Big food is trying to become big pharma

FORTUNE -- Nestle, the maker of Hot Pockets and Haagen Dazs, says they are concerned about the health of their customers. So the world's largest food company has created two new entities: Nestle Health Science S.A. and the Nestle Institute of Health Science. They will concern themselves with finding "cost effective ways to prevent and treat acute and chronic diseases in the 21st century," the company announced last month.

In the United States, the Food and Drug Administration is increasingly cracking down on food companies that make unsupported or weakly supported health claims, or that market their foods as drugs. The European Union isn't much different. But Nestle, like many other food companies, is forging ahead.

In its announcement, Nestle said it is targeting "a new opportunity between food and pharma" and that it would develop foods designed to "prevent and treat health conditions such as diabetes, obesity, cardiovascular disease and Alzeimer's disease." The company is leaving little room for interpretation here: It means to peddle processed food products as medicine.

That's not always a bad thing, but it usually is. Even on those rare occasions when food is legitimately marketed as a medicine, it happens in a context of confusion, where hundreds of food products are advertised as curing or preventing disease -- or as just being "healthy" - with little or no scientific evidence to back up the claims.

Witness POM Wonderful, the pomegranate juice marketed by the billionaire couple that also sells Fiji Water. The Federal Trade Commission last month filed a lawsuit against the company alleging deceptive advertising. POM explicitly claims that its juice will treat or prevent heart disease, prostate cancer, and even erectile dysfunction, among other maladies.

The company defends itself in part on free speech grounds. But no court will likely take that seriously as a defense. More troubling--and more indicative the overall problem with such health claims is POM's desire to have it both ways. It wants to market its food as medicine, but it doesn't want to actually call it medicine. So it makes specific, scientific claims like: "New research offers further proof of the health-healthy benefits of POM Wonderful juice." And: "POM leads to "a 30 percent decrease in arterial plaque." Ads promise that POM would help consumers "cheat death," by drinking "health in a bottle."

But when the FTC said such claims were "false and unsubstantiated," POM's president, Matt Tupper retorted that POM "...is a food, after all, not a drug." And he actually disclaims the claims. Despite the fact that the company explicitly stated in its ads that there is "proof" that POM yields very specific medical outcomes, Tupper wrote to the Boston Globe: "We do not claim that POM cures, prevents, or treats disease. Rather, we transparently share the results of published scientific research, and at the same time we make very clear that these studies, while promising, are also preliminary." So, "cheat death." Preliminarily.

POM goes further than most food companies do-but not much further. Nestle, Kraft, PepsiCo, Coca-Cola, Kellogg, General Mills and others have taken advantage, to one degree or another, of the confusing legal and regulatory framework that allows food to be marketed as medicine, or at least to be sold based on dubious health claims. The way things stand, food marketers have a wide berth unless and until the FTC or the Food and Drug Administration decide to go after them.

That's starting to happen. Under the Obama administration, the FDA has substantially stepped up this kind of enforcement. But in the absence of clear and unambiguous federal laws, regulations, and enforcement policies such efforts represent a piecemeal approach that doesn't address the overall problem.

Still, companies like Nestle are taking a risk in banking on the increasing popularity of "functional foods" trumping the increasing government censure of unsubstantiated claims.

You can't really blame them for forging ahead. PricewaterhouseCoopers estimated in a report last year that "functional foods" -- a category that includes Power Bars, Gatorade, and Slim-Fast -- is a $27 billion market and that it's growing at a clip of up to 4 percent a year. The category could ultimately make up a fifth of the entire food market, the consultancy estimated. For now, about 5 percent of all foods sold are "functional" foods, according to the report.

Of course, that doesn't include the most functional foods of all - fresh fruits and vegetables, which legitimate nutritionists universally agree are the healthiest foods to eat. But fresh produce normally doesn't come with labels across which to emblazon health claims, mainly because the profit margins for them are so slight that producers have little money for marketing. After all, when was the last time anyone besides your mother tried to convince you to eat an apple?