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.

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.

Does Prop 37 Impose Zero Tolerance?

​A bit of a debate has heated up in reference to one of the provisions of California's Prop 37, which would require mandatory labeling of GE foods.

Parke Wilde at Tufts put up a post a few days ago​ in which he says:

The editorial, which was widely published in other newspapers, claims that the proposal has a zero-tolerance for accidental GMO content in foods that aren't labeled as containing GMOs. Such a policy would force producers of essentially non-GMO products to use the label "may contain GMOs," simply out of fear of litigation.  But the editorial is mistaken. The initiative rightly allows foods that do not intentionally contain GMOs to carry a "non-GMO" label. 

​The story was picked up by Michele Simon at the Huffington post, who took the opportunity to disparage several top-notch economists at UC Davis.  (in full disclosure, in a previous post, I too made the claim about zero-tolerance in reference to Prop 37).  

There seems to be very little room for reasonable debate here.  Proponents of Prop 37 say there will be trivial costs and no lawsuits.  Opponents of Prop 37 say the opposite.  Proponents point to the literal text of the law.  Opponents tend to point to the dynamic interactions between firms an consumers that may occur as (perhaps unintended) consequences of Prop 37.  Thus, both can claim to be "right" and the public is totally confused.  

I personally​ don't know what will be the ultimate consequences of Prop 37.  But, I think any reasonable person must go beyond a literalist interpretation of the proposition language if they want to understand the potential consequences.  In one of his most well-known books, Thomas Sowell argues that to really understand the economic effects of a policy, you have to move beyond stage-one thinking and ask "and then what happens?"

It is true Prop 37 doesn't literally force processors and retailers to adopt more expensive non-GE products but that may be the ultimate consequence (or it may not - but we have to keep open the possibility).  It is also true that Prop 37 doesn't literally impose zero tolerance but that may well be the ultimate consequence.  

Truth is we don't really know.  But, consider a possible chain of events at some point in the future.  Despite the wording of the law, some individual in CA tests and finds that a non-labeled product contains GE (ANY trace of GE no matter how small).  The manufacturer of the product is then sued.  Then, it would be up to the manufacturer to provide all the sworn statements of unintentional use of GE.  But, then how do you prove “unintentional” or "accidental"? This is especially when every farmer (who provides the sworn statement) knows there is some chance the seed they plant contains at least some small traces of GE.  Even if the manufacturer withstands the legal challenge, non-trivial legal costs must be incurred to prove innocence.  Moreover, if one reads the full text of the law, they can see  that after July 1, 2019, the exception for "unintentional" use disappears - making the tolerance effectively zero at that time, 

It is that sort of reading and reasoning that I think folks are referring to (or at least that I am referring to) when saying that Prop 37 imposes zero-tolerance.   

When are Voluntary Labels Preferred to Mandatory Labels?

In a previous post, I argued that one of the key factors determining the ultimate effects of Prop 37 in California will be how retailers respond.  Will they choose to label all products "may contain GE ingredients" or will they switch to non-GE and not label?

Pro-Prop 37 folks argue that companies will simply add a label and the thus the costs of Prop 37 will be trivial (the costs mainly being the addition of a few words on a package)​.  Some economists argue the opposite, and suggest that the ultimate costs of Prop 37 will be very large because food prices will drastically increase due to retailers and processors switching to non-GE ingredients.  

I recently exchanged emails with the author of the above mentioned report​ arguing labeling costs will be trivial.  I asked why they thought firms will simply add "may contain GE" labels.  The answer, in short, was that we shouldn't expect the costlier European outcome (i.e., all products are non-GE and there are no labels) because Americans are less concerned about biotechnology than Europeans.  

I happen to agree with this assessment.  But, I thought it was a curious response coming from a proponent of mandatory labeling.  The economic research suggests that when demand for for non-GE products (as expressed by market behavior)  is relatively low (as it seems is the case in the US given the size of the organic and non-GE market) voluntary labels are preferred to the mandatory labels that would be required by Prop 37.  

Here is a summary of the economic research on the topic in a book chapter​ by Marks, Kalaitzandonakes, and Vickner (2004; pg., 36):

Protecting consumer’s ‘right to know’ and the ‘right to choose’ is advanced as the main reason for the current European policy stance.  In principle, there can be little objection to the argument that consumers should be able to exercise such rights.  Market transparency is the linchpin of well-functioning markets.  However, mandatory labeling is not the only option that would allow consumers a choice.  Indeed, given that mandatory labeling systems are costly to implement (Kalaitzandonakes et al., 2001) costs and benefits with such labeling regimes must be carefully weighted in order to decide their optimality (Giannakas and Fulton, 2002).  In this context, the proportion of consumers that would effectively discriminate between GM and conventional foods in the market place is a key parameter (Giannakas and Fulton, 2002).  Indeed, Caswell (1988, 2000) and Giannakas and Fulton (2002) have argued that a volunatary labeling programme may better serve a country where only a minority of the population is interested in separating GM from non-GM foods.

Whose Afraid of GMOs?

We humans are notoriously bad at judging relative risks.  We worry about some things that are very unlikely to happen (e.g., getting bit by a shark while visiting the beach), while ignoring other activities that are much riskier (e.g., driving to the beach).     ​

​This economic meme by Art Carden humorously points out such an inconsistency in the way we think about many food risks