What are Voters Willing to Pay for Food Labels?

Several months ago, I published a study in the journal Food Policy entitled The Political Ideology of Food.  The results, which suggested most people want more food regulation, were picked up in a variety of outlets such as the Food Navigator and Reason.com.

In responding to media inquiries about the study, I consistently told reporters something along the lines of the following: I’ve done lots of surveys like this over the years and one of the things I routinely find is that people appear much more favorable of regulation and labels in hypothetical surveys as compared to when real money is in the line.  In fact, I indicated at the end of the paper:

One important factor that our survey did not address is whether public support for
food and agricultural policies will remain high when people are made more aware of the specific costs of government action in this area. Many economists, including myself, have been critical of many of the policies this sample of consumers found so favorable, in part because it does not appear the benefits outweigh the costs. Only time will tell whether economic analysis on these matters will have any influence on the public’s ideologies with respect to food.

This insight is particularly relevant to the study we released earlier this week on Californian’s desire for mandatory labeling of genetically engineered foods.   In that study, we found a whopping 76.8% of likely voters said they intended to vote in favor of Prop 37 and the mandatory labeling policy.  Yet, when we followed up and asked people if they would still be in favor if food prices increased as a result of the policy, a different story emerged. 

Below is a graph of the percentage of the percentage of Californians projected to vote yes as the costs of the policy increase.  Citizen’s support for regulation is indeed price sensitive.  As the graph shows, at a food price increase of more than 11.9%, in fact, Prop 37 looses majority support.

Our research has been covered in a varied of blogs and media outlets (e.g.,here, here, and here).  And a few stories, such as the one over at Take Part, argue that the actual cost of Prop 37 will be far less than the 11.9% “break even” point.  As a result the author posits that:

But perhaps the most important detail—one that the survey didn't discuss and likely many voters don't know—is that the cost of food prices will be much smaller than 25 percent, much closer to a number which is almost negligible. 

Could be.  But it is it is important not to confuse cost with demand.  We were not measuring the costs of Prop 37.  We were measuring the price point at which people would be indifferent.  Those are two different things.  Though, the author is correct to say that if you analyze the demand for Prop 37 at the low price they assume (about 0.1%), then yes you’d still project strong support.  The costs have be highly debated and it isn’t particularly constructive to rehash those arguments here.

One thing I will point out in relation to the survey results is that economic research on how people respond to surveys suggests that the tend to over-estimate how much they are willing to pay for policies.  One widely cited review study, for example, showed that the amount people said they were willing to pay in hypothetical surveys was about three times what they were actually willing to pay when money was on the line.  Applying that insight to our analysis reveals that the “true” break-even price is probably something closer to 11.9%/3 = 3.97%. 

That said, we also have to remember that people don’t actually have to pay the price of the policies they support at the poll like they do when they’re shopping.  The result is that the costs of policies often get overlooked when people vote.

A Vegetarian on the Board of Tyson Foods?

I read this story with some amusement (here is the version from HSUS).  According to the article, the CEO of the Humane Society of the United States (perhaps the largest animal advocacy organization in the US), Wayne Pacelle has bought shares in and is seeking a seat on the board of directors of Tyson Foods.  Tyson Foods, by the way, is the largest producer of chicken and the second largest producer of beef and pork in the US. 

My initial reaction was that a vegetarian on the board of a major meat packer just seems wrong.  Yet, upon further reflection, I have to give it to Pacelle.  I'm having a hard time finding anything wrong with his move from the perspective of liberty and freedom of choice. 

I like to eat a good steak.  But, I'm not entitled to it.  If, hypothetically, Tyson decided its money would be better invested in another venture and decided to shut down its beef, pork, and poultry operations, how can I blame them?  I'd be sad, but Tyson doesn't owe me hamburgers. 

To garner sufficient influence in the election of Tyson's business, Pacelle and colleagues had to fork over major dough.  And, he'll have to convince other shareholders to give their support.  If Pacelle gets on the board and advocates for decisions that ruin Tyson's profitability, Pacelle looses financially as do other shareholders who support him.  That's the price he and others are willing to pay to change animal living conditions. 

Again, I'd be sad to pay higher beef prices or perhaps even sad if there was no beef from Tyson to buy.  But, I can't (and shouldn't) have the right to tell Pacelle and others how to spend their own money. 

If you don't like Pacelle's attempt to buy board membership in Tyson Foods, I have one piece of advice.  Put you money where your mouth is.  Buy shares in Tyson Foods.

Will All Consumers Avoid GE Foods?

Since releasing the results of our survey yesterday​ on how Californians intend to vote on Prop 37 regarding mandatory labeling of genetically engineered food, I've received several questions from reporters regarding how consumers will respond to GE labels if retailers choose to continue using GE ingredients.  I've previously written here and here on the difficulty in projecting how retailers  and food manufacturers will respond if Prop 37 passes.  

Relevant to the debate are actual research articles on how consumers respond to GE food labels.  Here are a few abstracts from academic papers on the topic. ​

I'll start with a paper by your's truly in Economics Letters in 2005​:

Non-hypothetical valuations obtained from experimental auctions in three United States and two European locations were used to calculate welfare effects of introducing and labeling of genetically modified food. Under certain assumptions, we find that introduction of genetically modified food has been welfare enhancing, on average, for United States consumers but not so for Europeans and while mandatory labeling has been beneficial for European consumers, such a policy would be detrimental in the United States.

I'll note that one of the places we collected data for that study was in Long Beach, California.  ​

Here's a paper​ in the journal Food Policy in 2011:

In 2005, the Swiss expressed their negative attitude towards genetic engineering in agriculture by voting in favor of a ban to use genetically modified (GM) crops in domestic agriculture. At the same time, certain GM food products remain approved but are not on offer since retailers assume that consumers would shun labeled GM food. In our study we tested this claim by conducting a large-scale field study with Swiss consumers. In our experimental design, three clearly labeled types of corn bread were offered at five different market stands across the French and German-speaking part of Switzerland: one made with organic, one made with conventional, and one made with genetically modified (GM) corn. In addition, we tested the consistency between purchasing decision at the market stand and the previous voting decision on GMOs in 2005 by means of an ex-post questionnaire. The results of our discrete choice analysis show that Swiss consumers treat GM foods just like any other type of novel food. We conclude from our findings that consumers tend to appreciate transparency and freedom of choice even if one of the offered product types is labeled as containing a genetically modified ingredient. Retailers should allow consumers to make their own choice and accept the fact that not all people appear to be afraid of GM food.

Here is a paper in the journal Economics Letters in 2002​

We conducted an experiment to study the discrepancy between European public opinion and consumer purchase behavior with regard to genetically modified organisms in the food supply. We found that consumers are typically unaware of the labeling indicating GMO content.

the paper also concluded:​

This paper uses experimental economic methods to present evidence that the absence of a negative effect on demand in reaction to products containing GMOs is in large measure due to the fact that customers do not notice the labeling. Consumers appear not to note labels that they are not looking for in the first place.

​The same authors had a paper in the Economic Journal in 2003:

We elicit willingness-to-pay information for similar food products that differ only in their content of genetically modified organisms (GMOs). Participants in the experiment are a demographically representative sample of French consumers. 35% of participants are unwilling to purchase products made with GMOs, 23% are indifferent or value the presence of GMOs, and 42% are willing to purchase them if they are sufficiently inexpensive. The results contrast with surveys that indicate overwhelming opposition to GM foods. There is a surplus to be gained from the segregation of the market for food products into a GMO-free segment and a segment allowing GMOs.

Fat Tax Complications

About four months ago, I gave a talk at a planning meeting of the Institute of Medicine of the National Academies hosted by the CDC​.  The title of the meeting was the "Exploring the True Costs of Food."  Health, nutritional, epidemiological, and environmental experts from all the top Universities were there as were representatives from major livestock industries and food and environmental NGOs.  

The implicit objective of the meeting was to determine factors affecting the "true" cost of food.  As an economist, my initial response to such inquiries is "markets already do that."  Except when there are externalities.  Aside from what seemed (at least to me) some slivers of agreement on a few environmental issues, there was remarkably little agreement between some of the economists in the room and the nutrition/health experts on the extent to which obesity and other diet-related diseases represent an externality.  

I won't rehash the whole debate in one post, but I do want to make reference to one issue that I mentioned several times at the meeting.  ​It is an issue that Robert Murphy discusses in a feature article just released at the Library of Economics and Liberty.  His argument, which relies on work in an American Economic Review article by Bovenberg and Goulder, relates to carbon tax swaps, but it could equally apply to issues like fat taxes.

In short, even if we could agree that obesity and dietary-related diseases represent an externality (and we don't), one would still have to do the really hard work of determining the "optimal" tax.  This hard work is further complicated by the fact that there are myriad distortions in the economy from other taxes, subsidies, and regulations.  Another complicating factor is that an "optimal" tax is not a static measure - it changes constantly with prevailing conditions such that the "optimal" tax at one point in time can actually do more harm than good​ when market conditions change.  Just look at a plot of corn or soybean prices over the past five year and it is quite clear that market conditions can and do change rapidly.  Moreover (and this is one of the key points of Murphy's article), it can't be taken for granted that the revenues from a fat tax would be subsequently used in ways that generate economic benefits that are often presumed by fat tax advocates.  

Here is the second paragraph of Murphy's article:​

Although the thinking underlying the conservative case is correct, there is a potential downside from a carbon tax swap. This negative side effect is rarely mentioned in any but the most technical discussions. It is the "tax interaction effect." A new carbon tax can exacerbate the harms caused by pre-existing taxes, thereby offsetting the potential environmental benefits. What's worse, not only can the tax-interaction effect operate in theory, but also numerical simulations suggest that it might be very large in practice, greatly reducing the "optimal" carbon tax.

​and the last:

Proponents of a carbon tax swap deal are right when they claim that the gross harms of a new carbon tax can be partially offset if its receipts are used to reduce other taxes. However, they typically leap from this true claim to the unjustified conclusion that a revenue-neutral carbon tax will be a "win-win" for the economy—by reducing distortions from the tax code as well as providing environmental benefits. On the contrary, it is theoretically possible and empirically likely that a revenue-neutral carbon tax will impose more deadweight loss on the economy, offsetting at least some of the potential environmental benefits. A carbon tax may still be a good policy, but its proponents should first understand the tax-interaction effect before making their case and choosing the tax level.

How do Californians Plan to Vote on Prop 37?

​That is the question many in the food and agricultural community have been asking.  Because of a recent survey that Brandon McFadden and I just conducted, we now have a much more definitive answer.  

Here is the executive summary from our report, which we just released today.​  I will have more to say about the findings in future posts.

A new poll was conducted during September 20-27, 2012 among 1,003 Californians, 822 of whom were considered likely voters in the November 2012 election.  Respondents were asked about their knowledge, likely vote, and reasons for voting on Proposition 37 related to mandatory labeling of genetically engineered (GE) foods.  We also studied how respondents reacted to either a “vote YES” or “vote NO” commercial on Prop 37. 

A large majority of likely voters, 76.8%, indicated an intention to vote yes on Proposition 37.        

Among those indicating an intention to vote yes, 71% said the primary reason was because “people have the right to know what is in their food,” followed by 16% who said it was to “make the food supply safer.”  Among those indicating an intention to vote no, 35% said the primary reason was “to avoid higher food costs,” followed by 22% who said it was “because it will impose unneeded costs on farmers” and 17% who said it was “because genetically modified foods are not harmful.”

Despite the large majority of voters planning to vote in favor of Prop 37, several results suggest the potential for erosion of support in the coming month.

A follow-up question asked respondents with an intention to vote yes: “Would you still vote "YES" on Proposition 37 if you knew it would increase food prices by X%,” where the value X was randomly varied from 5% to 25% across respondents.  Upon the prospect of a price increase, 46% of respondents who previously said yes switched their intended vote to no.  Our statistically analysis reveals that Prop 37 will garner majority support at a food price increase lower than 11.9%, but for any price increase greater than 11.9%, more than 50% of likely voters will vote against the proposition. 

Half the sample was randomly assigned to a group shown a “YES Prop 37” commercial and the other half was shown a “NO Prop 37” commercial.  After watching the “YES Prop 37” commercial, the percentage of voters indicating an intention to vote yes was 77%, almost identical to the vote indicated prior to watching the commercial.  However, after watching the “NO Prop 37” commercial, only 59% indicated an intention to vote yes on Prop 37.  Thus, at least among the two commercials we considered, the “NO Prop 37” video was much more effective. 

Overall, California voters were highly uninformed about the use of genetic engineering in general and about Prop 37 in particular.   Only 43% could correctly identify the topic of Prop 37 out of six topics presented.  When asked what percentage of corn, soybean, and wheat acres were planted with GE varieties in the U.S., respondents indicated, on average, 48%, 47%, and 45% respectively (the reality is 88%, 93%, and 0%).  On average, voters thought 47% of products on grocery store shelves had GE ingredients.  When asked if any products sold by Coke/Pespi, Frito Lay, Kashi, and Kellogg contained GE ingredients, only 31%, 45%, 21%, and 41% answered in the affirmative.