td></tr><tr><td>Prod. 6:Law</td><td>1</td><td>-0,568</td><td>&lt;2,00E-16***</td><td>-0,577</td><td>&lt;2,00E-16***</td></tr><tr><td>Prod. 7:Law</td><td>1</td><td>-0,513</td><td>3.15e-15***</td><td>-0,520</td><td>1.07e-13***</td></tr><tr><td>Prod. 8:Law</td><td>3</td><td>-0,261</td><td>5.84e-05***</td><td>-0,208</td><td>0.00293**</td></tr><tr><td>Prod. 9:Law</td><td>2</td><td>-2,025</td><td>&lt;2,00E-16***</td><td>-2,078</td><td>&lt;2,00E-16***</td></tr></tbody></table>

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘’ 1

According to these results, it can be seen that products 3, 8, and 9, before the Law came into effect, already showed a decrease in their sales (downward purchasing trend). In particular, products 3 and 9 show a downward trend in both sales and units, and it is possible to see that the Law increases this downward trend in consumption. Product 10 is of special interest since it is a product with 3 warning labels that shows that, after the approval of the law, its sales increased considerably, even changing the sales trend it previously showed. Product 2 (which has no warning labels) shows that the law positively affects units sold but not the sales amount. Finally, products 3, 4, 5, 6, 7, 8, and 9 show that the law had a negative effect on both sales and units sold.

On the other hand, analyzing only the period with the Law in force, it is identified that the products in which the law negatively affected were those with two warning labels (see Table 6).

<table><caption>Table 6: Effect by number of warning labels on sales and units after approval of the law</caption><thead><tr><th rowspan="2"></th><th colspan="2">Sales</th><th colspan="2">Units</th></tr><tr><th>Estimate</th><th>Pr(&gt; |t|)</th><th>Estimate</th><th>Pr(&gt; |t|)</th></tr></thead><tbody><tr><td>Intercept</td><td>14,44</td><td>&lt; 2e-16 ***</td><td>7,72</td><td>&lt; 2e-16 ***</td></tr><tr><td>Warning label = 1</td><td>0,49</td><td>7.71e-11 ***</td><td>1,62</td><td>&lt; 2e-16 ***</td></tr><tr><td>Warning label = 2</td><td>-1,26</td><td>&lt; 2e-16 ***</td><td>-0,72</td><td>&lt; 2e-16 ***</td></tr><tr><td>Warning label = 3</td><td>0,45</td><td>2.02e-09 ***</td><td>1,31</td><td>&lt; 2e-16 ***</td></tr><tr><td>Multiple R-squared: 0.4451</td><td colspan="4">Multiple R-squared: 0.5526</td></tr><tr><td>Adjusted R-squared: 0.4441</td><td colspan="4">Adjusted R-squared: 0.5519</td></tr></tbody></table>

Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘’ 1
3.3 Model Analysis and Discussion of Results

The models obtained show that the law does indeed have an impact on sales, both in amount and in units. It can be considered as an explanatory variable for the change in trends that occurs within the period under analysis. Sales of products with 1 warning label slightly increase in relation to products that do not have warning labels. In contrast, products that have 2 warning labels show a decrease in the average of their sales. Finally, products with 3 warning labels show an increase in the expected value of their sales.

Products in general show a pattern change in their sales series, with a significant decrease in sales in the months of November and December 2016. The results suggest that products with 3 warning labels have a loyal and/or highly dependent customer base. This may be because substitute products are unavailable, or existing substitutes also have 3 or more warning labels with equal or higher costs. Products with 2 warning labels appear to be the most affected by the law and are the only ones negatively affected. This could be due to lower brand dependence, lower loyalty, or greater availability of substitution alternatives. Products without warning labels do not show significant variation in sales amount but do show variation in units sold. However, this slight trend appears to result from a constant growth rate inherent to the product, independent of the Law's entry into force.

Within the data provided by the company, it is not indicated what type of gondola promotions were carried out during the period, nor whether there were changes in advertising that could have affected consumer behavior to mitigate the effects of the law. With this, the models yield interesting but not entirely conclusive results regarding the quantitative effects.

To complement these results, it is important to consider the market situation linked to the food world. For example, the strategies used by brands in their labeling to confuse consumers with words like “natural,” “artisanal,” “light,” “0% of” or highlighting ingredients that come in minimal doses to make them appear healthy or natural (López, 2017).

On the other hand, consumers are increasingly better informed and show worldwide that education has increased in relation to the ingredients contained in processed foods with also concern about the way they are produced, including whether product development takes into account the common good of the population. Along the same lines, consumers have stopped considering fats as something negative in itself (MINTEL, 2017), also understanding that many times processed products change fats for sugar without generating any benefit by avoiding them.

Global food trends show great growth in interest in healthy food, that provides energy, that does not harm the environment or animals, with more traditional and natural ingredients, without industrial processing (Google, 2016; MINTEL, 2017).

Phenomena such as the above could explain the sales trend of the company's product without warning labels, since it did not change its historical behavior after the law was approved. The other products show changes to a greater or lesser extent in their historical trend after the approval of the law. Given the analysis window, this suggests a rapid change in consumer behavior in response to the additional information that products display.

Based on the results obtained and contrasting with the qualitative results of the surveys reviewed in Section 2.2, the law appears to be associated with the delivery of additional information to consumers that may lead them to modify their purchasing options. This suggests the development of a more transparent food market with better-informed consumers who are more concerned about the effects of poor nutrition.
# 4 Conclusions

The results show that the entry into force of the law is associated with a decrease in the average units sold for most products in the sample. Furthermore, the number of warning labels is significantly associated with variation in sales of each product. In summary, our descriptive analysis suggests that the law's application is associated with a decrease in expected sales of products with 2 warning labels, and is correlated with an increase in the expected value of sales of products with 0, 1, and 3 warning labels.

In other countries, the application of similar laws on labeling of processed foods has achieved expected results, with consumers becoming more aware and modifying their purchasing behavior. In Chile, it appears that the law has had positive short-term associations. However, for this company's products with 3 warning labels, several factors may explain the observed patterns: there may be no substitute products available to modify consumption, highly effective positioning strategies may generate a high degree of loyalty, consumers of these products may have limited disposition to change dietary habits, additional promotions may have been carried out during the period to maintain sales, among others. Since the company does not have products with 4 warning labels, our analysis of the law's introduction is also incomplete.

It is important to emphasize that this study has several limitations. The selected products correspond to those with greater participation in sales; therefore, there is a variable measuring product loyalty that has not been incorporated. The data also do not indicate modifications in advertising campaigns or promotions within the sales venue, and only one type of sales channel in the Metropolitan Region is considered. This leaves room to improve this analysis and evaluate other important aspects such as behavior with variables like price, gender, age, region, among others. The models employed only descriptive linear regressions; it would be valuable to use causal inference techniques that allow more rigorous evaluation of public policy implementation and comparing their results.

In terms of the law's effectiveness, we observe that it is associated with changes in consumer behavior in the short term. Public opinion appears to favor legislation in the food sector and values the government's concern for improving dietary habits. Labeling appears visible to consumers and may improve information in their consumption decisions. The processed food industry faces a significant challenge due to this law: to improve the quality of their foods, enhance their ingredients, and propose marketing strategies that do not involve children as part of the sales strategy. This law can be viewed as an opportunity for innovation, research, and development for the food industry. Without generating technical barriers to trade, it establishes clear limits for all industry participants and links to consumer health. Moreover, when accompanied by educational campaigns, it is reasonable to expect that consumers may become more aware of their dietary habits without stigmatizing processed foods, understanding what they really contribute to a person's diet and avoiding unbalanced diets that generate serious health problems in the population.

For the law to become more effective, to yield better results, and for its effects to be sustained over time, the population must be constantly informed and educated. Likewise, the government must continuously review scientific evidence on the effects of ingredients and processes. Similarly, it is recommended to expand the sample of products chosen in this study and incorporate substitute products from other brands. Finally, future studies are suggested on the impact of the food labeling law in the medium and long term, employing more robust causal inference methods, and examining effects both on public health outcomes and on the food market structure.
## Notes

1. Senate. Date January 8, 2008. Account in Session 80, Legislature 355 and Chamber of Deputies. Date January 21, 2010. Account in Session 123, Legislature 357.

2. The company made its sales data available for this study with a confidentiality agreement that prevents revealing its name.

3. Study conducted on 406 effective surveys. Fieldwork between July 25 and August 6, 2016. Exploratory study based on quantitative methodology. Conducted through online surveys through ISO-certified panel with more than 100,000 remunerated panelists in Chile.

4. Survey conducted on 3,001 respondents in 54 supermarkets in the Metropolitan Region. Fieldwork Date: Between 05/25/16 - 05/29/16. The EKO03-2 store was measured on 05/01/16 and 05/04/16, and the stores JUM02-1, JUM02-2 and HIP02-1 have measurements between 07/07/16 - 07/10/16. On-site surveys at the exit of the store, to people who have made purchases.

5. Weekly sample 729 cases of which 531 interviews were applied by telephone and 198 face-to-face interviews. Telephone surveys with CATI and face-to-face surveys at points of affluence with Tablet. Fieldwork conducted on Wednesday, June 22, Thursday, June 23, and Friday, June 24, 2016.

6. Face-to-face household survey, applied by Demoscópica. The fieldwork lasted 11 days obtaining 1,067 cases. Quantitative descriptive study of longitudinal character designed by the Institute of Communication and Image (ICEI). Semi-structured questionnaire, with an approximate duration of 12 minutes, applied by trained interviewers.

7. According to 2,147 inspections carried out in supermarkets and food distributors, educational establishments, cinemas, and food processors with and without outlets.

8. Percentage distribution of foods reported by SOFOFA, according to modifications in their nutritional composition. Period January - June 2016 with 5,434 case numbers.

9. It was assumed that all products under study had the stamp printed at the time of the start of the obligation imposed by the law. However, there is the possibility that there was a lag in the first weeks due to products that were kept in storage. However, it was estimated that if this situation occurred, it does not affect the results of the study.

10. For this particular regression, warning labels were considered as an ordinal variable between 0 and 3.

Date of Receipt of Article: March 26, 2017

Date of Acceptance: May 6, 2017

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