The Cost of Mandatory GMO Labeling

Not five minutes after posting on the potential effects of mandatory labeling genetically modified foods in California, I came across this release summarizing the recent work of Dan Sumner and Julian Alston, both agricultural economists at UC Davis. 

The bottom line: they estimate that Prop 37, if passed, would cost Californian farmers and food processors $1.2 billion. 

Although I understand the appeal of the “right to know” argument to the average consumer, what is less clear to me is why labeling of genetically modified food should, on economic grounds, be mandatory.  If the information is valuable to consumers, firms and farmers can profit by providing it.  And they have! 

There are already many voluntary labeling programs consumers can use if they wish to avoid biotechnology including organic and certified non-GMO labels.  Of course, these products are more expensive than conventional products – but that’s because they are more costly to produce.  But, it simply isn’t true that Californians do not have a choice to buy GMO or non-GMO foods.

Unintended Consequences of Mandatory Labeling of Genetically Modified Food

​This November when Californians go to the polls to vote for Romney or Obama, they will also vote on Prop 37.  If passed, the proposition will require mandatory labeling of genetically modified food.

Proponents of Prop 37 argue that Californians have a right to know what’s in their food, that it would be essentially costless for agribusinesses and food retailers to simply add a label, and that it would send a message to multinational agribusiness firms.  I’ll address the first two issues in future posts, but for now I’ll simply say that the presumption that labeling will somehow help small farmers and food processors is probably mistaken.  Increased regulation often increases the power of large incumbent firms (who can employ teams of lawyers and strategists) - much to the surprise and dismay of regulation supporters.

Here is what Dan Murphy at Drovers recently had to say about the issue:

If GMO labeling becomes a hot-button problem, the executives decided, it will hit heavier on smaller companies—just like nutritional labeling and HACCP and every other regulatory initiative put in place over the last several decades. All that does is thin out the competition for shelf space, since the added costs are more easily passed along to the end user by the category leaders, as opposed to manufacturers struggling to hold onto market share.