April 24th, 2007

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The Chocolate Meme and the Economics of Regulation

Lots of folks upset about the FDA's proposal to redefine chocolate. I'm surprised people are not commenting on the underlying economic rationale.

The price of chocolate has been climbing for several years due to various global issues such as drough in South America and Africa, political instability in relevant countires, and increased demand overall. Eventually, manufacturers will need to raise their prices.

But chocolate snacks revolve very much around impulse purchases, and rely heavily on a particularly price sensitive population. An increase in price will reduce demand, even though the price increase will be fairly consistent throughout the industry.

So the industry wants to be able to reduce price without changing the label, because it depends on familiarity and strong positive associations with the word "chocolate."

I'm all for keeping the definition of chocolate the same. And, as always, I am pleased to see people stand up for what they believe in and take part in the administrative process, even if it is just around chocolate.

At the same time, I also like to connect the dots. And I see an increase in the price of chocolate on the way. Or smaller bars.