The Benefits of Mandatory GMO Labeling

I ran across this post over at RegBlog which notes that the USDA will have to do a cost-benefit analysis of the new mandatory labeling law for GMOs.  The post relies heavily on this paper by Cass Sunstein written back in August.  Sunstein's article discusses the fact that regulatory agencies typically do a very bad job at quantifying the benefits of mandatory labeling policies (and identifying when or why those benefits only apply to mandatory rather than voluntary labels).

Sunstein argues that, in theory, consumer willingness-to-pay (WTP) is the best way to measure benefits of a labeling policy.  I wholeheartedly agree (and have even written papers using WTP to estimate the benefits of GMO labels) but I want to offer a couple important caveats.  

The issue in ascertaining the value of a label isn't whether consumers are willing a premium for non-GM over GM food.  Rather, as emphasized in this seminal paper by Foster and Just, what is key is whether the added information would have changed what people bought.  If you learn a food you're eating contains GMOs (via a mandatory label) but you're still unwilling to pay the premium for the non-GMO, then the the label has produced no measurable economic value.  Thus, a difference in WTP for GMO and non-GMO foods is a necessary but not sufficient condition for a labeling policy to have economic value.  

The Foster and Just paper outlines the theory behind the value of information.  Here's the thought experiment.  Imagine you regularly consume X units of a product.  Some new information comes along that lowers your value for the product (you find out it isn't as safe, not as high quality, or whatever).  Thus, at the same price, you'd now prefer to instead consume only Y units of the product.  The value of the information is the amount of money I'd have to give you to keep consuming X (the amount you consumed in ignorance) in spite of the fact you'd now like to consume only Y.  Given an estimate of demand (or WTP) before and after information, economists can back out this inferred value of information.      

But, here is a really important point: this conception of the value of information only logically applies in the case of so-called "experience" goods - goods for which you know afterward whether it was "high" or "low" quality.  Just and Foster's empirical example related to a food safety scare in milk.  In their study, people continued to drink milk because they didn't know that it had been tainted.  By comparing consumer demand (or consumer WTPs) for milk before and after the contamination was finally disclosed, the authors could estimate a value of the information.  In this case, the information had real value because the people would really have short and long term health consequences if they kept consuming X when they would have wanted to consume Y.

It is less clear to me that this same conceptual thinking about the value of information and labels applies to the case of so-called "credence" goods.  These are goods for which the consumer never knows the quality even after consumption.  Currently marketed GMOs are credence goods from the consumers' perspective.  Unless you're told by a credible source, you'll never know whether you ate a GMO or not.  So, even if a consumer learned a food was GMO when they thought it was non-GMO, and wanted to consume Y instead of X units, it is unclear to me that the consumer experienced a compensable loss.  

Expressing a view with which I'm sympathetic, Sunstein also notes that mandatory labels on GMOs don't make much sense because the scientific consensus is that they don't pose heightened health or environmental risks.  Coupling this perspective with the credence-good discussion above reminds me a bit of this philosophical puzzle published by Paul Portney back in 1992 in an article entitled "Trouble in Happyville".  

“You have a problem. You are Director of Environmental Protection in Happyville, a community of 1000 adults. The drinking water supply in Happyville is contaminated by a naturally occurring substance that each and every resident believes may be responsible for the above-average cancer rate observed there. So concerned are they that they insist you put in place a very expensive treatment system to remove the contaminant. Moreover, you know for a fact that each and every resident is truly willing to pay $1000 each year for the removal of the contaminant.

The problem is this. You have asked the top ten risk assessors in the world to test the contaminant for carcinogenicity. To a person, these risk assessors - including several who work for the activist group, Campaign Against Environmental Cancer - find that the substance tests negative for carcinogenicity, even at much higher doses than those received by the residents of Happyville. These ten risk assessors tell you that while one could never prove that the substance is harmless, they would each stake their professional reputations on its being so. You have repeatedly and skillfully communicated this to the Happyville citizenry, but because of a deep-seated skepticism of all government officials, they remain completely unconvinced and truly frightened - still willing, that is, to fork over $1000 per person per year for water purification.”

What should the Director do?  My gut response to this dilemma is the same as what my Ph.D. adviser Sean Fox wrote in a chapter for a book I edited a few years ago:

“It’s a difficult question of course, and the answer is well beyond both the scope of this chapter and the philosophical training of the author.”

Assorted Links

• This NYT article by Stephanie Strom discusses an interesting fault line in the organic movement: whether hydroponic crops (which are not grown in soil) can be called organic. 
• A couple days ago, the USDA Economic Research Service put out this "chart of of note" showing trends in private and public spending on agricultural research.  As the chart shows, public spending has been falling, although private spending has increased.
• The USDA-AMS has started putting out what appears to be a relatively new monthly report on production and prices of cage free and organic eggs. 
• The Journal of Economic Psychology has released a special issue I co-edited with Marco Perugini on food consumption behavior.  There are 11 articles on a whole host of interesting topics from organic, food labeling, school lunches, nutrition, "fairness", food security, and more.
• More controversy over chicken pricing, this time from the Washington Post.  I spoke to some industry folks about this a few days ago, and one thing they highlighted is that the type of chicken priced by the Georgia Dock is quite different (higher quality - contracted in advance) than what is being priced by other indices like the Uner-Barry (chicken parts - in spot markets).  Thus, a lot is being made of an apples-to-oranges comparison (even if the apple price report is flawed). 
• One of my former students, Brandon McFadden, has a new article in PloS ONE looking at the factors that drive a wedge between public and scientific option about climate change and genetically engineered food.  He's got some cool graphs showing people's joint beliefs about climate change and genetically engineered foods, and he explores how those beliefs are affected by cognitive ability, illusionary correlations, objective knowledge, and political party affiliation.

New York Times on GMOs

A New York Times article by Danny Hakim came out this weekend arguing that genetically engineered crops (aka "GMOs") have failed to live up to their promise: namely that they haven't increased yields or reduced pesticide use.  

The implications seems to be that Hakim believes farmers shouldn't be using biotechnology or that they were duped into adopting.  Even if we grant Hakim's premises that biotech crops increased herbicide use and didn't increase yield (as I'll detail below, there are good reasons not to fully accept these claims), the conclusions that benefits are "over hyped" seems a bit misplaced.   

To see this, let's consider a different example.  When Apple came out with the first edition of the iPhone, one might too have said its benefits were over-promised.  After all, we already had flip phones to make mobile calls, the iPod to listen to music, the Blackberry to type emails and texts, and so on.  Did the iPhone really offer that much new?  Was it all that much better than what previously existed?

Well, rather than trying to studiously compare features of the new iPhone to all the previous devices, shouldn't we just look and see whether consumers actually bought it?  Look at the millions of decisions of individual consumers who weighted the relative costs and benefits.  It seems millions of consumers judged the new phone to be worth the extra money (indeed, some people stood outside in lines for days to get it).  In short, we know the iPhone delivered on its promise because millions of customers bought the phone and have come back again and again to buy new versions.

This is what economists call revealed preferences.  If we want to know whether people think product A is better than product B, we don't have to survey and ask, we just have to look and see what they chose.  

Ok, what about biotech seeds?  Here is a graph from the USDA on farmer adoption of biotech corn, soybeans, and cotton in the U.S.  For each of these these three crops, adoption of genetically engineered varieties (including both herbicide tolerant (HT) and insect resistant (Bt)) is over 89% of acres planted.  So, when we look at the decisions made by thousands of real-life flesh and blood farmers who have weighted the costs and benefits, they have voluntarily adopted GMOs en mass.  The fact that biotech was so readily adopted by farmers (and is still so widely in use) aught to tell us something. 

Now, one possible explanation explanation is that farmers have no choice - they have to buy the biotech seed.  Yet, as you can read in many places (see here, here, or here), farmers have lots of seed choices.  Indeed, farmers pay hefty premiums to have the biotech varieties.  

Yet, if we are to believe the NYT's story, farmers are paying these higher premiums but aren't getting higher yields and they're spending more on herbicide.  They must be really dumb right?  I'm going to reject the dumb farmer hypothesis, which means that either the NYT's data are wrong or there are other benefits to biotech aside from yield (or some combination of both).  

The data and comparisons used in the Times story to support their claims are pretty crude (comparing national aggregates over time in the US and France).  It is curious they used these data when we have recent, well-done research summaries such as this one from the National Academies of Science.  Weed scientist, Andrew Kniss, has the best, most well-reasoned response to the article I've seen.

Kniss writes:

“I have to say this comparison seems borderline disingenuous; certainly not what I’d expect from an “extensive examination” published in the New York Times. The NYT provides a few charts in the article, one of which supports the statement about France’s reduced pesticide use. But the figures used to compare pesticide use in France vs the USA are convoluted and misleading. First, the data is presented in different units (thousand metric tons for France, compared to million pounds in the US), making a direct comparison nearly impossible. Second, the pesticide amounts are not standardized per unit area, which is critically important since the USA has over 9 times the amount of farmland that France does; it would be shocking if the U.S. didn’t use far more pesticide when expressed this way.”

and

“It is true that France has been reducing pesticide use, but France still uses more pesticides per arable hectare than we do in the USA. In the case of fungicide & insecticides, a LOT more. But a relatively tiny proportion of these differences are likely due to GMOs; pesticide use depends on climate, pest species, crop species, economics, availability, tillage practices, crop rotations, and countless other factors. And almost all of these factors differ between France and the U.S. So this comparison between France and the U.S., especially at such a coarse scale, is mostly meaningless, especially with respect to the GMO question. If one of France’s neighboring EU countries with similar climate and cropping practices had adopted GMOs, that may have been a more enlightening (but still imperfect) comparison.

Given all of these confounding factors, I wonder why France was singled out by Mr. Hakim as the only comparison to compare pesticide use trends. Pesticide use across Europe varies quite a bit, and trends in most EU countries are increasing, France is the exception in this respect, not the rule.”

My take?  As I've noted in previous posts before, it is pretty well acknowledged that biotech likely increased herbicide (but not pesticide) use, though it is important to consider relative toxicity of different pesticides used (which the Times article didn't do as best I can tell).  It is also important to recognize that research shows that adoption of herbicide resistant soy has led to greater adoption of low- and no-till farming practices.  And, while the biotech traits have sometimes been incorporated into varieties that were lower yielding, if you look, on average, at a large number of studies, that yield tends to increase with biotech adoption.   Moreover, as I wrote in a post about a study in Nature Biotechnology: 

“the biotech varieties had an important risk-reducing effects, even if they sometimes led to slightly lower yields. Moreover, biotech can save on other inputs like labor. When I was a teenager, I spent a lot of time hoeing and spraying cotton weeds. That job is (thankfully) now obsolete due to biotechnology. ”

I don't know whether GMOs have fail to live up to their promise.  That would require us to know something about farmers' expectations prior to adoption.  What I do know is that the vast majority of corn, soybean, and cotton farmers have continued to buy higher priced biotech seeds.  Why?  The NYT article makes no attempt to answer this question.   

News on GMOs

There have been a couple news items regarding genetically engineered crops.  

The first is a new paper published in Science Advances (co-authored by a couple agricultural economists, David Hennessy and GianCarlo Moschini).  The authors used a large scale survey of corn and soybean farmers to determine the impact of biotech crops on pesticide and herbicide use.  By and large, I'd say the research confirms what has become the scientific consensus on these issues: 

“Over the period 1998–2011, our results show that GE variety adoption reduced both herbicide and insecticide use in maize, while increasing herbicide use in soybeans. However, weighting pesticides by the EIQ [environmental impact quotient] lowers the difference in herbicide use by GT soybean adopters (such that the estimated average impact over the study period is statistically indistinguishable from zero). Adoption of Bt maize, on the other hand, is associated with a clearer decline in insecticide use. ”

This article at NPR interviewed weed scientists Andrew Kniss about the study, and he is critical of the use of EIQ. I believe his argument is that a proper toxicity-adjusted herbicide use might have shown a reduction in herbicide use in soybeans from adoption of GE.   Note also that several of the same authors published a related paper a few months ago showing adoption of GE herbicides led to higher rates of adoption of conservation tillage and no-till.  

In other news, Mark Bittman has an editorial today in the New York Times on the new GMO labeling laws.  I often disagree with Bittman, but I was pleased to see that he had a reasonably accurate portrayal of the science on GMOs:

“These foods produced with G.M.O.s have not been found to be harmful to people who eat them. (This isn’t to say they won’t be; our system for declaring products safe leaves much to be desired.) In some instances, the technology has yielded great medical benefits and will certainly lead to more. In industrial agriculture, the technology has led to lower applications of insecticides. But it has also encouraged the growth of weeds that have become resistant to herbicides after years of exposure, often forcing growers to turn to more and different herbicides in a cycle of chemical warfare.”

He goes a bit polemical at the end (as if organic and local producers don't use "chemicals" to control bugs and weeds).  And, he goes a bit off the rails in the next paragraph:

“Another problem is that by simplifying the growing of almost unimaginably large tracts of crops, especially corn and soybeans, G.M.O.s have become an indispensable crutch for the fertilizer- and pesticide-dependent monoculture that is wrecking our land and water and generating the execrable excess of corn- and soy-based junk food that is sickening our population and decreasing our life spans.”

The implication seems to be without GMOs we wouldn't have as much corn and soy.  But, here's data from USDA on the number of acres in the US planted to corn over time.  

Yes, there has been an increase in corn acres since the mid 1980s, but biotech corn didn't start being grown in earnest until about 2005 (that's when more than half of US corn acres were biotech), and of course we had ethanol policies emerge in the mid to late 2000s, which promoted movement to corn acres too.  

More important, look at the data prior to 1950.  We were planting more corn then than now.  But prior to 1950, there was no biotech.  Use of hybrid corn and "synthetic" fertilizer didn't begin in a big way util the late 1930s.  And, yet in the 1920s, we planted more corn than we do now.  So much for the "chemical warfare", "fertilizer-dependent" story that explains our "monoculture" production system.  That is, the figure above suggests Bittman might want to rethink some of the key underlying economic reasons why we plant hardy, easily storeable, easily transportable crops like corn.  

In any event, Bittman's larger point is that he hopes the new mandated QR codes will be used to disclose all kinds of other information about food:

“Where are the ingredients from? Were antibiotics routinely administered to animals? What pesticides and other chemicals were used, and do traces of these chemicals remain? Was animal welfare considered, and how? What farming practices were used? How much water was required? Let’s really get down to it. Were the workers who sweated to put food on my table paid at least minimum wage? Did they get health benefits? Overtime? Were they unionized? Protected from pesticide exposure?”

I suspect there are some people who would value such information.  However, my research shows most people mainly care about something much more basic: : is this food tasty, safe, healthy, and affordable?  

Mandatory GMO Labeling Closer to Reality

I've written a lot about mandatory labeling of genetically engineered foods over the past couple years, and given current events, I thought I'd share a few thoughts about ongoing developments.  Given that the Senate has now passed a mandatory labeling law, and discussion has moved to the House, it appears the stars may be aligning such that a nationwide mandatory GMO labeling will become a reality.  

The national law would preempt state efforts to enact their own labeling laws, and it would require mandatory labeling of some genetically engineered foods (there are many exemptions and it is unclear whether the mandatory labels would be required on only foods that contain genetic material or also those - such as oil and sugar - which do not).  Food manufacturers and retailers can comply with the law in a variety of ways including on-package labeling and via QR codes.  Smaller manufacturers can comply by providing a web link or phone number for further information.  

Many groups that have, in the past, advocated for mandatory labeling are against the bill because, they say, it doesn't go far enough (e.g., this group is upset because it doesn't "drive Frankenfoods . . . off the market."). Other anti-mandatory labeling folks also don't like the bill because of philosophical opposition to signalling out a technology that poses no added safety risks.  

I suppose this is how democracy works.  Compromise.  Neither side got everything they wanted, but at least from my perspective, this is a law that provides some form of labeling, which will hopefully shelve this issue and allow us to move on to more important things in a way that is likely to have the least detrimental economic effects.   

I'm sympathetic to the arguments made by folks who continue to oppose mandatory labeling on the premise that our laws shouldn't be stigmatizing biotechnology.  Because a GMO isn't a single "thing" I agree the law is unhelpful insofar as giving consumers useful information about safety or environmental impact.  The law is also a bit hypocritical in terms of exempting some types of GMOs and not others.  One might also rightfully worry about when the government should have the power to compel speech and when it shouldn't.  And, I think we should be worried about laws which potentially hinder innovation in the food sector.  

But, here's the deal.  The Vermont law was soon going into effect anyway. The question wasn't whether a mandatory labeling law was going into effect but rather what kind.   The Vermont law was already starting have some impact in that state and would likely have had nationwide impacts.  Moreover, there didn't seem to be a practical legal or legislative way to prevent the law from going into effect in the foreseeable future.  

The worst economic consequences of mandatory labeling would have come about from those types of labels that were most likely to be perceived by consumers as a "skull and cross bones".   In my mind the current Senate bill avoided this worst case scenario while giving those consumers who really want to know about GMO content a means for making that determination.  That doesn't mean some anti-GMO groups won't use the labels as a way of singling out for protest companies that use foods and ingredients made with the technology, but at least the motives are more transparent in this case.  For some groups it was never about labeling anyway - it was about opposition to the technology.  That, in my opinion, is a much less tenable position, and is one that will hopefully be less successful in the long run.