When are Voluntary Labels Preferred to Mandatory Labels?

In a previous post, I argued that one of the key factors determining the ultimate effects of Prop 37 in California will be how retailers respond.  Will they choose to label all products "may contain GE ingredients" or will they switch to non-GE and not label?

Pro-Prop 37 folks argue that companies will simply add a label and the thus the costs of Prop 37 will be trivial (the costs mainly being the addition of a few words on a package)​.  Some economists argue the opposite, and suggest that the ultimate costs of Prop 37 will be very large because food prices will drastically increase due to retailers and processors switching to non-GE ingredients.  

I recently exchanged emails with the author of the above mentioned report​ arguing labeling costs will be trivial.  I asked why they thought firms will simply add "may contain GE" labels.  The answer, in short, was that we shouldn't expect the costlier European outcome (i.e., all products are non-GE and there are no labels) because Americans are less concerned about biotechnology than Europeans.  

I happen to agree with this assessment.  But, I thought it was a curious response coming from a proponent of mandatory labeling.  The economic research suggests that when demand for for non-GE products (as expressed by market behavior)  is relatively low (as it seems is the case in the US given the size of the organic and non-GE market) voluntary labels are preferred to the mandatory labels that would be required by Prop 37.  

Here is a summary of the economic research on the topic in a book chapter​ by Marks, Kalaitzandonakes, and Vickner (2004; pg., 36):

Protecting consumer’s ‘right to know’ and the ‘right to choose’ is advanced as the main reason for the current European policy stance.  In principle, there can be little objection to the argument that consumers should be able to exercise such rights.  Market transparency is the linchpin of well-functioning markets.  However, mandatory labeling is not the only option that would allow consumers a choice.  Indeed, given that mandatory labeling systems are costly to implement (Kalaitzandonakes et al., 2001) costs and benefits with such labeling regimes must be carefully weighted in order to decide their optimality (Giannakas and Fulton, 2002).  In this context, the proportion of consumers that would effectively discriminate between GM and conventional foods in the market place is a key parameter (Giannakas and Fulton, 2002).  Indeed, Caswell (1988, 2000) and Giannakas and Fulton (2002) have argued that a volunatary labeling programme may better serve a country where only a minority of the population is interested in separating GM from non-GM foods.

Whose Afraid of GMOs?

We humans are notoriously bad at judging relative risks.  We worry about some things that are very unlikely to happen (e.g., getting bit by a shark while visiting the beach), while ignoring other activities that are much riskier (e.g., driving to the beach).     ​

​This economic meme by Art Carden humorously points out such an inconsistency in the way we think about many food risks

Are GMOs Safe to Eat?

The New York Times ran a story yesterday, highlighting the findings of a paper coming out in the journal Food and Chemical Toxicology.  The study reports that rats fed genetically modified corn developed more tumors and died more quickly than rats not fed genetically modified corn.  

The study will no doubt ignite a firestorm on par with the Monarch butterfly scandal a decade ago (in that episode, Cornell researchers originally reported butterflies being killed by crops containing the Bt gene but later studies published in the Proceedings of the National Academies of Science concluded the effects were negligible).  

In many ways, I applaud the efforts of the French scientists conducting the research.  This is how science is done.  Publish a result.  Be upfront and honest with the methods.  Others will see if they can replicate.  ​

That said, an reasonable person must interpret these new results in light of the existing knowledge on the science of eating GM foods.  The new study did to appear in a vacuum, and there are a large​ number of similar studies finding no such effects from eating GM food.  Given this large baseline of previous research, we can't expect the present study have much influence on our prior beliefs.  This is especially true in light of the fact that the statistical analysis used by at least some of these  authors has been questioned before by none other than the European Food Safety Authority.  And that the supposed causal mechanism between the effects the authors report and the genes involved in conveying resistance to herbicide seems, to me, highly speculative at best. 

I am not on expert on rat feeding trials.  But, the first thing that stood out to me about this study was the very small sample size.  For each gender, there are only 10 rats per treatment group.  It would be difficult, if not impossible, to publish an experimental paper in an ​economics journal with such a small sample size.  Why?  Because with such a small sample you can never really be sure whether the outcomes observed are simply due to chance.  

Using a standard sample size calculation, we can find that with a sample of 10 individuals, the margin of error on a dichotomous variable (like whether a tumor is present or not) is over 30%.  That means, assuming that that the researchers found 50% of rats had a tumor, that if we repeated the study over and over and over, that 95% of the time we'd find expect to find tumor rates between 20% and 70%.  In other words, we cannot have much confidence that the effect the authors observe is "really there" or simply due to chance.  

Do Consumers Really Want GMO Labeling?

Mark Bittman on his NYT blog claims:​

IT’S not an exaggeration to say that almost everyone wants to see the labeling of genetically engineered materials contained in their food products.

and​

Nationally, on the broader issue of labeling, in answer to the question of whether the Food and Drug Administration should require that “foods which have been genetically engineered or containing genetically engineered ingredients be labeled to indicate that,” a whopping 91 percent of voters say yes and 5 percent say no.  

I agree that's what people will tell you in surveys.​  But, as Bryan Caplan has recently put it:

When lies sound better than truth, people tend to lie.

I don't think most people purposefully lie on surveys.  Rather, they often don't think about the consequences of the things they're saying.  In these cases, the "socially acceptable" answer is the easy one to give.  I've literally written dozens of journal articles showing that people will say one thing in a survey and do something entirely different when shopping.

When we look at what people actually buy in the grocery store, the data reveals that they don't buy a lot of organic or non-GMO products.  Why?  Because they're a lot more expensive.  ​

So, the question isn't whether surveyed people tell you that they are in favor of labeling GMOs.  They real question is what they are willing to pay to get it when they have to put their money where their mouth is.

Addendum: Tyler Cowen's response to Bittman's post is right on the money.​

Some Good Sense on GMO Labeling

This from Balylen Linnekin at Reason.com:

So I’d like to see Prop 37 fail. But I’d also like to see Prop 37 opponents support serious reform at the federal level by urging the FDA to reconsider its opposition to voluntary labeling that would permit non-GMO producers and sellers to openly tout their products as such. From a First Amendment perspective, the right to speak is, after all, on par with the right not to speak—which is largely what Monsanto and other Prop 37 opponents are fighting for here.

I’d also like to see more non-GMO food producers opt out of the USDA’s largely meaningless "organic" labeling certification regime and instead consider private certification, an increasingly attractive alternative to FDA labeling policy in general and (potentially) California law.

By respecting the rights of those with whom they disagree, both opponents and supporters of GMOs can find common ground and protect their own rights to eat what and how they please.​