How Will Food Companies Respond to Prop 37?

Three recent economic analyses have been released on the potential effects of Prop 37 in California, which would require mandatory labeling of genetically modified foods if passed in November.

Two analyses are by different groups of economists at UC Davis (Alston and Sumner and Carter et al.) and another by a consulting firm.  Each suggest potentially high costs and less consumer choice - exactly the opposite of that predicted by proponents of Prop 37.

The prediction (that Prop 37 will lead to high prices and less choice,) is based on a key assumption made by the analysts.  The assumption is that processors and retailers in California will not actually label foods and will instead substitute toward non-genetically modified ingredients.  The assumption is stated explicitly in the report by the consulting firm:

Based on experience in other parts of the world, review of the literature, and discussions with academic and business experts, we believe the most likely means of compliance for food companies is to substitute other ingredients for GE ingredients in their products. This means that companies would change the way in which they source ingredients or manufacture their products in order to avoid labeling their products with a vague and potentially frightening warning that conveys little meaningful information. 

Thus, most of the cost increase predicted in the studies is projected to come about from retailers and manufacturers choosing to use more expensive ingredients to avoid the label.

Is this what retailers will actually do?  Here are the reasons I’m not so sure:

• Many of the biggest donors supporting Prop 37 are organic and natural food companies.  To fork over millions of dollars in donations supporting the proposition must mean they believe it will help their bottom line, which will only happen if food firms actually label their products as containing genetically modified ingredients.

• Prop 37 would imposes zero-tolerance for accidental presence of biotech in food.  No country in the world (even Europe) imposes a zero-tolerance limit for their mandatory labels of genetically modified food.  Achieving zero-tolerance is practically impossible and extraordinarily costly. Food firms facing the chance of costly lawsuits may very well simply decide to label.

• Part of the reason there are virtually no GMO-labeled products in Europe (even though they are allowed) is because of competition between food companies.  It is a type of prisoner’s dilemma problem.  Even though all firms could make more money using GM ingredients, they choose to avoid GM because they know they’ll lose relative market share to competitors who don’t label.  Thus, they all avoid GM and no one labels.  The situation in California is different because, as mentioned above, the costs of falsely labeling will be much higher due to the zero-tolerance rule.  Moreover, consumer demand for the absence of GMOs in food is lower in California than in Europe, as my research shows.  This means the incentives for the sort of prisoner’s dilemma outcome are lower.  None of this is to mention the differences in markets structure of US and European in food retailing (the use of private labels in Europe is much higher and the retailers there exert much more influence on the entire marketing chain).

I do not think the arguments in favor Prop 37 are particularly strong, but I’m not entirely sure that the assumptions used  to project the costs of Prop 37 will ultimately match what happens if it passes.

Add​endum:  In the post above, I mention a study by Carter et al. in a way that inadvertently implied they argued that passage of Prop 37 would lead to firms avoiding the label by switching to non-GM or organic.  Here's what they actually say in their report:

Prop 37 would result in many products on the food shelf carrying a GM label. It might get to the point where there are so many products with GM labels that most consumers would just ignore the labels because they would be everywhere.

They seem to agree with my point that it will be hard for firms to avoid GE labels given the zero tolerance limit.   

Scary-Sounding Food Ingredients Explained

Do long, scary-sounding ingredient names on food labels make you wonder what’s in your food and why? This resource provides the answers!

​The International Food Information Council has a new publication describing common ingredients found in food.

The Organic Food Subsidy Myth

Over at Reason.com, Balyen Linnekin offered a thoughtful response to the recent Stanford review showing little difference in the nutritional content of organic and non-organic food.  However, toward the end of the article Linnekin repeats a claim about organics that I’ve heard many times:

Finally, consider that organics critics like Cohen and Bailey attack the high cost of organic food while failing to mention that conventional food production—from soy and sugar to beef and dairy—is highly subsidized. Organic food production, on the other hand, is not.

First, for many, many food products including virtually all fruits and vegetables from tomatoes to spinach to oranges to apples, there are no regular government subsidy programs - organic or not.  Thus, government subsides cannot explain the high price of organic lettuce compared to non-organic lettuce. 

Here is a part of what I had to say about the issue in my forthcoming book, The Food Police (footnotes omitted):

We’re often told organics don’t get government subsidies, but that’s a fabrication.  In Europe, organic farmers are subsidized like all other farmers.  In the U.S., there are programs like the Environmental Quality Incentives Program that pay producers to transition from conventional to organic.  There are other programs that use federal monies to help organic farmers pay the cost of certification.  Organic farmers can receive government-subsidized crop insurance just like non-organic farmers.  Organic milk is subjected to many of the same complex price-support rules imposed by the government on non-organic milk. Hundreds of millions of tax dollars are spent on research and education into organics and on marketing and monitoring programs.  The food police tell us that the growth in organic food demand is the free market working at its best, while using the taxing power of the state to manipulate the market by subsidizing organic production, marketing, and research activities.  You can’t have your organic-is-libertarian cake and eat it too.

Science vs. Consumer Sovereignty in Food

This from a forthcoming book chapter by Wally Huffman and Jill​ McCluskey:

The scientific consensus is that first-generation GM foods are equivalent to their conventional counterparts. However, on average, consumers want a discount in order to choose first-generation GM products over conventional products. Thus, the public’s perception of risks, rather than scientifically proven risks, that directly affect markets. This brings up the issue of scientific versus consumer sovereignty (Roberts, 1999). Although the scientific consensus is that GM foods are completely safe for consumption aside from potential allergens, it may still be the case that a majority of the population in a given country prefers to avoid GM foods. We find that information provision affect valuation and the source of information matters.

When people are informed about the science of biotechnology, they can become more accepting of GMOs in food.  Yet, this is hardly the only (or even the most persuasive) information confronting the food consumer.

Source: Huffman, W.E. and J.J. McCluskey. “Labeling of Genetically Modified Foods.” In P.W.B. Philips, S. Smyth and D. Castle, eds., Handbook on Agriculture, Biotechnology and Development. Northampton, MA: Edward Elgar Publishing, forthcoming. 

The Science of Sugar

Three years ago, this YouTube video of a talk by Dr. Robert Lustig, a Professor of Pediatric Endocrinology at UC San Francisco, when viral (to date, the video has 2.7 million downloads).  His argument there, and subsequently in prestigious journals like Nature, is that sugar is toxic.   

I’m going to be honest, I haven’t invested the time to adequately evaluate the claims made about the biology, endocrinology, and metabology of sugar, but I suspect there is some truth to the argument that some foods are metabolized differently than others – in other words, it is more complicated than just “calories in, calories out” (although this adage is also almost certainly true on some level). 

What I do know is that the science of sugar is not nearly as certain as Lustig purports, a fact mentioned by Gary Taubes who is overall sympathetic to his claim (see also the citations in second paragraph of Lustig’s Wikipedia page).

Lustig is an accomplished and well-published scientist.  But, what bothers me is the all too common stance of many folks in the medical and public health communities failing to appreciate how little they know when they move to realms beyond their particular academic expertise.

The viral YouTube talk included a beginning slide with the words “Letting Science be the Guide” and Lustig personally began a speech in 2011 by asserting that “Ultimately science should drive policy.” Yet, I find it a bit ironic that neither of these talks seriously discusses the economic science behind the many sugar-recuing policies he supports. 

Economic study after study after study after study shows sugar policies (such as sweetened beverage taxes or bans on school vending machines) will only have very small effects on intake and weight.  When sodas are taxed (or banned), people can substitute toward other caloric drinks such as fruit juice or alcohol. Moreover, food taxes are regressive - meaning the burden is disproportionately borne by the poor.  It is also worth pointing to the economic research on farm policy and sugar production reveals a much more complicated situation than many pundits presume, with the authors showing that the “link between US sweetener consumption and farm policy is weak.” 

So the next time you hear someone pronounce that the “government has to get off its ass” because of sugar consumption, I suggest asking what economic science actually says about what will happen when the government moves it’s preverbal backside. 

Addendum:  One of my colleagues pointed out that the arguments used to claim sugar is addictive (primarily that our body becomes accustomed to a level of intake and requires more and more to achieve a given level of satisfaction) sounds remarkably like the psychologist’s notion of the hedonic treadmill – a phenomenon that is posited to hold for almost all aspects of life.