Cost of Vermont's GMO labeling law

Back in 2014, the Vermont legislature passed a law mandating labels on certain foods produced with genetically engineered ingredients.  The law is set to go into effect this summer, and it has prompted a lawsuit and at least a couple federal attempts at a GMO labeling law to provide uniform standards across all states (the most recent is a bill by senator Pat Roberts from Kansas).

Against this backdrop comes a new study on the potential costs of Vermont's law.  According to Agri-Pulse:

A new study funded by the Corn Refiners Association concludes that if Vermont’s mandatory labeling law were allowed to go into effect and spread nationwide, the increased cost of producing food in the U.S. would reach about $82 billion per year, or about $1,050 per family.

That's a sizable sum, and one that's somewhat larger than the often-cited $500/family from  William Lesser of Cornell who estimated the costs of such a policy in New York.  We can add this new study to other previous ones like that of Julian Alston and Dan Sumner of UC Davis who estimated a $1.2 billion cost on California food processors when  that state had a ballot initiative back in 2008.  Tom Marsh and other economists estimated the costs (just of monitoring and oversight) in Washington State of over  $700,000/year when that state had a ballot initiative in 2012.  Here's a nice discussion of labeling effects by some Colorado State University agricultural economists produced with that state held a ballot initiative.

Of course a lot of pro-labeling groups dispute these estimates, and have written their own reports to "debunk" them, (though I find it curious that none of the de-bunkers have much economics training, while each of the authors of the above reports are respected and well known agricultural economists).  The organization Just Label It, for example says

there’s no evidence that requiring food manufacturers to label products that contain genetically modified (GMO) ingredients will increase food prices at the supermarket.

So, where's the truth?  All the studies (by pro- and anti-labeling groups alike) rely on assumptions.  One assumption often made by pro-labeling groups is that the government costs of monitoring and enforcement are essentially nonexistent.  As the Washington study suggests, however, that's unlikely to be true and these extra costs will either manifest themselves in higher taxes or higher food prices, depending on how they're funded and people respond.  Pro-labeling groups are right to suggest that the physical costs associated with changing the label are relatively small and close to the "cost of ink."  The much bigger question, and where most the controversy arises, is how food companies will respond to the label.  If they respond by seeking to source non-GM crops, the cost implications could be quite significant, and this is how we arrive at numbers like $1050/family (the new Vermont study also assumes manufactures will have to comply in all states not just Vermont because of possibility of liability if one of their unlabeled products sold elsewhere unwittingly finds itself on a store shelf in Vermont).  If instead food companies shrug their shoulders and just slap the label on all their products, the costs are likely closer to just the physical re-labeling costs and the government oversight and regulatory costs.  

So, how will retailers respond to the label?  My guess is that the answer is somewhere between the extremes: some will dis-adopt GM and others won't.  Thus, the expected cost should be calculated by multiplying the costs of disadoption by the anticipated likelihood of disadoption.   I find it a bit hard to believe that all retailers will fully move away from GM content to avoid the label (i.e., that the probability of full disadoption is 1).  Why?  A lot of consumers are unconcerned about GMOs and many more have no opinion on the issue, and thus there will remain an incentive for food companies to remain cost competitive.  Also, the US is going to produce a lot of GMO corn no matter the labeling policy because around 40% of the corn crop goes into our gas tanks as ethanol and most of the remaining corn crop is used for animal feed (and animal products are typically exempted from the label).  These much larger demanders of corn, as opposed to comparatively small demands for high fructose corn syrup or corn starch, are likely to drive the market for corn.  

So, all this would suggest that $1,050/household/year is an upper-bound estimate associated with the mandatory labeling law.  And, I think that's true, except for one thing.  The potentially much larger (and admittedly more speculative) costs could come about if we create a culture and market environment that is hostile to the introduction of biotech crops and crop technologies.  What future innovations will we forego if retailers chose to disadopt?  We may never know, but it would be a mistake not consider these opportunity costs.