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- 10.1 Option 1 – Current approach – the status quo
- 10.2 Option 2 – Mandatory folic acid fortification of bread products
- 11.2 Cost-benefit analysis of regulatory options
- Table 7: Projected number of neural tube defect incident cases prevented per year
- Table 8: Summary of benefits of mandatory fortification for Australia and New Zealand
- 11.2.3 The costs
- Table 9: Summary of costs of mandatory fortification
- Table 10: Net benefits live NTD births
- Table 11: Net benefits all NTDs
- 11.2.5 Key findings
10. Regulatory optionsSelection of bread as the food vehicle chosen for fortification is on the basis of its ability to effectively deliver and sustain an increase in the folic acid intake of the target population. Consequently at Final Assessment the following two options have been identified. 10.1 Option 1 – Current approach – the status quoMaintenance of the status quo would see the continuation of the existing permissions for the voluntary addition of folic acid to certain foods as well as the continuation of the folate-NTD health claim. In recent years there has been limited uptake of voluntary permissions across food categories, with the exception of breakfast cereals. Currently, there are very few products using a folate-NTD health claim. Australia and New Zealand have health promotion and education strategies in place to promote the use of folic acid supplements and increase folate intakes in women of childbearing age. These strategies would be expected to continue under the status quo. 10.2 Option 2 – Mandatory folic acid fortification of bread productsThis Option requires all bread45 to be fortified between 80-180 µg (on average 135 µg) of folic acid per 100 g of bread, a concentration that will reduce the rate of NTDs in Australia and New Zealand. Industry will be able to choose how to comply with this requirement. The options for industry include: (a) adding folic acid to flour used in bread-making; or (b) adding folic acid at a later stage of bread production, such as to the pre-mix, via improvers or to a vitamin pre-mix. Australia and New Zealand have health promotion and education strategies in place to promote the use of folic acid supplements and increase folate intakes in women of child-bearing age. These strategies would be expected to continue under this Option. Under a mandatory fortification option, monitoring is necessary and would be an important part of the implementation of the proposed Standard. FSANZ believes that it is important to undertake an assessment of the incidence of NTDs in both Australia and New Zealand at the commencement of this Standard to provide a benchmark for future monitoring as well as other features bearing on the success of the Standard after gazettal. In addition, monitoring for the uncertainties is an important risk management aspect of this Option. Monitoring is discussed in more detail later in this Report. (see Section 18.1). The responsibility for establishing and funding a monitoring system to assess the impact of mandatory fortification on the population extends beyond FSANZ’s responsibilities under the FSANZ Act and will require the concomitant involvement of health and regulatory agencies at the Commonwealth, State and Territory level in Australia and the New Zealand Government. 11. Impact Analysis11.1 Affected partiesThe parties most likely to be affected by this Proposal are: 11.1.1 Industry
11.1.2 Consumers
11.1.3 Government
11.2 Cost-benefit analysis of regulatory optionsFSANZ commissioned Access Economics in March 2006 to investigate the benefits and costs of fortifying bread-making flour in Australia and New Zealand with folic acid. A further cost analysis undertaken by Access Economics in August 2006, looked at the cost differences between the original proposal of fortifying bread-making flour, and allowing the fortification of bread during later stages of the production process. A number of countries (for example, the United States and Canada) have adopted mandatory fortification but few cost-benefit analyses have been undertaken. However, an analysis of fortification with folic acid of enriched cereal products in the United States suggested that such a policy is associated with net benefits (Grosse et al., 2005, see Attachment 11). This is consistent with the results of the first Access Economics study. The following information is based on the two Cost-Benefit Analyses prepared by Access Economics, which are provided in full at Attachments 11a and 11b. 11.2.1 MethodologyThe analysis of benefits focused on the costs avoided as a result of new cases of NTDs per year that could be prevented in future. The costs avoided through a fall in the occurrence of NTDs include pain and suffering from disability and premature mortality, total outlays on health care and personal care, productivity losses, and efficiency losses that arise from lower taxation revenues and higher welfare payments. The costs of mandatory fortification include the costs to government of administering, enforcing mandatory fortification and the costs to industry of fortifying their product. The costs to consumers of reduced choice have been identified in-principle but were not able to be quantified. The costs also include monitoring mandatory fortification, which were not included in the original Cost-Benefit Analysis have been included in the second analysis prepared by Access Economics. 11.2.2 The benefitsThe benefits of the Proposal follow from fortification of folic acid in the final bread product. In the previous report a suitable concentration of folic acid in the final bread could be delivered by fortifying bread-making flour. In this report the option has been broadened to allow choice of how to fortify bread products with folic acid; industry may choose bread-making flour as the vehicle or industry may choose to add folic acid in later stages of the bread making process. In each case the concentration in the final bread will be the same at an average of 135µg of folic acid per 100 grams of bread. Hence benefits of the Proposal remain as described in the previous report. New cases of NTDs prevented through mandatory fortification were estimated by FSANZ (see Section 7.1). Three scenarios were modelled: lower estimates of NTDs prevented, mean estimates and upper estimates of NTDs prevented. The projected mean number of incident cases prevented per year is presented in Table 7 below. Benefits were calculated based on two scenarios:
Table 7: Projected number of neural tube defect incident cases prevented per year
Source: FSANZ modelling The benefits for Australia and New Zealand include:
The benefits of avoiding disability and premature death (net burden of disease) form the largest component of the benefits of mandatory fortification, followed by productivity losses. Table 8: Summary of benefits of mandatory fortification for Australia and New Zealand
11.2.3 The costsAs a result of mandatory fortification, consumers will face reduced choice and potentially a slight increase in the price of bread. This increase is likely to be small, perhaps up to 2% per loaf. The price increase would occur because under mandatory regulatory measures all affected businesses typically pass on all or most costs that are incurred at some stage. The cost of reduced choice was not able to be quantified. The costs to industry of mandatory fortification of all bread with folic acid are different under the two alternative methods for adding folic acid considered by Access Economics. These methods are adding folic acid to bread-making flour, and adding it during a later stage of bread production. Table 9 below sets out the costs under each alternative for industry and government in both Australia and New Zealand. In the first year, industry in both Australia and New Zealand would incur costs associated with both changing labelling and packaging as well as costs related to the purchase of folic acid, preparation of premix, the per annum costs associated with additional machinery and equipment, analytical testing, flushing out mills, storage and administration. Industry advised very high costs of writing off existing stocks of labels, even with a twelve month transition period, that have been included in this analysis. FSANZ has estimated the cost of equipment purchases under the fortification of flour option to be A$264,000. For the purposes of this calculation it was assumed that a folic acid feeder would be purchased by each of the eight largest Australian millers at a cost of A$33,000 per feeder. This was based on independent United States figures. The cost for the bread production fortification option, was estimated by Access Economics on the basis of information by New Zealand industry, at NZ$1,202,000. We have assumed a cost of equipment in New Zealand under the fortification of bread option, using this same independent United States data, of NZ$80,000. An estimate has then also been included to cost the fact that other smaller producers may purchase equipment at lower cost. The upfront equipment cost for fortification of flour in New Zealand was calculated by Access Economics as NZ$1,470,000. The once off (first year) costs of changes to labelling pre-packaged products are likely to affect a large number of product lines because labelling standards require that the ingredients of a compound (such as bread-making flour) be declared if the amount of the compound ingredient in the final food is 5 per cent or more by weight. The cost in the first year for industry under the fortification of bread flour option, is estimated at A$6,586,400 for Australia and NZ$2,385,620 for New Zealand. The upfront costs under the fortification of bread during the production stage, are less, at A$5,738,400 and NZ$996,063 for Australia and New Zealand respectively. The upfront government costs, which include administration, enforcement and monitoring, are the same whether folic acid is added to flour or during bread production. The costs are estimated at A$1,273,000 for Australia and NZ$60,920 for New Zealand. The ongoing costs for industry include the cost of maintenance of equipment, folic acid and premix, analytical testing to ensure compliance, administration and cleaning of mill. The cost figures for fortifying flour compared with fortifying bread during production vary considerably in some cases. Under the fortification of bread-making flour option the total ongoing industry costs per year for Australia are A$1,058,592, compared to A$24,486,067 for the fortification of bread option. In New Zealand these costs are NZ$2,377,738 for fortifying bread-making flour and NZ$4,149,593 for fortifying during bread production. Access Economics took a conservative approach to calculating industry costs by accepting information provided by industry. These costs may be at the high end of a plausible range. FSANZ considers that the actual costs incurred by industry may be somewhat lower then the cost estimates in Table 9. Access Economics’ estimates for the annual costs of government administration and enforcement of mandatory fortification in both Australia and New Zealand include the costs of awareness raising and training, compliance auditing, administration and enforcement (dealing with complaints). These ongoing, annual costs for government are assumed to be the same whether fortification occurs at in bread-making flour, or during the production of bread. Ongoing administration and enforcement costs for Australia are A$2,210,000 and NZ$88,500 for New Zealand. Monitoring costs have been listed separately and are higher for the second year following introduction of the mandatory fortification proposal. These costs are A$455,000 for Australia in the second year and NZ$485,000 for New Zealand. For all years after the second year, monitoring costs are A$355,000 for Australia and NZ$378,000 for New Zealand. Table 9: Summary of costs of mandatory fortification
* - This cost is included in the premix cost figures. na – figures are not available. While there is a slight difference in timing between realisation of the benefits and outlays associated with costs of machinery and labelling which has not been taken into account in the modelling, this is unlikely to make a material difference to the results. 11.2.4 Net benefitsTable 10 summarises the net benefits of mandatory fortification of bread-making flour with folic acid in Australia and New Zealand for live NTD births (excluding the benefits associated with prevention of NTD terminations and still births). Table 10: Net benefits live NTD births
Table 11 summarises the net benefits of mandatory fortification of bread-making flour with folic acid in Australia and New Zealand for all NTDs (including terminations and still births). In all cases, the benefits outweigh the costs. Table 11: Net benefits all NTDs
11.2.5 Key findingsMandatory fortification of bread products with folic acid delivers benefits that definitively exceed the costs. Considering all NTDs that are avoided by mandatory fortification, substantial net-benefits are achieved in Australia and New Zealand whether fortification occurs through the bread-making flour or at a later stage of bread production. Considering only the live born NTDs that are avoided, net-benefits are achieved in New Zealand and for fortification of flour in Australia. However net-costs would occur in the case where folic acid is added to the later stages of bread production in Australia. In this case Australian industry can choose the least cost option of fortifying bread-making flour. The specific key findings from the impact analysis are:
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