The International Consortium on Agricultural Biotechnology Research (ICABR)
Consumer's attitudes, vertical differentiation, and labeling regulation in the food industry: new GM-products vs. traditional regional products
Coppola A., Gorgitano M. T., Sodano V. e Verneau F.
UniversitÓ degli Studi di Napoli - Federico II
Biotechnological and Genetically Modified (GM) product innovations provide the food industry with two sources of competitive advantages: cost advantages, through introduction of yield increasing and/or cost saving technologies and differentiation advantages through the introduction of product enhancing technologies. Since larger companies will be more likely to innovate new technologies with greater investments in R&D, the diffusion of biotechnologies in the food industry could have two effects: 1) higher industry concentration, and 2) a decrease in the competitiveness of the traditional European food industry, a result of the characteristic smaller firm size and higher cost associated with traditional production methods. Traditional products, like many regional Italian products, will survive only if consumers retain a preference for the conventional production methods. This would result in a vertically differentiated product market, traditionally produced vs. genetically modified.
This paper discusses the results of simulated market research evaluating consumers preferences toward GM and non-GM food products. We run three experimental models with varying hypothetical levels of consumer information and risk aversion. We find that uninformed consumers tend to prefer, ceteris paribus, non GM products to GM products, while informed consumers prefer non GM only in the case where they are risk averse. When the non GM product is compared with an enhanced GM product, some consumers still prefer non GM product, while most prefer GM.
These results demonstrate that there is a place in the market for vertical differentiation policies based on the wholesomeness of traditional production methods. It also shows information and risk attitudes strongly influence consumer acceptance of GM products.
These outcomes add new elements to the comparison between the US and the European food labeling laws. The US version that maintains the equivalence of GM and conventional products and discourages full disclosure of non-GM products limits the choice of differentiation strategies and gives the traditional food industry significant competitive disadvantage. On the contrary, the European Union mandatory labeling law and encouraging disclosures of conventional techniques is more likely to support traditional production. One conclusion is that the EU labeling regulation, leaving the product selection subject to the market forces and consumer preference, is more welfare improving than the US regulation.