The Economics of Genetically ModifiedFood Labeling

PRESENTED BY: KELSEY ZOOKWILKES UNIVERSITY

MBA 592

Agenda• Introduction

• Food Labeling Legislationo Historyo Current Regulationo Contributing Agencies

• Producerso Industry Reactions

• Consumerso Millennial Consumer Impacts

• Economic Analysis

• Challenges & Opportunities

IntroductionGenetically Modified Foods:

oOrganisms in which the genetic material (DNA) has been altered in a way that would not occur naturally

• Consumers calling for increased transparency in food industry

• Voluntary vs. Mandatory GM food labeling

• Labeling = Differentiation and Communicationo Food labeling functions as the primary means of communication between producers and

consumers

Food Labeling Legislation

Pure Food & Drugs Act

1906

Federal Food, Drug & Cosmetic Act

1938

Fair Packaging & Labeling Act

1966

Nutrition Labeling & Education Act

1990

Current Legislation Safe & Accurate Food Labeling Act• Introduced to U.S. Senate, March 2015

• Preempts all state laws relating to mandatory labeling of GM productso Standards for uniform, national GM labeling

- Utilizes QR codes, websites, phone numberso Certification process for non-GM foods

• Trade groups vs. Advocacy groups

Production• United States = largest global producer of GM cropso Corn, Soybeans, Rapeseed, Cotton are the most common

o In “Corn Belt” States as much as 90% of corn & soybeans planted are GMO

• Consolidation among GM seed producers

o Top 10 GM Seed producing firms = 73% market share in 2013

Producer Reactions• Mandatory Labeling is Inherently misleading

o Concerns with mandatory GM labeling related to economics not safety

• Some producers are taking matters into their own hands

Campbell Company Example

- Beginning January 2016, voluntarily labeling all GM food products

PepsiCo’s Tropicana Example

- Manufacturer choosing to label some products for GM ingredients is a marketing ploy

Consumers• 93% of American consumers want to know if food products contain GM ingredients

• 56% of American adult consumers seek nutritional information on food labels

• 1.3 million American consumers have signed a petition – demanding FDA mandates GM food labeling

“It [GM labeling] will encourage hysterical reaction and discourage thoughtfuldeliberation about the risks posed by biotechnology”

- - Johnathan Frenzen (Clinical Professor of Marketing, University of Chicago)

Millennial Consumers• Consumers born after 1980

• Account for greatest percentage of food buying market share

• Mintel reports, 2/3 of Millennials pay close attention to food labels

“Real - Searchers”o Millennials are quick to fact-check

“Ultimate Day Traders”o willing to trade up or down, depending on preferences

Millennial Consumers Continued…• Price Elasticity increases as uniqueness, authenticity, & meaningfulness increases for product

• Organic food purchases increasing among Millennials

o Among Household leaders purchasing organic, more than 52% are now Millennials

• Social Media Effect

Economic Analysis of GM Food Labeling

“An Economic Analysis of Nanofood Labeling” By: Tran, Yiannaka, & Giannakas

of University of Nebraska-Lincoln

• Consumers willing to pay more as a means of avoiding risk

o Participating consumers support argument that GM labeling results in risks & benefits

• Adverse consumer response = slower adaptation

• Cost Effect vs. Preference Effect Under Mandatory Labeling Regime

o Increased cost for consumers

o When Preference & Cost Effect work in same direction more consumers switch to substitute product

Economic Analysis Continued…

Tran, V. T., Yiannaka, A., & Giannakas, K. (2014). An economic of nanofood labeling. American Agricultural Economics Association.

Consumer Impacts of GM Labeling• Cost Effect > Preference Effect:o Price of GM Foods will increaseo Consumers will switch to substitute for GM food product

• Preference Effect > Cost Effect:o Consumers more averse to GM food productso Price of GM Foods will increase

• Certainty Effect > Stigma Effecto Consumers who prefer GM food products

Producer Impacts• For GM Food Producers/Manufacturers

o Consumer preference decreases Leftward shift of demand curve

o Leading to Decreased Profit Margins

- Increased cost of production

- Decreased consumer demand

• For Organic Food Producers/Manufacturers

o Increased demand & Profits

Conclusions: Challenges• Producerso Changing Consumer Preferences

o Conforming to future GM Labeling Legislation

• Consumerso Unknown labeling methods

o Continued concerns with Transparency

• Legislation/Regulatoryo International Trade

- Anti GM Food Legislation in importing countries

- Cultural Differences (Hofstede’s Dimensions)

Conclusions: Opportunities• Producerso Organic food markets

o Capitalizing on Millennial eating habits

• Consumerso USDA Certified Organic foodso Additional information about food through Safe & Accurate Food Labeling Act

• Legislation/Regulatoryo Solving Food Insecurity

o Possible solution to domestic & international “Food Deserts”

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