Vol. 149, No. 24 — June 13, 2015
Regulations Amending the Food and Drug Regulations — Nutrition Labelling, Other Labelling Provisions and Food Colours
Food and Drugs Act
Department of Health
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues: The Government of Canada is proposing to revise and strengthen the nutrition labelling sections of the Food and Drug Regulations (FDR, or the Regulations) in order to enable consumers to make informed food choices about the food they consume to maintain or improve their health.
The FDR set out requirements for the Nutrition Facts table (NFt), the list of ingredients on the labels of prepackaged products, the specifications for food colours, and the certification of synthetic food colours. However, the current nutritional information on labels of prepackaged products does not reflect the latest science, and the way the information is presented does not enable consumers to easily compare products at the point of sale. Moreover, despite scientific evidence of the health benefits associated with a reduced risk of heart disease resulting from the consumption of adequate quantities of fruits and vegetables, the current Regulations do not allow this health claim to be made or any nutrient content or health claim to be made on the label of fresh fruits and vegetables without triggering the requirement to provide a NFt. Additionally, the current labelling Regulations provide food manufacturers with the choice of declaring added food colours by either their common name or simply as “colours,” which means consumers have difficulties avoiding food colours to which they may have sensitivities. Further, the current requirement that every lot (batch) of synthetic food colour be certified by Health Canada (the Department) provides a level of regulatory oversight that is more stringent than that which is in place for other food additives and more stringent than the requirements in many other countries. Finally, many of the specifications for food colours contained in the FDR are out of date and do not allow for the application of more up-to-date, internationally accepted food-grade specifications that are, in practice, used by the industry.
Description: This proposal consists of regulatory amendments that would make the information in labels on prepackaged products (i) more useful and easier to read and (ii) based on the latest science, so that Canadians are better able to maintain or improve their health. The proposed amendments also introduce changes that would help Health Canada achieve efficiencies as a regulator by removing the requirement for the certification of every lot of synthetic food colour, and enable the Department to align with other jurisdictions by relying on internationally recognized food-grade specifications for food colours. Finally, the proposed amendments would allow the claim that fruits and vegetables reduce the risk of heart disease, thereby allowing Canadians to be informed of the health benefits of eating fresh fruits and vegetables.
Cost-benefit statement: Costs were estimated based on the inclusion of all regulatory options that were presented during consultations (i.e. the U.S. approach for added sugar, mandatory inclusion of vitamin D in the NFt). Stakeholders indicated that the cost would be a maximum of $727.1 million and with the removal of outliers, $598 million. However, the decision to use a Daily Value approach for sugars instead of added sugars would significantly lower these costs. Using estimates from the U.S. FDA adjusted for the Canadian market would yield costs as low as $232 million, while using the EU estimates would yield a total one-time cost of $560 million. The one-time cost to industry based on the $727.1 million estimates represents 0.8% of the total annual revenues of approximately $88 billion that the food manufacturing industry generates in Canada. The quantified benefits are estimated to be $2.753 billion over 10 years, assuming a 1% reduction (compounded annually) in direct and indirect health costs in five chronic diseases (i.e. cardiovascular disease, malignant neoplasm, diabetes mellitus, musculoskeletal disease and nutritional deficiency). It is assumed that consumers, when given the necessary information to make healthy food choices, would experience reductions in negative health outcomes. The anticipated net benefit to Canadians is therefore anticipated to be $2.026 billion over 10 years. The coming-into-force period of 5 years was chosen to minimize the cost of implementing the proposed amendments. The industry identified a life cycle for labels of between 6 months and a maximum 5 years.
“One-for-One” Rule and small business lens: The proposed amendments would not add any new administrative burden to industry; the “One-for-One” Rule would therefore not apply. There are approximately 22 000 small- and medium-sized businesses within the food manufacturing and retail sector that would be impacted by the proposed amendments. Given that the cost impact is greater than $1 million, the small business lens would apply. Three provisions were included in the proposed amendments and are anticipated to reduce the cost burden on both small- and medium-sized business: a longer coming-into-force period (five years), to allow for associated label changes to be managed with internal company resources and to deplete current label stock, an exemption for products sold at local markets or farms, and an exemption from requiring bullets between items on the ingredient list for businesses in the food retail sector using scale labels. These three provisions are anticipated to void approximately $754,935,000 in costs for small businesses.
Domestic and international coordination and cooperation: Food labels on prepackaged products in Canada will always differ from those used in the U.S. because of Canada’s dual language requirements. Despite these differences, the health objective in both countries remains essentially the same, and many elements of the proposed Canadian amendments and U.S. Nutritional Facts label (which was consulted on in March 2014), are aligned. These include updates to the NFt as follows: provisions that relate to updates based on science, the requirement to declare potassium, increasing the prominence of calories, mandating how serving size amounts are determined for multiple-serving packages, and the approach to food colouring labelling.
In 2003, the Government of Canada made regulatory amendments to the FDR related to the labelling of food, with the goal of providing information to help Canadians make informed food choices and to help improve their health. These Regulations made it mandatory for an NFt to appear on the label of most prepackaged foods. These Regulations detailed what information had to be included in the NFt and prescribed the format of the table. Regulations for nutrient content claims were also expanded and clarified, and new provisions related to diet-related health claims were introduced. The regulatory amendments came into force fully in late 2007.
The introduction of a standardized NFt on prepackaged products in Canada was heralded as a highly successful measure. However, since 2003, advances in science, changing Canadian consumption patterns, the increasing incidence and economic burden of chronic diseases, changing consumer expectations, and recent international actions (i.e. proposed nutrition labelling changes in the U.S.) have necessitated updates to the Canadian nutrition labelling Regulations.
In the 2013 Speech from the Throne, the Government of Canada made a commitment to consult with Canadian parents about how the nutrition information on food labels could be improved. As described in greater detail below, two rounds of consultations were held in 2014 with consumers. Parents in particular and stakeholders, including health organizations, health professionals, consumer advocacy groups, scientific experts and academics, provincial and territorial governments (P/Ts) and industry were asked to provide feedback by filling out online surveys, attending face-to-face consultation sessions and/or commenting on a series of technical documents posted on the Health Canada Web site. The first round of consultations led to the publication of a What We Heard report (http://www.hc-sc.gc.ca/fn-an/label-etiquet/modernize-report-moderniser-rapport-eng.php) that helped shape the scope and direction of this proposal. The second round of consultations was intended to address issues raised in earlier consultations. Since the conclusion of these consultations, the Department has evaluated the feedback received and adjusted the proposed amendments to reflect stakeholder comments.
With the enactment of the Jobs, Growth and Long-term Prosperity Act, in 2012, the Food and Drugs Act (FDA) was amended to give the Minister of Health (the Minister) the authority to incorporate by reference public documents directly into the FDR.
These amendments were intended to enable the Minister to act rapidly on certain science and safety decisions, and to improve efficiency in the food regulatory system, ultimately making it more responsive to emerging health and safety issues.
Fruit and vegetable health claim
The scientific evidence linking the consumption of sufficient quantities of fruits and vegetables to a decreased incidence of heart disease is well-established. Because heart disease is the second leading cause of death in Canada (approximately 69 000 deaths annually), efforts to further inform Canadians on the benefits of eating more fruits and vegetables could lead to a significant improvement in health outcomes.
The FDR prohibits the use of a health claim unless it is specified in the Regulations; however, a health claim associated to the reduced risk of cancer is currently allowed for fruits and vegetables. Additionally, when a health or nutrient content claim is made on a prepackaged product, that food is required to carry an NFt. However, for fresh fruits and vegetables, it is difficult to generate the accurate values required for an NFt because their nutritional content is highly variable, depending on a number of factors such as the variety, region of origin, growing season and soil conditions. Because of this inherent variability, the current Regulations provide an exemption from the NFt requirement for prepackaged fresh fruits and vegetables.
In general, a food additive must be declared by its common name in the list of ingredients on food labels. Food colours, however, are unique among food additives in that current labelling Regulations provide food manufacturers with the choice of declaring added food colours by either their common name (i.e. Citrus Red No. 2) or simply as “colours.” When the term “colours” is used, this non-specific descriptor does not provide sufficient information to those with sensitivities to certain food colours.
These proposed amendments aim to mitigate that risk and to align food colour labelling requirements with those of other food additives by mandating that food colours be identified using their common names in the ingredient list.
The Department is also proposing to modernize its approach to food colour regulation by addressing differences between the oversight of food colours and other food additives. Currently, the FDR require the lot-by-lot certification of synthetic food colours, but not of natural or inorganic colours. Nor is certification required for any other type of food additive. The certification requirements for synthetic food colours were established more than 30 years ago and are no longer considered necessary from a food safety perspective. The requirement for lot-by-lot certification of synthetic food colours is more burdensome than the requirements for other food additives.
The proposed amendments would address several issues including the following:
- The way in which the nutritional information is currently presented with respect to serving size does not allow consumers to easily compare different products at the point of purchase, nor does the information reflect the latest scientific knowledge. In addition, consumers have expressed difficulty in reading the list of ingredients. Consequently, the fall 2013 Speech from the Throne included a commitment to determine ways to provide Canadian families with improved information on food labels to enable them to make healthier food choices.
- Despite scientific evidence of the health benefits associated with a reduced risk in heart disease with the consumption of adequate quantities of fruits and vegetables, current regulations do not allow this health claim to be made. Also, current Regulations do not allow for any nutrient content or health claim to be made on the prepackaged fresh fruits and vegetables without triggering additional labelling requirements.
- Consumers have difficulties avoiding food colours to which they may have sensitivities because current labelling Regulations do not require specific naming of food colours in the ingredient list as there is an option to simply indicate “colour.”
- The requirement of lot-by-lot certification of synthetic food colours is not required from a food safety perspective. Additionally, food additives other than food colours are not required to be certified by Health Canada. The current requirement that every lot of synthetic food colour be certified by Health Canada therefore provides a level of regulatory oversight more stringent than that which is in place for other food additives and the requirements in many other countries. This places unnecessary burden on both industry and the Department.
- Many of the specifications for food colours contained in the FDR are out of date, and they do not allow for the application of up-to-date internationally accepted food-grade specifications which are, in practice, used by industry.
The proposed amendments to the FDR aim to
- modernize and improve food labelling to reflect the latest science (e.g. updates to the Daily Values (DV) for nutrients to be based on the most recent dietary recommendations), and to enable Canadians to make informed choices about their food in order to maintain or improve their health;
- introduce new requirements such as a note at the bottom of the NFt explaining the % DV, serving sizes based on the amount of food typically consumed in one sitting, and improved legibility in the list of ingredients;
- provide information on the content of sugar and other sugars-based ingredients of prepackaged foods, with the goal of supporting the reduction in sugar intake, as excess sugar intake may lead to overconsumption of calories, and thus to obesity and associated chronic diseases;
- expand the use of health claims on fruits and vegetables to allow a disease reduction health claim linking their consumption to a reduction in heart disease;
- allow for approved nutrient content and health claims to be made on prepackaged fresh fruits and vegetables without additional labelling requirements;
- remove the requirement for certification prior to the sale of each individual lot of synthetic food colours; and
- allow for the application of internationally accepted food-grade specifications for food colours.
Health Canada developed the proposed changes to the label to
- focus on nutrients of public health concern;
- align with existing federal dietary guidance and education campaigns;
- address the needs of Canadians as heard through stakeholder feedback;
- reduce the burden on industry;
- improve international alignment in areas such as DVs;
- reflect the latest science and Canadian eating patterns; and
- use the new “incorporation by reference” authority to ensure that future updates can be made more efficiently.
Currently, the serving of stated size (SSS) used to calculate the nutritional content of multi-serving prepackaged foods is not mandated in regulation, so the values can vary. For example, one bag of crackers might have an SSS of 10 medium-sized crackers, while another could have an SSS of 8 small crackers that differ in weight, making it difficult for consumers to choose between two similar products when trying to reduce their sodium intake. In addition, these SSS may not reflect amounts typically consumed in one sitting. The proposed amendments regarding the SSS for foods sold in multiple-serving prepackaged products would make the SSS more realistic by aligning them more closely with the regulated reference amounts (i.e. the amount that is typically consumed in one sitting), and would allow consumers to compare various products more easily at the point of purchase. For example, foods such as crackers, which come in pieces, would have to use an SSS as close to 20 g as possible; the serving size on the label would be shown in units (number of crackers) along with the corresponding weight (in grams), making it easier for consumers to choose between two similar products.
Reference amounts for SSS calculations would be updated to reflect current consumption patterns (e.g. the consumption of 175 g or three quarters of a cup of yogourt) and marketing trends (e.g. larger “super-sized” prepackaged products) so that on-label information would more closely align with what Canadians actually eat.
The actual information contained in the NFt would be updated so that Canadians are able to make food choices based on the most recent scientific knowledge. Using information from internationally recognized bodies such as the U.S. Institute of Medicine (IOM) and from Canadian sources such as the Canadian Community Health Survey, adjustments have been made to (a) the list of nutrients that must be declared in the NFt (i.e. the core nutrients); and (b) the DVs for both core and non-core nutrients. These changes reflect the latest dietary recommendations and findings from surveillance data.
The proposed amendments would also account for the differences in nutritional needs of infants (seven months or older but less than one year) and children (one year or older but less than four years). Thus, the % DVs in the NFt on food sold specifically for these infants and children would be derived from the DVs established for their respective age groups.
A rule of thumb footnote would be added to the bottom of the NFt to help educate consumers about the meaning of % DV and how to use this information to make dietary choices. The % DV is provided in the NFt to help consumers assess the relative contribution of that food to a daily amount of the various nutrients. The text would read as follows: “5% or less is a little, 15% or more is a lot.” The % DV has been at the core of the Nutrition Facts Education Campaign since 2010. Although many consumers have learned how to use the % DVs, others still struggle with the concept behind the % DV. The educational message on how to use the % DV is intended to increase consumers’ awareness and understanding of this concept, ultimately helping Canadians make healthier choices.
In recent years, there has been growing concern over the amount of sugar consumed by North Americans, with some findings linking excessive sugar intake to an overconsumption of calories, which in turn could lead to obesity and associated chronic diseases. The proposed amendments introduce provisions aimed at providing information and educating consumers on the content of sugar and other sugars-based ingredients (i.e. ingredients containing mostly sugar as a nutrient) in the foods they consume, with the intention of supporting the reduction in sugar intake in a manner consistent with the recommendations of Canada’s Food Guide.
The proposed amendments include two elements aimed at enhancing sugar labelling: establishing a DV for sugar and grouping sugars-based ingredients in the list of ingredients. Comments received from consumers during earlier consultations supported these proposed amendments. Canadians found the % DV approach easy to understand and useful when trying to manage their sugar consumption.
A DV of 100 g is being proposed for sugar, and the declaration of the % DV for sugar in the NFt would be mandated for all foods. Consumers would be able to use the % DV to determine whether a food contains a lot or a little sugar (as indicated by the rule of thumb footnote), and as a result adjust or limit their sugar intake.
Further, the requirement to group all sugars-based ingredients in the ingredients list is intended to provide greater transparency regarding the sugar that is added to foods. Ingredients with common names such as fancy molasses, malted barley, isomaltose and pear juice concentrate may not be recognized by most Canadians as sugars-based ingredients. The grouping requirement would, in cases where a product contains a large proportion of sugar, move the sugars-based ingredients closer to the beginning of the ingredient list, indicating more clearly the relative proportion of sugars-based ingredients in the product. Thus, the proposed approach would help consumers identify unfamiliar sources of sugar in their foods.
List of ingredients
Currently, most prepackaged product labels include a list of ingredients that consumers have indicated is challenging to read. This has been attributed to poor colour contrast and uppercase print. The proposed amendments would improve legibility by requiring the following text formatting: uppercase and lowercase letters, bullets to separate individual ingredients, and good contrast of colour (black text on a white or other uniform, neutral colour background), with a border around the list or one or more lines above, below or at the sides of the list. Other changes include the use of the mandatory title of “Ingredients” to head the list as well as a standardized format indicating the components of an ingredient (e.g. chocolate chips [sugars (dried cane syrup), unsweetened chocolate, cocoa butter, soy lecithin, vanilla extract]). Collectively, these changes would give the ingredient list a standard look and feel so consumers would be able to find and read it on the package more easily.
The requirement to use bullets in the ingredient list would not apply to prepackaged products with labels applied at retail establishments, in order to reduce costs. This sector, which consists of a significant number of small businesses, would be allowed to continue to use commas, as per current practice.
The proposed amendments address concerns raised by industry about the challenges associated with printing the NFt on smaller packages. Currently, in most cases, no NFt is required when the product has less than 100 cm2 of available display surface on the label (e.g. spice jars), but the use of intense sweeteners (e.g. aspartame) or sugar alcohols, the addition of vitamins and/or minerals and/or nutrient content claims (e.g. sugar-free claims) triggers the requirement for an NFt. The proposed amendments would address industry concerns by providing exemptions for all products with an available display surface of less than 15 cm2 on the label (e.g. a very small package of gum containing two to four small pieces).
Consumers with food allergies or sensitivities rely heavily on information provided on the labels of foods to know whether they are safe to consume. Food allergens, gluten sources and added sulphites must always be identified on the label of prepackaged foods, either in the list of ingredients or in a separate statement with the title “Contains.” The proposed amendments would introduce a new requirement stating that the “Contains” statement must appear right after the list of ingredients and follow the same proposed legibility requirements as those for the list of ingredients. Additionally, if the list of ingredients is bound by a border or lines, the “Contains” statement must also be inside the border or lines.
Although the current Regulations do not require the declaration of potential allergens or potential sources of gluten or sulphites that result from cross-contamination, manufacturers may choose to declare these (as is often done under the existing Regulations using “May Contain” statements). Under the proposed amendments, any precautionary statements would also have to appear immediately after the “Contains” statement or, in cases where there is no “Contains” statement, the precautionary statement would have to appear right after the list of ingredients. Additionally, any precautionary statement would also need to appear in the same font size as the ingredients in the list. This would ensure that the information consumers require to avoid these specific ingredients due to food allergies or sensitivities is always grouped together in the same place on the label.
In keeping with the legislative authorities of the Jobs, Growth, and Long-term Prosperity Act of 2012, and to achieve efficiency gains, more timely updates to scientific information could be achieved by moving information from the Regulations into documents that could be incorporated by reference and updated administratively by the Minister. These include tables of information that set rules for labelling requirements (DVs and reference amounts) and a schedule that includes figures (graphics and descriptions) that represent all possible acceptable formats of the NFt. Health Canada is proposing amendments to move these tables and figures into documents that would be incorporated by reference in order to allow for updates and additions to the tabulated scientific information and to provide for some flexibility in the formatting of the NFt. The three proposed documents to be incorporated by reference would be
- Nutrition Labelling – Table of Reference Amounts for Food (formerly Schedule M to the FDR);
- Nutrition Labelling – Table of Daily Values (this would be a new document replacing recommended daily intakes found in Table I to Division 1 and Table I to Division 2 of Part D of the FDR); and
- Nutrition Labelling – Directory of Nutrition Facts Table Formats (formerly Schedule L to the FDR).
These documents would be available to all stakeholders through the Health Canada Web site. The Department would keep stakeholders advised of potential changes to these incorporated documents through consultation and notification processes.
Fruit and vegetable health claim
The proposed amendments introduce measures that would make it easier to let Canadians know of the health benefits of eating fruits and vegetables. The claim “A healthy diet rich in a variety of vegetables and fruit may help reduce the risk of heart disease” would be allowed on fruits and vegetables as specified in the Regulations.
The current Regulations require that prepackaged products carry an NFt on the label whenever a health claim is made for that food, unless the product is a one-bite confectionary product or milk in glass bottles. The proposed amendments would also allow nutrient content and health claims to be made for prepackaged fresh fruits or vegetables without an NFt being required.
The proposed amendments would require that manufacturers list all food colours by their common name (as specified in the Regulations) within the list of ingredients on the food label. This would enable consumers who have sensitivities to specific food colours to avoid those ingredients when shopping for food. It would also align the labelling requirements for food colours with those of other food additives.
The outdated specifications, set out as standards for food colours in the FDR, would be removed and replaced by internationally recognized food-grade quality specifications to reflect current scientific standards where they are available. Companies would therefore not have to meet the current FDR requirements for food colour specifications.
Health Canada is proposing to eliminate the current lot-by-lot certification of synthetic colours as it is no longer considered necessary from a food safety perspective. This would align oversight for food colours with regulatory requirements for other food additives, and with many other jurisdictions, in addition to reducing burden on both industry and the Department.
Coming into force
The Department has engaged various stakeholders from the food industry during the development of these proposed amendments and has tried to minimize burden, especially to small businesses, wherever possible. A five-year coming-into-force period is being proposed, which would allow sufficient time for industry to make the necessary changes to their labels and also to use up any existing stocks of labels already printed to comply with current requirements.
Regulatory and non-regulatory options considered
Option 1: Status quo
The status quo is not viewed as a viable option since current nutritional labelling is confusing for Canadians for several reasons: (i) they cannot compare products easily as serving sizes are not standardized; (ii) labels need to be updated to reflect current scientific knowledge; (iii) labels do not currently provide sufficient information on sugars, to help assess whether there is a little or a lot of sugar in prepackaged food; and (iv) they find it difficult to read the list of ingredients on some prepackaged products, which is of particular concern to those who have allergies, food colour sensitivities or other concerns about ingredients.
Additionally, a claim to inform Canadians about the health benefits of eating fruits or vegetables to reduce the risk of heart disease is currently not allowed. Finally, the current Regulations contain outdated specifications for various food colours and certification requirements for synthetic food colours that are not in line with Health Canada’s approach to other food additives.
Option 2: Voluntary approach
Health Canada considered a voluntary approach to setting serving sizes, the list of ingredients and sugar labelling, but it was determined that this information needs to be standardized in a format that would alleviate confusion and maximize usefulness for consumers. A voluntary approach to the heart disease health claim mentioned above is not possible as the Regulations currently prohibit its use. Similarly, a voluntary approach to the certification of synthetic colours and standards for various food colours was not considered as the Regulations need to be amended in order to modernize the requirements.
Option 3: Full alignment with the U.S.
With respect to labelling, full alignment with the U.S. is not possible due to Canada’s bilingual requirements, which necessitate a Canadian-specific label. The U.S. proposed rule does not include changes to the requirements for the list of ingredients nor any requirements for allergen labelling. However, a number of proposed amendments would align with the U.S. proposed rule. For example, the health-related claims that the U.S. allows to be made for fruits and vegetables are similar to those contained in Canada’s proposed amendments. Furthermore, the Canadian proposed amendments would reference the same internationally accepted standards for food colours that are currently used by industry in the U.S.
The U.S. is proposing to mandate the declaration of the total amount of sugar on their label, along with the amount of added sugar in a line just below. These amounts would be provided in grams because the U.S. does not have a DV for sugars. While both the U.S. and Canadian proposals on sugar have the same overall objective (to provide consumers with information they need to enable them to lower their sugar intake, if they so choose), somewhat different methods of achieving this goal have been chosen. The Canadian proposed amendments include two elements aimed at enhancing sugar labelling: establishing a DV for sugar in the NFt and the grouping of sugars-based ingredients in the list of ingredients (see below). The added sugar approach (in the U.S. proposed rule) and the % DV approach (in the Canadian proposed amendments) were both presented to Canadian consumers during consultations in 2014, and the feedback results indicated that Canadians found the % DV approach easier to understand and more useful than the U.S. approach.
Option 4: Proposed regulatory approach (recommended option)
The proposed amendments would represent significant improvements in the quality of information provided in nutritional labelling. For example, they would make it easier for Canadians to read labels and make comparisons between prepackaged foods. Furthermore, the new sugar DV would help Canadians make food choices aligned with Canada’s Food Guide. In addition, the outdated standards for food colours would be replaced by internationally recognized specifications that reflect current scientific standards where they are available. Furthermore, the requirement for the certification of synthetic food colours would be removed, so that regulatory oversight would be in line with that applied to other food additives. Finally, the proposed amendments would allow the use of the claim that fruits and vegetables reduce the risk of heart disease, thereby allowing Canadians to be better informed of the health benefits of eating fresh fruits and vegetables.
In the spirit of regulatory cooperation, changes are aligned with the U.S. proposed rule to the extent possible (updates to DVs, serving sizes, increased visibility of calories). Differences between the proposals would not be expected to cause significant burden to industry. Health Canada will continue to monitor developments in the U.S. proposed rule and give consideration to any changes made to it.
Benefits and costs
The cost-benefit analysis (CBA) sought to quantify the proposed benefits and costs of making amendments to the FDR with respect to the content of nutrition labels on prepackaged foods sold in Canada. The amendments propose changes to the presentation and content of the NFt, the listing and format of the ingredients list, the listing of food colours by their common name, and the use of claims on prepackaged fruits and vegetables. The analysis identified two groups that would be directly impacted by the amendments: Canadian consumers and the Canadian food manufacturing and retail industry.
Nutrition is an important component of health, which in turn has a direct impact on the Canadian economy. For example, employees with poor nutritional health were found to take an estimated 21% more sick days and were 11% less productive than their counterparts who ate a healthy diet. Sick days and lost productivity due to ill health represent indirect health costs, leading to lost economic production. Furthermore, the health of the population is of importance to policy-makers, since health care spending in Canada, when federal health transfers and respective provincial/ territorial (P/T) health budgets are considered, is one of the largest expenditures by governments. A report by the Canadian Institute for Health Information (CIHI) projected that direct health care costs alone were close to $215 billion in 2014; this represents approximately 11% of the Canadian gross domestic product (GDP) in 2014. Direct costs in this case would not only include coverage for health services in P/T jurisdictions (i.e. hospital and health practitioner care, drug formulary), but also costs for insurers, such as drug benefits schemes and out-of-pocket expenses for services not covered through public or private insurance.
There are approximately 7 000 food manufacturing firms operating in Canada directly affected by the proposed amendments, representing close to $88 billion in yearly revenues and injecting approximately $21 billion into the Canadian economy. When the entire Canadian food manufacturing and retail supply chain is considered, there are approximately 26 000 small and medium enterprises (SMEs) representing non-alcoholic beverage manufacturers; eggs, poultry and meat processing; retail and grocery products that are produced in-house or through private label; raw dairy or refined products; importers and exporters of food products (for example cake icing manufacturing and distribution, confectionary produced abroad and imported into Canada); the baking and milling industry; and large manufacturers of processed foods. Approximately 80 000 products, measured as stock keeping units (SKUs), should be impacted by the proposed amendments.
The CBA examined whether health outcomes, and therefore health spending, could be reduced for five different chronic diseases that were most linked to diet and nutrition. The selected diseases were cardiovascular disease, malignant neoplasms, diabetes mellitus, nutritional deficiency and musculoskeletal disease. These five diseases accounted for approximately $26 billion annually in both direct and indirect health expenses.
The proposed amendments are based on the assertion that by enabling Canadians to compare products more easily and make more informed choices of the foods they consumed, their overall health would improve. A conservative approach of a small (1%) improvement in health outcomes was applied to estimate the anticipated benefits for the five chronic diseases; the approach taken in the U.S. used a 3% benefit measure. The improvement in health outcomes was compounded annually over 10 years. Anticipated savings were calculated to be approximately $275.3 million in annual cost savings over a 10-year period. It is anticipated that total benefits would amount to $2.75 billion.
Canadian industry provided costing input through a consultation and survey process coordinated by the respective industry groups. Industry groups were asked to provide all costs associated with changing the design of their product label. These estimates were based on input that they received from Health Canada during the July 2014 consultation period. Since that time, a number of changes were made to the proposed amendments, as regulatory elements were refined to reflect the intended goals of the Regulations and the feasibility of undertaking particular policy directions. The industry estimates therefore included a large number of proposed amendments that will not be reflected in what is currently being proposed. The removal of the requirement to list vitamin D and added sugar in the NFt is one example of where feasibility was reassessed; however, industry estimates continue to include these two elements.
In order to remain conservative in the CBA estimates, industry was asked to provide estimates based upon the highest cost scenario; however, in most instances, estimates were provided for minor, medium and major label changes. A number of industry groups were uncomfortable with providing estimates without fully being aware of the final proposed amendments. By allowing the option of providing the highest cost scenario, industry stakeholder groups were able to provide costing data, as one of their greatest concerns was an underestimation of costs in an area that would directly affect their membership. This approach also ensured that industry impacts would not be understated.
A concerted effort was made to include all industry input. Due to the variability of figures provided and the need to include all industry input, an adjusted weighted figure was used to account for all estimates. The adjusted weighted figure applies more weight to the average (or mean) of the sum of each cost-per-SKU value, while applying a reduced weight to estimate outliers (i.e. a number that is outside the normal range). Using a cost-per-SKU estimate that applies an adjusted weight, the cost per SKU would be $9,725 or $727.1 million in present value (PV) as a one-time compliance cost to industry. If the median (which represents where the majority of cost per SKU values fall) is used, the one-time cost to industry decreases to $8,000/SKU or $598 million in present value.
Using a one-time compliance cost that applies a weight-adjusted average cost per SKU would provide the most accurate estimate of total industry costs based upon all input received by industry, while a median figure would provide the most common cost per SKU figure provided by industry. If the weight-adjusted and median estimates are extrapolated to a cost per company, estimates would be between $22,820 and $27,746 (including manufacturers and impacted retailers).
Table 1: Cost-benefit analysis, weight-adjusted average
|A. Quantified impacts ($)|
|Base Year||Final Year||Total (PV)||Annual Average|
|Year 1||Year 10|
Indirect cost savings
|— Cardiovascular disease||$3.62M||$3.9M||$37.9M||$3.79M|
|— Malignant neoplasms||$5.86M||$6.47M||$61.3M||$6.13M|
|— Diabetes mellitus||$1.45M||$1.6M||$15.2M||$1.52M|
|— Nutritional deficiency||$0.01M||$0.01M||$0.31M||$3,100|
|— Musculoskeletal disease||$14.0M||$15.3M||$146.3M||$14.6M|
|Total indirect savings||$24.9M||$27.3M||$261.0M||$26.1M|
|Direct cost savings: hospital and pharmaceutical costs||$238.3M||$260.5M||$2.492B||$249.2M|
|Industry — one-time compliance|
|B. Qualitative impacts|
The estimated costs and benefits of the proposed Regulations are shown in Table 1 (above), with a net health benefit of $2.026 billion over a 10-year period. Estimated costs to industry amount to a present value of $727.1 million, while total estimated benefits amount to $2.753 billion. While the costs to industry are high, the anticipated benefits to consumers are nearly four times greater.
With an estimated total of 80 000 prepackaged food products, almost all of which would require changes to their product labels due to the proposed amendments, the costs to industry are anticipated to be significant.
Costing estimates were provided by industry organizations, and relied heavily on the cost-benefit analysis undertaken by the U.S. Food and Drug Administration (U.S. FDA) on their proposed nutrition labelling regulation amendments, as well as case studies from an extensive literature review. Canadian industry groups provided estimates from the following sectors:
- non-alcoholic beverages;
- eggs, poultry and meat processing;
- retail and grocery products that are produced in-house or under a private label;
- importers and exporters of food products;
- baking and milling; and
- large manufacturing corporations of processed foods.
Within the cost estimates, which are presented as costs per SKU ($/SKU), industry stakeholder organizations identified the following two factors as implications on costs due to the proposed amendments:
1. Adjusting serving sizes and nutrient analysis
The proposed amendments require serving sizes to better reflect the amounts typically consumed in a single sitting. An adjustment to the recommended serving size would require industry to complete new analyses of the nutrient content. In some instances these changes could mean that health and content claims made on the front of the package no longer apply. Conversely, these adjustments could also increase the amount of specific nutrients per serving, such as fibre, which would enable claims. Costing figures were not provided for adjustments being made to serving sizes; however, it was assumed that these costs would be included in the cost of label printing and nutrient analysis.
Changes are to be made to the list of core nutrients. The proposed amendments would remove the mandatory inclusion of vitamin A and vitamin C and specify that potassium must now be listed. Prepackaged products would require a new nutrient analysis in order to accurately specify nutrient content in the NFt. Estimated costs to conduct the nutritional analysis were provided by industry. These ranged from $750/SKU to $3,200/SKU; the majority of estimates fell close to $1,700/SKU.
Based on the cost estimates and survey responses provided by Canadian industry, it is assumed that the majority of nutrient content analysis would be carried out through product analysis and not from recipes.
2. Design and printing of new packaging
The reformatting of the NFt is the highest cost faced by industry. In the Regulatory Impact Analysis done by the U.S. FDA, it was determined that, across product categories, the cost of changing product labels ranged from $1,100 to $2,600 (in 2003 U.S. dollars) per SKU. Results provided by Canadian industry were significantly higher and detailed responses were provided to Health Canada as a means of explaining the variability.
In order for new labels to be created, new graphic designs would have to be developed. Costs are most dependent on whether or not the design is being done internally or externally. A number of respondents indicated that a longer coming-into-force period could significantly reduce these costs. Design costs ranged from $700/SKU to $12,000/SKU; the majority of costs were close to $4,000/SKU.
There are multitudes of ways in which a label can be printed. Regardless of which method is used, the creation of a new printing plate is required. Industry did raise some concerns regarding the label size. However, the current regulatory provision stating that the NFt does not have to exceed 15% of the available label display surface would not change and industry would have many different formats to choose from. The estimated costs of the creation of new printing plates ranged from as low as $2,000/SKU to as high as $8,000/SKU; the majority of costs were estimated to be $3,000/SKU.
The physical label cost, as well as the packaging that it must be printed on, was highly variable. Industry estimates ranged from $700/SKU to $10,000/SKU; the higher end of the estimate would represent a label with many colours and unique printing requirements.
Labour costs would be associated with all aspects of the label design and many respondents found this category of questions difficult to answer. As a means of avoiding any risk of double counting, respondents were encouraged to consider their compliance burden. Labour in this instance is assumed to be human capital costs due to the regulatory amendments. Some examples of tasks could be product focus groups to test package usability, coordination with regulatory authorities, or in-house or external staffing required to comply with new regulatory changes, such as updates to the product Web site. These costs ranged from $400/SKU to $2,500/SKU.
It should be noted that this CBA assumes that the calculated labour costs would only include incremental one-time costs to meet the requirements of the proposed amendments. Therefore, it is assumed that no new administrative burden would be placed on industry in regard to reporting and compliance.
The coming-into-force (CIF) period has been identified by the food manufacturing industry as a major determinant of cost.
In consultations with the food manufacturer stakeholder groups, it was noted that a longer CIF period would allow manufacturers to sell existing product stock and exhaust their older labels, thereby reducing product and label waste. Some survey respondents indicated that internal labour costs and the amounts of waste associated with paper stock would be extremely high with an 18-month to three-year CIF period; one respondent indicated that estimated costs to industry could double if the CIF were less than five years.
Cost to consumers
The analysis acknowledges that Canadian consumers may be faced with increased food costs as manufacturers and retailers recover their compliance costs associated with the proposed amendments.
Based on input from industry, calculations were done for three different scenarios: a minor, medium, and major label change. In the majority of instances, industry groups were able to provide a sample of anticipated costs based on estimates of the cost components of a label change (i.e. the ingredient list and NFt). An outline of these costs is provided in Table 3. Each type of label change was calculated by taking the average of each cost component where identified at each label change level (i.e. minor, medium or major).
Table 2: Sample of label costs
|Level of change||Cost of label production (per SKU)||Total|
The majority of cost-per-SKU estimates were close to $8,000; this figure represented the median of all provided estimates during the consultation and survey period. It should be noted that industry was encouraged to provide their highest cost or “worst-case scenario” estimates as a means of facilitating the gathering of comprehensive label cost estimates. It was determined that the best method to account for all costs was to perform an adjusted-weight average calculation, which accounts for all provided cost-per-SKU estimates; this method also allowed for the inclusion of outliers. Using an adjusted-weight cost estimate, it was determined that the average cost-per-SKU would be $9,725 or a total one-time compliance cost of $778 million ($727.1 million present value) for 80 000 SKUs.
Comparison to international jurisdictions
As a means of testing the validity of the estimates provided by Canadian industry, a comparison was performed to the analysis provided by the U.S. FDA and by the European Commission (EC). The cost estimates provided by Canadian industry were higher and not in line with estimates reported by the U.S. FDA and the EC; however, these differences in cost could be based on the removal of added sugar and vitamin D from the NFt requirements. The U.S. FDA reported a one-time cost to industry of $2 billion with a three- year coming-into-force period; when this is adjusted for the Canadian market (i.e. the number of SKU in Canada), the costs are estimated to be approximately $232 million or $2,900/SKU. The EC estimates were close to $1.6 billion (in Canadian dollars), and the figure included a coming-into-force period of three and five years that yielded identical costs. The adjusted EC total cost per SKU in Canada would be approximately $7,000, or $560 million. The U.S. FDA and EC cost estimates would place Canada closer to the minor and medium cost estimates provided by industry in reference to Table 3.
Differences in cost estimates between Canada, the U.S. FDA and the EC illustrate how larger economies of scale can greatly reduce the nutrition label compliance burden on industry. Therefore, any alignment opportunities could help to reduce some of the burden for Canada’s food manufacturing and retail industry (i.e. nutrient analysis that applies to both Canada and the U.S., versus two separate analyses), assuming these products are sold in the same jurisdictions.
The estimated one-time compliance cost to Canadian industry would range from $200,000,000 to $840,000,000. The average cost per SKU, using an adjusted weighted average, would be $9,725, which would lead to a total one-time cost of $778 million, or $727.1 million in present value dollars. This estimated one-time cost would represent 0.8% of the total $88 billion in revenues for the Canadian food manufacturing industry.
A number of industry groups identified reformulation as being a major cost implication. Reformulation occurs when the product ingredients or the amount of certain nutrients are changed in order to comply with regulatory changes, to address public health concerns (e.g. trans fat, sodium and sugar), and to address consumer concerns or for cost-effective purposes. However, while the proposed amendments could instigate a change in the consumer preference of certain foods, the amendments do not require that industry reformulate its products. Companies may choose to reformulate their foods, but this would be a business decision.
Based on figures from the U.S. FDA, adjusted to Canada, the total industry-wide cost for industry to reformulate its products would range from $11.4 million to $106.0 million.
The proposed amendments are based on the assertion that equipping Canadians to compare products more easily and make more informed choices about the foods they consume would improve their overall health. An extensive literature review using peer-reviewed journal sources, academic position papers, government publications and stakeholder consultations yielded few articles that directly linked the use of a nutrition label to measurable outcomes outside of a laboratory setting. Consequently, a number of assumptions were made as a means to address this knowledge gap, while providing clear benefit estimates.
The indicated use of the NFt ranges from approximately 44% to as high as 88%. This estimate is based upon a variety of demographic variables. The majority of studies found in the literature review indicated an NFt and list of ingredients usage rate of between 60% and 75%; these two percentages were used in the benefit calculations of the CBA. The literature indicated a number of common characteristics of individuals who would most likely use an NFt and ingredient list. Individuals who were female, university-educated, with a middle income or greater, the primary food purchaser, the primary food preparer, and a parent/guardian of younger children; people with specific dietary requirements (i.e. related to their health); and people who were aware of the diet-disease relationship were most likely to use on-pack nutrition information. However, a number of studies examined targeted nutrition labelling interventions, and regardless of socio-economic status, disease status or whether targeted education campaigns occurred, all members of Canadian society have an equal opportunity of benefiting from the proposed amendments.
The second assumption is related to what prompts individuals to behave in a manner that is either beneficial or detrimental to their health. The health belief model is a tool used to gauge the compliance of individuals with healthy behaviour and is based upon whether the individual perceives a threat to his or her health and whether this perceived threat is great enough to change behaviour. A series of educational campaigns coordinated by Health Canada relating to the NFt are anticipated to run in parallel with the proposed amendments. It is anticipated that future campaigns would not only educate consumers about using the NFt and ingredient list, but also raise awareness about how their food decisions using the % DV can impact their health. Label use compliance is usually high during the beginning of educational campaigns among label users, then gradually decreases over time. The analysis for this CBA assumes that the NFt compliance rate is 50% for individuals who refer to the NFt and ingredient list and observe the daily recommendations.
The benefit calculation in the CBA assumed that a modest 1% improvement in health outcomes for cardiovascular disease, diabetes mellitus, malignant neoplasms, musculoskeletal disease and nutritional deficiencies would amount to savings in indirect and direct costs based on nutrition label use. Therefore, the benefit calculation in the CBA only accounts for Canadians diagnosed with one of the five chronic diseases most linked to diet. The 1% improvement was applied to the economic burden of illness calculations by the Public Health Agency of Canada. These five diseases account for approximately $26.3 billion in yearly indirect and direct costs; this is described below in Table 3.
Table 3: Cost of nutrition-linked diseases in Canada, 2008 (current dollars)
|Illness||Costs (2008 dollars)|
A sensitivity analysis using reductions in the economic burden of illness was calculated for 0.1%, 0.5%, 1% and 2%; figures are provided in Table 4 below. A 1% improvement in health due to label use would lead to an average annual reduction of $275.3 million in health care costs. Over a 10-year period, it is anticipated that total benefits would amount to $2.753 billion. It was determined that a 1% reduction in health burden for the five chronic diseases would be the most appropriate and conservative measure when calculating the benefits of the proposed regulatory amendments.
Table 4: Estimated benefits using economic burden of illness (EBIC) for 0.1%, 0.5%, 1% and 2% reduction compounded annually(see footnote 1)
|Total over 10 years||$264,330,000||$1,345,779,000||$2,753,161,000||$5,762,902,000|
This assumption was tested for validity using two tests.
Test 1 — Percentage reduction in cost due to label use, by disease
It was found through the literature review that an improved diet could reduce coronary heart disease and stroke mortality by 20%, and cancer and diabetes mortality by at least 30%. A further calculation was made for reductions in morbidity for coronary heart disease and stroke by 10% and cancer and diabetes morbidity by 15%.
A reduction in mortality and morbidity was not provided for nutritional deficiency or musculoskeletal disease. It was assumed that mortality would be least affected by diet while morbidity would be most affected; therefore, 10% mortality and 15% morbidity rates were used in the formula.
Using the figures above, and assuming a label use of 60% and 75%, and a usage rate of 50%, these values were tested against the economic burden of illness calculations by disease group. The tests demonstrated similar results to the estimated 1% reduction in illness for both the 60% and 75% label use that were equivalent to a 0.8% and a 0.9% reduction in health costs.
Test 2 — Estimate welfare gain from label use, Canadian population
This test was adapted from the U.S. FDA and includes the entire Canadian population, not simply the population of Canadians diagnosed with one of the five diseases of focus. This assumption states that the years following the initial regulation of nutrition labels lead to a $0.07 to $0.11 welfare gain per day; this equates to a $25 to 40$ gain annually. Given that the proposed amendments for the revised nutrition labelling are in fact amendments, the full estimate of the welfare gain would most likely not be realized to the full extent. The revised calculation would reduce the benefits by 50%, with the underlying assumption being that the proposed amendments would augment existing welfare gains through improved product disclosure. The standard label use figures of 60% and 75% were applied to account for Canadians who would read the label. This test multiplies the anticipated welfare gain by the Canadian population, and then makes adjustments for label use and compliance. The results were similar to the initial 1% reduction in the economic burden of illness estimate used as the principal benefit calculation.
A detailed summary of each test and the corresponding data are available in the CBA (the full CBA is available upon request).
Over a 10-year period, it is anticipated that total benefits would amount to $2.753 billion in direct and indirect cost savings to the health system and, by further extension, to the Canadian economy.
The proposed amendments would modify the existing Regulations under the FDA. While it is anticipated that there will be changes to labelling and a one-time nutrient analysis of products, these changes would ordinarily occur over the product life cycle. Industry stakeholders have identified this cycle as being as low as six months to upwards of five years. A majority of those affected in the industry would have opportunities to change their label within the natural product life cycle due to the longer CIF of five years.
It has been determined that the “One-for-One” Rule does not apply, as the proposed amendments would not impose a new administrative burden on business.
Small business lens
The small business lens applies to regulatory proposals that affect small business and that would impose a nationwide cost over $1 million annually. The Treasury Board Secretariat defines a small business as any business, including its affiliates, that have fewer than 100 employees or between $30,000 and $5 million in annual gross revenues.
There are approximately 26 205 small enterprises in Canada that could be affected by the proposed amendments, representing close to 96% of all food manufacturers and retailers in Canada: 23% are food manufacturers (including retail and commercial bakeries); 2% are soft-drink manufacturers; 29% are food and beverage wholesaler-distributors; and 46% are retail stores. Due to the often restricted access to capital that small businesses have, three provisions have been specifically designed to lessen the impact on small businesses.
|NAICS(see reference *)||Industry Sector||Small||All Enterprises||% Micro and Small|
|311||Food manufacturing||6 086||6 422||94.7%|
|312||Beverage and tobacco product manufacturing||295||305||96.7%|
|413||Food, beverage and tobacco wholesaler-distributor||7 631||7 714||98.9%|
|445||Food and beverage stores||12 181||12 702||95.9%|
|452||General merchandise store||12||13||92.3%|
- Reference *
North American Industry Classification System
1. Coming into force
In consultations with industry, a longer coming-into-force (CIF) period was identified as having the largest impact on reducing label costs. Due to the longer product turnover and the longer life cycle of labels produced by the majority of small businesses, a CIF of five years has been proposed. A five-year CIF period would allow small businesses to use up existing label stocks, plan and gather capital for the label change, and allow them to use in-house resources rather than have to hire external people to design new labels if necessary. Many industry groups highlighted the latter as a large financial burden, although they did not quantify the exact burden.
2. Exemption for micro firms processing and selling
Products that are sold by the same person(s) that produced them and are sold at places such as farmers’ markets, craft shows, roadside stands, sugar bushes, and flea markets are currently exempt from the Regulations. While it is difficult to identify precisely the number of such firms operating in any given year, as these enterprises tend to come in and out of operation, it is possible to estimate the size of the exemption using the proxy of farmers’ markets. There are 508 identified farmers’ markets in Canada, according to a national study conducted in 2009. (see footnote 2) The average market has 25 vendors, and each vendor in turn averages 1–5 employees. Total annual sales from vendors at these markets are estimated to be $1.03 billion. The proposed amendments would maintain this exemption for these 12 700 firms.
3. Exemption for retail from using bullets in the list of ingredients
In order to improve the legibility of the list of ingredients, the proposed amendments would require the use of a bulleted list of ingredients instead of commas, as is the current practice to separate ingredients. Businesses that use retail or scale labels, particularly small businesses, indicated this would create a substantial cost as the existing machines are incapable of printing a bulleted list of ingredients.
Retail and grocery stores in general indicated that the cost of replacement for each store could reach well over $10,000. The cost of even a simple retail scale that produces labels would be in excess of $2,000. It would be safe to assume a cost of $5,000 per retail store to replace the existing scales, imposing a cost of over $60 million on the 12 193 retail stores that may produce products that would fall under the proposed amendments.
It is proposed, therefore, that grocery retailers be exempt from the proposed requirement to use bullets.
|Initial Option||Chosen Option|
|Coming into force||3-Year CIF||5-Year CIF|
|Number of firms||26 205||26 205|
|Annualized average||Present value||Annualized average||Present value|
|Farmers’ market exemption||Remove Exemption||Maintain Exemption|
|Number of firms||12 700||12 700|
|Annualized average||Present value||Annualized average||Present value|
|Ingredient list format||Bulleted Ingredients||Allow Commas|
|Number of firms||12 193||12 193|
|Annualized average||Present value||Annualized average||Present value|
|Total costs of all options||$155,466,000||$1,452,953,271||$74,688,000||$698,018,692|
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