The International Consortium on Agricultural Biotechnology Research (ICABR)
Consumption Effects of Genetic Modification: What if Consumers are Right?
Konstantinos Giannakas, University of Nebraska-Lincoln.
Consumer concern about genetically modified (GM) food is one of the most notable features of agricultural biotechnology. Unlike farmers who have seen agronomic benefits in the new technology and have quickly adopted transgenic plants, consumers have expressed reservations about the foods produced from these crops. Consumer resistance to genetic modification is founded on health, environmental, moral and philosophical concerns about the "new" practice.
In response to this consumer reaction, a number of food companies around the world have indicated that they are only accepting/selling non-GM products. Governments in the European Union and elsewhere have also responded by introducing mandatory labeling or by banning specific GM products. A requirement of the Biosafety Protocol signed by 130 countries in Montreal earlier this year is that shipments of food products that may contain GMOs are to be labeled as such.
Whereas labeling of food products satisfies consumer demand for the right to make informed consumption decisions, the introduction of segregation and labeling raises a number of issues that affect everyone in the food chain. One issue is the added costs that segregation and labeling introduce and the economic impact of these costs on consumers. A second issue is that segregation and labeling activities create incentives for the misrepresentation and mislabeling of genetically modified food as traditional food.
The objective of this paper is to develop a conceptual model that examines the consumption effects of genetic modification under alternative labeling regimes and segregation enforcement scenarios.
More specifically, the paper analyzes the effect of genetically modified foods on the welfare and purchasing decisions of consumers under: (i) no labeling; (ii) mandatory labeling under full compliance; (iii) and mandatory labeling when misrepresentation of the type of the product (i.e. mislabeling) occurs.
In analyzing the consumption effects of genetic modification, this paper explicitly accounts for consumer heterogeneity. To capture the different attitudes towards genetic modification, consumers are postulated to differ in their willingness to pay for GM food. Consumer heterogeneity is critical in understanding how a demand for both GM and non-GM products exists when labeling occurs.
Analytical results show that if consumers perceive GM foods to be different from their traditional counterparts, then demands for the banning of GM products and GM labeling are rational. For instance, when the existence of market imperfections in one or more stages of the supply chain prevents the transmission of the cost savings associated with the GM technology to consumers, then the introduction of GM foods will generally result in welfare losses for consumers. This is true no matter the labeling regime that is in place.
Given that GM foods have been introduced into the food system, the analysis also shows that the relative welfare ranking of the "no labeling" and "mandatory labeling" regimes depends on: (i) the level of consumer aversion to genetic modification, (ii) the size of marketing and segregation costs associated with mandatory labeling; (iii) the share of the GM product to total production; and (iv) the extent to which GM products are incorrectly labeled as non-GM products.