The International Consortium on Agricultural Biotechnology Research (ICABR)
Consumers attitudes, vertical
differentiation, and labelling regulation in
the food industry new GM-products vs.
traditional regional products*
Gorgitano Maria Teresa
Department of Agricultural Economics
University of Naples Federico II** Italy
The European food sector gives consumers the chance to choose among numerous specialty goods, with the prevalence of regional products, whose peculiarities rest on culturally and historically rooted ways of production and consumption. The variety of food products, tastes and cooking in many European regions (mostly in France and Italy) is associated with the worldwide reputation of the Mediterranean diet, and has long been a competitive advantage for the European food system with respect other countries, like US, with higher cost advantages.
Current structural and strategic trends in the international food market are likely to negatively affect the competitive position of regional products. The standardization of food consumption patterns, the consolidation of food manufacture and retail sectors, and biotechnology, are all three factors able to waste market niches at present occupied by regional products.
The paper seeks to throw light on the way how biotechnology can affect differentiation strategies in the food market. It assumes that GM products can differ from the NGM ones in two ways: a) they could have new attributes that meet further consumers needs (which can account both for horizontal and vertical differentiation); b) their consumption could be perceived as risky. The latter case accounts for vertical differentiation because if consumers perceive a risk related to GM products, then, under the same price and income conditions, they will prefer NGM ones.
The paper focuses on the analysis of relationships between risk perception and market vertical differentiation.
Section 1 analyzes market equilibria with vertical differentiation. We consider a market where two quality levels for a particular product are available: the low quality (GM) and the high quality (NGM) product. The basic assumption is that the difference between the low and the high quality depends on GMs risk perception. If consumers perceive a risk related to GM products, then, under the same price and income conditions, they will prefer NGM products to the GM ones. When the degree of differentiation is exogenously determined by the consumer risk perception, then only price competition is viable. Referring to a model suggested by Gabszewicz and Thisse, we show that in this situation the competitive game between high quality and low quality player leads to the following results:
1) in a particular country with a given income distribution the market share of GM and NGM products will depend on the degree of differentiation between the two products, i.e. on the perception of risk for GM products;
2) given the same risk perception, the success of GM products will depend on the country income distribution: the more successful the NGM products are with respect to the GM ones, the higher the average income and the lower the income differentiation.
Section 2 addresses the analysis of consumer risk perception from a sociologically rather than economically-rooted perspective. Psychometric research demonstrates that whereas experts define risk in a narrow, technical way, people have a more complex view that incorporates value considerations such as equity, catastrophic potential and controllability. Therefore these considerations should be integrated into risk analysis and policy decisions. Following this perspective many studies have suggested that risk perception can be affected by: a) voluntariness of exposure (viewed as a key mediator of risk acceptance); b) familiarity; c) control; d) equity; e) level of knowledge.
Section 3 describes an empirical research recently carried out among consumers in the South of Italy offering an estimate of risk perception and consumers' attitudes towards GM products. Empirical results indicate that in the considered region consumers are strongly GM products adverse. Only about 10% would buy GM food and only in the case the new product was characterized by lower price and/or by enhanced attributes. Moreover all consumers ask for mandatory labeling and about 1 out of 3 would agree with restrictions on marketing and production. Responses to questions dedicated to risk attitude analysis suggest that aversion toward GM food is explained both by consumer risk aversion and GM risk perception. In other words, also consumers who do not perceive new product very risky, since they are risk-averse will not buy them anyhow.
Concluding section contains a summary and draws some conclusions on the role of GM product regulations in driving market forces. The main suggestion is that high risk perception currently makes NGM products competitive towards GM products (provided that mandatory labeling allows consumers to discriminate between the two products). Nevertheless if risk perception fades spurred by changes in informational and institutional environment, NGM products, and among them traditional products, will have to struggle to keep their position in the market. Furthermore GM producers, as trust in new technologies increases, are very likely to launch new enhanced GM products able to fill every niche in the market and to give them a new horizontal differentiation-based competitive advantage. The result is that European agri-food system which strongly bases its competitive strength on horizontal differentiation and traditional regional products, could lose the competitive game with other countries, like US, hardly GM-oriented.
* Paper presented for 5th International Conference of the International Consortium on Biotechnology, Science and Modern Agriculture: a New Industry at the Dawn of the Century- Ravello (Italy) June 15th 18th 2001.
** Contact author: Coppola Adele, e-mail: email@example.com, Gorgitano Maria Teresa, e-mail: firstname.lastname@example.org, Sodano Valeria e-mail: email@example.com, Verneau Fabio e-mail: firstname.lastname@example.org. Common Adress: Dept. of Agricultural Economics University of Naples Federico II, Via UniversitÓ, 96 80055 Portici (Italy).