Are Organic and Non-GMO Labels Substitutes or Complements?

For the first time today, I saw the following label on a packaged food.

In a way, the label seems a little odd.  An organic seal on a product should already convey to consumers that the ingredients came from a process that excluded GMOs.  However, the very presence of the label suggests many consumers may not be aware of this fact.  

I have a paper with Brandon McFadden forthcoming in journal Applied Economic Perspectives and Policy (sorry, I don't yet have a link to the paper on the AEPP's website; I'll pass it along when I get the link and discuss the whole paper in more detail).  In the paper we delve into this issue and others.  Here's part of the motivation.  

“It appears that organic organizations are concerned that consumers perceive non-GM and organic labels to be substitutes. Although many organic food companies supported the general idea of mandatory labeling, now that the policy has passed, organic producers have expressed concern that non-GM verification may be perceived as a substitute for the more expensive and encompassing organic certification. For examples, California Certified Organic Farmers (CCOF) initiated a campaign “Organic is Non-GMO and More” to highlight the differences in the two claims, and the Organic Trade Association (OTA) emphasizes, “Organic = Non-GMO…and so much more!!” Despite these concerns, little is known about the extent to which the two most common non-GM labels, USDA Organic and Non-GMO Project, are demand substitutes or complements. Whether the labels are demand substitutes or complements can be determined, in our context, by investigating whether WTP [willingness-to-pay] is supra- or sub-additive when the labels are combined. If the premium for displaying both labels is less than the sum of individual premiums for each label, then the two labels must be providing some of the same underlying characteristics of value to the consumer and implies the two labels are substitutes. By contrast, if the premium for displaying both labels is greater than the sum of individual premiums, then the two labels are complements and provide more value when provided together. ”

We ultimately find that products with the organic seal and products with the non-GMO verified seal are indeed demand substitutes.  Here's one paragraph related to those results:

“For apples, the results revealed large and statistically significant substitution effects for Non-GMO and USDA Organic labels. In fact, results indicated that the two are almost perfect substitutes as WTP [willingness-to-pay] premiums for apples with both Non-GMO and USDA Organic labels roughly the same as WTP premiums for apples that display only one label. This result is made obvious by the third column of results. The WTP premium for apples with the Non-GMO label only (vs text label) is $0.446, the WTP premium for apples with the organic label only (vs text label) was $0.474, and the WTP premium for apples with both Non-GMO and USDA Organic labels was $0.446+$0.447-$0.461=$0.432, which is actually lower than when either label is present in isolation. ”

Because it is more costly to be organic than non-GMO (since the latter is a subset of the former), it is easy to see why many food companies would want to add the additional label that "Organic is non-GMO and more".

Food Spending by Age and Household Size

I received several emails and comments about my post a couple days ago on food spending by households with different incomes.  For example, over on twitter Adam Ozimek asked:

Can you do this by age of householder too? And how about by income or age stratified by # kids?

— Modeled Behavior (@ModeledBehavior) September 21, 2017

I'm happy to help provide additional information.  Here is total food spending by age and income.

As the figure shows, low income households all spend about the same on food regardless of age.  People aged 65-74 years tend to spend the least on food regardless of income until the highest income categories at which point the oldest respondents spend the least on food.  Households between the ages of 25 and 44 years tend to spend the most on food (holding constant factors such as household size, etc.)

How much of this food spending is away from home?  Here is how households allocate their food budget between away from home vs. at home by age and income.

Regardless of age, households with higher incomes tend to spend more of their food budget eating out than lower income households.  However, the youngest consumers tend to spend much more of their budget away from home than older consumers.  At the lowest income category, for example, people age 18-24 spend 38% of their food budget way from home whereas people age 65-74 only spend 25% of their food budget away from home. All high income households (above $160,000) allocate more than 40% of their food budget to away from home spending - the highest is by 25-34 year olds who spend 46% of their food budget away from home.  

What about household size?  It's fairly well known that there are economies of scale in household food spending (i.e., two people can eat more cheaply than one on a per-person basis).  For example, the SNAP (or food stamp) program provides up to $194/month for a one person household.  If every person was expected to spend the same, then one should give $194*2=$388 for a two person household.  But, that's not what the SNAP program does.  They only give up to $357/month for a two person household.  The program administrators didn't just decide this willy-nilly, but rather they observed in spending data (like the kind I'm using here) that spending doesn't increase 1:1 for each additional person in the household.  

In my data, for example, the estimated spending on food at home for a household of size one is $73.60/week, but the spending at home for a household of size two is far less than double ($73.60*2=$147.20) and is only $92.12/week.  The figure below shows spending on food at home and away from home for households with 1, 2, 3, and 4 members holding constant income, age, education, etc. Spending on food away from home is essentially flat.  Does that mean a four person household can eat out for the same as a two person person household?  Not necessarily.  It may mean that 4 person households are eating at McDonald's while 2 person household are eating at something a little higher end.   

Published papers

In a testament to the slowness of academic publishing in economics, I noticed two co-authored papers were just released that we've been working and waiting on quite literally for years.  

1) The Economic Journal finally released a paper I wrote with Laurent Muller, Anne Lacroix, and  Bernard Ruffieux.  I blogged on this paper about a year and a half ago when it was first accepted. In short, we find that "fat taxes" and "thin subsidies" are a double whammy on the poor because the price policies lead to i): the poor paying higher taxes owing to the fact they tend to eat more unhealthy foods than the rich, and ii) the poor receiving fewer subsidies owing to the fact they tend to eat fewer healthy foods than the rich.  These effects were exacerbated by the finding in that the poor tended to be more habit prone than the rich, sticking more to their now relatively more expensive diets. These findings have direct implications for the food movement policy proposals I discussed last week.   

2)  In early 2010, I was working with a bright young Master's student named Rock Andre.  Rock happened to be from Haiti, and when the earthquake hit his homeland, he decided to shift his research focus.  He returned home in the aftermath of the earthquake and surveyed over 1,000 people.  Development Policy Review just published that research.  Here's part of the abstract:   

“The results indicate that almost two thirds of Haitians lost a friend to the earthquake, and nearly half lost a family member. People reported spending more on food in the aftermath of the earthquake, and the level of food aid received does not appear to have any impact on food expenditures. Among different types of aid, Haitians stated being most in need of a job—something difficult for international aid agencies to supply over the long run. They also indicated that quality of life would be most improved by education. The lessons learned in Haiti may prove useful in addressing future natural disasters.”

National Academies Town Hall

Last week I gave a short talk at a Town Hall held at the National Academy of Science Building in Washington, D.C. in relation to the Science Breakthroughs 2030 project aimed at identifying strategies for food and agricultural research.  

You can see all the presentations here.  Or, if you just want to see my comments and provocations entitled "Importance of Understanding Behavioral Responses to Food and Health Policies", the video is embedded below.

Food Waste Research

Back in 2013, I wrote this post decrying the lack of good research on the economics of food waste.  It wasn't that no research was being done on the issue, only that a lot of the research that had been published at that time is what I'd call food waste accounting, which didn't didn't rely much on the economic way of thinking.

I'm pleased to now see a nice stream of economic research on the subject.  I've blogged on several of these papers before, but now many are starting to appear in print at peer reviewed journals.  Here'a a hopefully handy list of references.

• "On the Measurement of Food Waste" by Marc Bellemare,  Metin Çakir,  Hikaru Peterson, Lindsey Novak, and Jeta Rudi, forthcoming the American  Journal of Agricultural Economics (This is an important - and likely to be influential - paper that is critical of previous attempts to measure the economic costs of waste and suggests better ways forward).
• "A Note on Modelling Household Food Waste Behavior"  by Brenna Ellison and me, published in Applied Economics Letters in 2017 (This is a short note showing what is probably obvious to every economist but perhaps not to others: that the optimal amount of waste isn't zero and it depends on various economic variables like food prices and income).
• "Food waste: The role of date labels, package size, and product category" by Norbert Wilson, Brad Rickard, Rachel Saputob,  and Shuay-Tsyr Hob, published in Food Quality and Preference in 2017 (The authors crafted a clever experimental approach to measure waste in a lab setting and looked at how how measured wasted varied with across date labels, among other factors).
• "Social-Optimal Household Food Waste: Taxes and Government Incentives" by Bhagyashree Katare,  Dmytro Serebrennikov,  Holly Wang,  and Michael Wetzstein published in the American Journal of Agricultural Economics in 2017 (This paper presents a more developed model than in the Ellison and Lusk paper mentioned above including factors like externalities; they  likewise situate food waste in the context of optimal consumer decision making, considering the effects of various policies on the social well-being).
• "Examining Household Food Waste Decisions: A Vignette Approach", a working paper by Brenna Ellison and me (This paper uses vignettes to study how food waste behaviors vary with various economic variables and consumer demographics).
• "Foodservice Composting Crowds out Consumer Food Waste Reduction Behavior in a Dining Experiment", a working paper by Danyi Qi and Brian Roe (This paper also constructs an economic model of food waste behavior and studies how consumers' waste behaviors respond to information about whether waste is composed).
• "Food loss and waste in Sub-Saharan Africa: A critical review", by Megan Sheahana and Chris Barrett published in Food Policy in 2017 (This is a helpful review paper that discusses the economics of food waste in a developing-country context; the focus is much broader than just considering household food waste, which is the focus of many of the above papers). 

There are no doubt other papers out there on the subject.  Let me know what I've missed.