Might consumers interpret GMO labels as a warning label?

Opponents of mandatory labeling of GMO foods often argue that requiring mandatory labels could mislead consumers - making them think there is a safety risk when the best science suggests the opposite.  This is no minor issue, as citizens in Oregon and Colorado will vote on mandatory labeling initiatives this November (previous voter initiatives in California and Washington narrowly failed; legislation in Vermont has already passed).  

Here, for example, is an unlikely critic of mandatory GMO labeling, Cass Sunstein (Obama's former "regulatory czar") writing for Bloomberg.com:

“... GM labels may well mislead and alarm consumers, especially (though not only) if the government requires them. Any such requirement would inevitably lead many consumers to suspect that public officials, including scientists, believe that something is wrong with GM foods — and perhaps that they pose a health risk.”

I have made related arguments in the past, and have even published some prior academic work giving some empirical evidence backing the concern.  However, the evidence is far from conclusive.

Marco Constanigro at Colorado State University and I decided to investigate the issue more directly in a couple studies we conducted last year, which are now published in the journal Food Policy.  

Our research strategy sought to determine whether consumers who were exposed to foods that had GMO labels subsequently indicated higher levels of concern than people who hadn't been shown such labels.  

In the first study, we used apples as the context.  Respondents were randomly assigned to one of three groups.  One group (the control) made choices between apples that did not mention GMOs at all - that had a decoy attribute: ripening with ethylene.   Another group made choices with mandatory ("contains") GMO labels, and another group with voluntary ("does not contain") labels.  The following shows examples of choices we presented to people in the control and treatment groups.

After making several choices between apples like this with different labels, then we asked each set of consumers a bunch of questions about how safe they thought it was to eat GMOs, how concerned the were about GMOs relative to other issues, etc.

Here's the first key result: There was no consistent statistically significant difference in the average level of concern for GMOS expressed by people shown different labels.  That is, the mere presence of the GMO label did not lead to a greater level of concern about GMOs.

However, we can also study the actual apple choices that people made, and use those choices to infer aversion to GMOs.  And here, another set of interesting results emerges:  Consumers' willingness-to-pay to avoid GMOs is more than twice as high in the presence of mandatory "contains" GMO labels as compared to voluntary "does not contain" GMO labels.  Also, willingness-to-pay to avoid ethylene ripening (a common, and heretofore uncontroversial, industry practice) is as high as that to avoid GMOs.

In the second study, respondents were divided into one of two groups.  The first control group was shown an unaltered box of cheerios and was simply asked to click on the areas of the box they found most and then least appealing.  A second treatment group did the same but for a box of cheerios that had, in small print on the bottom left-hand-side of the package the label "partially produced with genetic engineering."   After looking at these packages, we then asked each set of respondents a series of questions about how safe they thought it was to eat GMOs, how concerned the were about GMOs relative to other issues, etc.  The idea is that if GMO labels signal safety then those people who say the mandatory label should subsequently indicate a higher level of concern than those who did not see such a label.

Here are "heat maps" associated with the initial the results where we simply asked people to click on the areas they found most/least desirable.  The top pictures show the clicks for most desirable and the bottom pictures the clicks for the least desirable (clearly people in the GMO treatment noticed the GMO label and found it unappealing):

Here's the key result: There was no statistically significant difference in the level of concern for GMOS expressed among people shown the box with the GMO label vs. the group shown the box without the GMO label.  

Thus, neither study supported our hypothesis that the mere presence of GMO labels would lead people to believe GMOs are more or less safe.  

Here's how we concluded the paper:

“We interpret the evidence as suggesting (at least in the context of our studies) that any signaling effects, should they exist, are likely small and below the ability to consistently detect given our sample sizes of approximately 200 participants per treatment. Nevertheless, we do not believe the results completely rule out the possibility of a signaling effect.

A true labeling mandate imposed by law may well send a different signal about the nature of scientific and public concern than labels shown by researchers on a survey. It is likely impossible for a researcher to impersonate governmental authorities (and the media and culture surrounding a “real world” label implementation) required to fully reproduce the potential signaling effect of a labeling requirement. Our approach – exposing consumers to GM labels via a choice experiment or modified packaging – only simulates exposure to GM labels in a market-like setting, and it must be acknowledged that “real world” effects are possibly more pronounced.

There are at least two other reasons to believe that some forms of signaling are alive and well. First, study 1 reveals that mandatory “contains” labels generated significantly higher implied willingness-to-pay to avoid GE food than voluntary “does not contain” labels. The differences in responses to mandatory vs. voluntary labels may result from the asymmetric negativity effect, which may in turn result from differences in what these two labels signal about the relative desirability of the unlabeled product. The differences in the “contains” vs. “does not contain” may also send different signals and change beliefs about the likelihood that the unlabeled product is GE or non-GE. Second, in study 1 we found aversion to our “decoy” attribute – ethylene ripening – in the control that is on par with aversion to GE food. During fruit storage, atmospheric ethylene is often controlled to slow or accelerate the ripening process (see Sinha et al., 2012), but we are not aware of any significant controversy over its use. Ethylene is a natural plant hormone, and many consumers use the same mechanism when they put a banana in a fruit bowl to induce ripening. Should produce ripened with ethylene also be required to be labeled? Did the mere presence of the attribute on our survey signal consumers that it is an attribute that should be avoided?”

Who are the vegetarians?

One of the challenges researchers face in trying to learn about the characteristics of vegetarians is that there are so few of them.  I've seen estimates that put the percentage of vegetarians in the US population as high as 13%, but most estimates are closer to 5%.  That means that if one does a survey that has 1,000 respondents (which is a pretty typical sample size for pollsters), you'll only have about 50 vegetarians in the sample - hardly a large enough sample size to say anything meaningful.

We've been running the Food Demand Survey (FooDS) for 19 months now, and each monthly survey has over 1,000 respondents.  I took the first years' data (from July 2013 to July 2015), which consists of responses from over 12,000 individuals.  This sample is potentially large enough to begin to make some more comprehensive statements about how vegetarians might differ from meat eaters in the US.

Applying weights to the sample that force the sample to match the population in terms of age, gender, region of residence, etc., we find that 4.2% of respondents say "yes" to the following question: "Are you a vegetarian or a vegan?", which means that 95.8% say "no".  

There is some sampling variability from month-to-month, but overall, the trend in the percentage of respondents declaring vegetarian/vegan status has remained relatively constant, and if anything, has trended slightly downward over time.

So, how do self-declared vegetarians/vegans differ from meat eaters?  The following table shows differences/similarities in socio-economic and demographic characteristics.

Some of the biggest differences appear for age, race, overweight status, and politics.  Vegetarians tend to be younger, less white, skinnier, and more liberal than meat eaters.  Two unexpected results are that vegetarians indicate a much higher rate of food stamp participation (which is a bit surprising since the share of households with >$100K in income is higher for vegetarians than meat eaters) and a much, much higher rate of food-borne illness.  

In our survey, we also measure respondents' "food values" (for detail on the approach, see this academic paper we published).  This approach requires people to make trade-offs (they cannot say all issues are most important).  Respondents are shown a set of 12 issues and are asked to place 4 (and only 4) of them in a box indicating they are the most important issues when buying food, and to also place 4 (and only 4) issues in a box indicating they are the least important issues when buying food.  We measure relative importance by subtracting the share of times an item appears in the least important box from the share of times it appears in the most important box.  Thus, relative importance is on a scale of +1 to -1, and average scores across all 12 items must to sum to zero.  

Meat eaters tend to rate taste and price as relatively more important food values than vegetarians.  Vegetarians tend to rate animal welfare and the environment as more important food values than meat eaters.  Even still, vegetarians rate nutrition, taste, price, and safety as more important food values than animal welfare or the environment.  

The survey also shows people a list of 16 issues and respondents indicate how concerned they are about each issue (1=very unconcerned to 5=very concerned).  As the table below shows, vegetarians are more concerned about all issues than are meat eaters, even an issue like GMOs which is (at present) primarily a plant issue.  The difference in level of concern between vegetarians and meat eaters is particularly large for gestation crates, battery cages, and farm animal welfare.  

Given some previous discussion on the economics of Meatless Monday, I ran some statistical models to determine whether vegetarians tend to spend more or less on food than meat eaters.  

Without controlling for any differences in income, age, etc. that were found in the initial table above, I do not find any statistically significant differences in spending patterns.  Meat eaters report spending about $94/week on food eaten at home and vegetarians report spending about $3 less (a difference that isn't statistically significant); meat eaters report spending about $46/week on food eaten away from home (e.g., at restaurants) and vegetarians spend about $9.80 more (a difference that isn't statistically significant).  Even after I control for differences in income, age, etc., I do not find any significant differences in food expenditures between vegetarians and meat eaters.  The biggest determinants of food spending is income (high income individuals (>$100K in income) spend $35/week more away from home than low income (<$40K in income)) and household size (larger households spend more).  Younger people spend about the same as the older on food a home, but spend more eating out than do the old.  

When fat taxes meet the supply side

Last week at the European Association of Agricultural Economist's meetings, I saw Louis-George Soler present a keynote talk on food and nutrition policies.  The paper-version of the talk, written with Vincent Réquillart  is being published in the European Journal of Agricultural Economics.

One of the key points of his talk was that much of the policy analysis on effects of fat taxes, soda taxes, veggie subsidies, etc. only consider consumer responses and ignore how firms will react to the policies.  It is often the case that such supply-side responses will substantively reduce the health impacts of the policies.

For example, suppose Congress passed a law banning advertising of sweetened sugared cereal to children.  How might Kellogg's or General Mills respond?  Given that the firms can no longer  use their revenue on promotion and advertising, they might instead re-direct those funds to cost-cutting efforts that reduce the cereals' prices.  Competition moves from who has the most compelling ad to who has the lowest price.  Lower prices will encourage more consumption: exactly the opposite of what was intended by the ban.

Another point they raise is related to the "pass-through" effect of taxes on firms profits and retail prices.  Given the nature of competition between firms and the type of tax (excise or ad valorem), a tax can be "over-shifted" or "under-shifted" to consumers.  Thus, tax policies might cause a larger or smaller reduction in consumption than anticipated.

Take another example.  Suppose the government requires firms to add "high fat" labels to certain products.  The research cited in the Requillart-Soler paper suggests that firms may respond by lowering the price of the high fat items and increasing the price of the low fat items.  While the "high fat" label will tend to discourage consumption, the now lower relative price for high fat items will tend to encourage consumption.  

None of this is to say that food policies won't have any impact on health, only that studies which ignore food companies' responses to the new policy environment will often overestimate the health impacts of food policies.   

A problem with cost-benefit analysis?

I'm a fan of cost-benefit analysis.  The approach provides a systematic way to think through the consequences of public policies and provides a reasonable approach to debate merits and demerits of a policy.  

Cost-benefit analysis shouldn't be the final word on a policy because there are some "rules" we may care about regardless of immediate short-run consequences.  For example, even if a cost-benefit analysis found that the benefits to TV thieves outweighed the costs to prior TV owners, few would support a policy of decriminalizing TV theft, in part because a society that had such little respect for property rights is not likely one that would be prosperous in the long-run (or enjoyable to live in for that matter).   All this is a way of saying that our moral intuitions often conflict (sometimes rightfully so) with a short-term utilitarian premise implied by cost benefit analysis (the trolley problem is a common example).

In the realm of food and public health policy, sometimes the way benefits and costs are calculated are myopic, fail to account for dynamic market responses to policies, and rest on shaky methodological assumptions.  Moreover, when we find that benefits exceed costs, one should also ask: what is preventing the market from capitalizing on this arbitrage opportunity?  Stated differently, there would need to be solid evidence of market failure (or some  government failure) in addition to a positive cost-benefit test to justify a public policy.          

Despite these qualms, I see cost-benefit analysis as a useful tool, and it provides one input into the decision making process.

Lately, I've been thinking about what happens to a cost-benefit analysis when one considers multiple policies - in an environment where are increasing calls for new regulations? 

Suppose one did a cost-benefit analysis (CBA) on mandatory country of labeling for meat.  Then, a CBA on a ban on use of subtherapeurtic antibiotics in meat production.  Then, a CBA on a ban on growth hormones.  Then, a CBA on banning gestation crates in pork production.  Then, a CBA on banning transfats.  Then, a CBA on new water regulations for confined animal feeding operations.  Then, a CBA on a carbon tax on methane production from cows.  (I could go on - these represent but a few of the policies that are commonly batted around that have some impact on meat and livestock markets.)  

Is it possible that each of these policies - in isolation - could pass a cost benefit test, and yet when considered jointly fail the test?  Stated differently, is it possible to strictly follow a cost-benefit rule when adopting public policies (only passing policies that pass a CBA) and wind up with a world that we find as less desirable than the one we started with?

I think the answer may be "yes."  For example, each CBA in isolation will assume that the status quo prevails with regard to every other policy.  But, the general equilibrium effects could differ from these individual partial-equilibrium analyses, particularly if there are nonlinearities.

Tyler Cowen recently linked to a new paper by Ian Martin and Robert Pindyck on policies related to catastrophic events that also seems relevant to this discussion.

“How should we evaluate public policies or projects to avert or reduce the likelihood of a catastrophic event? Examples might include a greenhouse gas abatement policy to avert a climate change catastrophe, investments in vaccine technologies that would help respond to a “mega-virus,” or the construction of levees to avert major flooding. A policy to avert a particular catastrophe considered in isolation might be evaluated in a cost-benefit framework. But because society faces multiple potential catastrophes, simple cost-benefit analysis breaks down: Even if the benefit of averting each one exceeds the cost, we should not avert all of them.”

Cowen summarized the paper as follows: 

“The main point is simply that the shadow price of all these small anti-catastrophe investments goes up, the more of them we do, and thus we cannot do them all, even if every single investment appears to make sense on its own terms.”

Typical CBAs often ignore the the hundreds (if not thousands) of laws that already affect farmers' and food purveyors' ability to operate.  It does make one wonder whether diminishing returns shouldn't feature more prominently in CBA.

A short lesson on experimental auctions

One of the most robust findings from the research on what consumers are willing to pay for non-market goods (for example, foods made with new technologies that are not yet on the market) is that people tell researchers they are willing to pay more than they actually will when money is actually on the line.  One review showed, for example, that people tend to overstate how much they are willing to pay in hypothetical settings by a factor of about three.  That means if someone tells you on a survey that they're willing to pay $15, then they'd probably only actually pay about $5.

One way to deal with this problem of hypothetical bias is to construct experimental markets where real money and real products are exchanged.  The key is to use market institutions that give consumers an incentive to truthfully reveal their values' for the good up for sale.  I wrote a whole book with Jason Shogren on the subject of using experimental auctions for this purpose a few years back.

I recently filmed a short primer on the consumer research method for an on-line course being created by my colleague Bailey Norwood.  He graciously put it up online for anyone's viewing pleasure.