Michelle Obama to food industry: Shape up

NEW YORK/LOS ANGELES Wed May 12, 2010 7:38pm EDT

NEW YORK/LOS ANGELES (Reuters) - First lady Michelle Obama has a message for the U.S. food and beverage industry: Take real steps to sell healthier products or the federal government will force you to do it.

Obama has taken on childhood obesity as her signature issue, and President Barack Obama appointed her head of the interagency panel he formed to study it. The resulting obesity task force delivered its 70-point plan on Tuesday for reducing childhood obesity within a generation.

While the document does not recommend regulatory actions or federal taxes on unhealthy foods, experts said it sounded like a final warning to industry.

"It's sending a polite but clear warning shot across the bow of industry, especially with regard to marketing to children," said Kelly Brownell, director of the Rudd Center for Food Policy and Obesity at Yale University and a leading proponent of using taxes to reduce consumption of sugary drinks.

"The report says in no uncertain terms, 'clean up your act or we'll take action,'" he said.

U.S. food makers such as Kraft Foods Inc, Campbell Soup and General Mills have pledged to reduce the amount of sugar and sodium in their products, while drink makers like Coca-Cola and PepsiCo removed full-calorie sodas from schools amid pressure from states.

Despite these voluntary steps, experts say self-regulation is unlikely to go very far, since the large packaged food and drink companies often make the bulk of their sales and profits from products high in salt, sugar and fat.

"This is not the Dalai Lama here. They're there to make money," said Tom Pirko, founder of consulting firm Bevmark LLC. "They'll slip and slide to accommodate certain consumer trends, but they're not going to change their business model."

Financial analysts agree that for business, going healthy -- whether through voluntary actions or forced regulation -- is potentially profitable.

Selling healthier items often can give a company a way to charge more for its products, especially when they are in high demand from increasingly health-conscious consumers. That could be the carrot that persuades companies to change.

"There is a financial incentive for Coke and Pepsi to get the next generation to drink more of the noncarbonated brands because that's where consumption's moving," Morningstar beverage analyst Phil Gorham said, referring to drinks like bottled teas, juices and flavored waters. "The larger the scale they can make this stuff, the more profitable they will be."

THE PROSPECT OF REGULATION

A key area of focus of the White House Task Force on Childhood Obesity report was advertising to children.

The report cited a Federal Trade Commission finding that purveyors of food, beverages and fast food spent $1.6 billion in 2006 to promote their products to young people. Children and adolescents are critical to marketers because in addition to being consumers themselves, they influence purchases made by parents and are the future adult market, the report said.

In light of practices such as using licensed cartoon characters to sell products, the report suggested that regulation or legislation could be helpful.

"Effective voluntary reform will only occur if companies are presented with sufficient reasons to comply," the report said. "The prospect of regulation or legislation has often served as a catalyst for driving meaningful reform in other industries and may do so in the context of food marketing."

As an example of where government stepped in after self-regulation failed, U.S. regulators late last year halted an industry-funded food labeling program called Smart Choices after nutritionists and consumer advocates complained that sugary breakfast cereals like Kellogg's Froot Loops and Cocoa Krispies were being marketed as healthy choices.

HAMBURGERS AND FRIES -- AND CHICKEN AND SALAD

Industry executives say they promote regular physical activity and offer healthy options as a way to combat obesity but ultimately, consumers are responsible for their own health.

Health experts agree that exercise and better food choices are important, but say widely available, heavily advertised and often cheap high-calorie food in the United States has led to an increase in average calorie consumption, playing a starring role in the obesity epidemic.

Edward Jones analyst Jack Russo said companies like McDonald's Corp, PepsiCo and General Mills Inc already have made strides in either making their products healthier or highlighting the health benefits of existing products, such as commercials that imply that eating Cheerios will help lower cholesterol.

McDonald's, the world's largest fast food purveyor, has introduced more grilled chicken, salad and low-calorie drink options, moves Russo said have helped business and made the company less of a target.

"They still sell hamburgers and fries ... but having that complement of healthy products in your portfolio sometimes can make all the difference," Russo said.

(Reporting by Martinne Geller and Lisa Baertlein; Editing by Gary Hill)

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