Canadian Food Business
Stuart Smyth
In the mid-1990s, genetically modified (GM) crops and their resulting food products entered the North American and European markets virtually unnoticed. In fact, products in Europe labelled as containing GM ingredients and being made from GM products outsold similar products in the late 1990s. In Canada and the USA, GM crops and products triggered minimal consumer concerns or even awareness. So, what has changed? Why is it routinely reported that consumers are increasingly demanding that food products be labelled as to whether they contain GM ingredients? Why are various American states holding referendums on GM labelling? This review will provide insights into the rise of the GM labelling issue and offer some thoughts on a means of moving forward.
The Debate
In Canada, it has been estimated that GM foods and food ingredients are detectable in 11% of foods consumed and might be present (but often not detectable) in up to 75-80% of the processed foods sold in stores. Examples range from GM papaya and GM sweet corn that are directly consumed, to sucrose and fructose from GM corn that are used as sweeteners in numerous products, GM enzymes that are used in cheese production1 and GM yeast2 used in the baking industry. Although regulators around the world have ruled that there is no scientific evidence to support claims that these foods involve any new or magnified risks, many civil society groups and a large portion of consumers are simply not convinced. In absence of any definitive long-term studies showing these foods are safe, and in response to heightened apprehension about food safety issues, civil society groups and consumers seek mandatory labelling for GM foods. The reasons offered in defense of mandatory labels include: consumers’ right to know what is in their food; giving consumers the ability, at point of sale, to choose or avoid GM foods; and enhancing long term monitoring and surveillance of GM foods.
The demand from consumers to know what is in their food is not a standalone issue, but part of a greater societal movement pertaining to our proximity to food. Witness the concern about horsemeat contamination of beef in Europe, mandatory nutrition and country of origin labelling in many countries, the inclusion of calorie counts for meals in restaurants and the rise of urban gardening as a means of shortening food chains. All of these examples indicated that consumers are increasingly concerned about potential risks related to their food consumption habits, and perhaps more importantly these examples indicate that consumers want recourse to accountability in food systems that traceability and other documentation are intended to support.
At root, labelling is about providing accessible and meaningful information to consumers. Information is like money, in the sense that people will generally respond that they would prefer to have more of it rather than less. An interesting aspect of money, however, is that happiness does not always follow affluence. After a certain point, as reports from late-stage industrialized countries indicate, more money is actually associated with less happiness, and many people will trade money for other things they value, like health or time. Following this analogy, a question can be raised about access to information. Does a similar pattern exist for information, such that the desire for more information, and the ability to access that information, reaches a saturation point where new information does not improve welfare and perhaps even undermines well-being? A further question can be raised about whether the impulse for more information needs to be considered in the sobering light of how useful the information is in the context of daily life, particularly when the information might be traded off for other considerations deemed more valuable?
When Canadians are asked if they would prefer to have information about whether their food is GM, or contains GM ingredients, nearly all say they want the information. The issue of labelling, whether it is mandatory or voluntary, spans the full spectrum of opinions. Environmental groups and critics of biotechnology claim that greater than 95% of consumers responding to surveys indicate that they want GM content to be labelled, but other surveys show that only 2% of unprompted consumers ask for GM labelling. The real demand for labelling lies somewhere between the two; determining whether it is greater or less than 50% should help to determine what type of labelling is optimal.
The Cost of Information
Because labelling is one among several factors contributing to cost, producers and packagers have an interest in whether the effect of labelling GM contents in foods will meet consumers’ desire to have this information, while at the same time generating adequate revenues to recoup the extra costs associated with any label change. Marketing products to consumers involves a complicated mix of label messages, consumer knowledge and product context. All these factors may influence the willingness of consumers to pay for GM products or to avoid them. The major challenge in determining how much consumers would be willing to pay to have increased labelling information is that wherever possible, people want information at little or no cost to themselves. Frequently, critics of biotechnology make the statement that ‘labelling for GM is costless – all that is required is to put a label on the products.’ Obviously, nothing is free, but the challenge is to determine what the costs are and who should bear them. Consumer studies can assist in determining the aggregate value individuals place on this information, and should allow us to determine the optimal amount of information that should be provided.
Market surveys3 show that many US consumers do not understand the term GM-free when used in product label information. Using simulated test markets for salty snack food and fresh packed vegetables, eight characteristics were offered to inform the consumer about the product. The characteristic ‘free of genetically modified ingredients’ was the lowest rated. This experiment also revealed that consumers, who before the experiment indicated that GM-free ingredients were ‘extremely’ or ‘very’ desirable when making a purchase decision, did not express more interest in the food products labelled GM-free than in products labelled GM when faced with actual purchase choices.
Some literature suggests that consumer willingness to pay for products labelled as GM can vary widely.4 Consumer preference for products labelled with a 1% tolerance level versus a 5% tolerance level were studied, finding that consumption of products labelled as GM would drop 7 – 13% regardless of whether the tolerance level was 1% or 5%. The authors reported that there is no statistical support for US consumers having a preference for a 1% tolerance level over a 5% tolerance level. They concluded that if the US wanted to adopt a tolerance level for the labelling of GM food products, 5% would be the socially-optimal level.
The debate about labelling has raised two challenges. First, it is not clear if there are economic incentives for firms to voluntarily provide GM labelling information. If there is no economic incentive, the market will not spontaneously provide this information. Instead, firms will provide what is most profitable and least risky, which could mean that only GM or only GM-free products would be available, depending on the country, or that precautionary labelling claims (such as ‘may contain’) would be used. Both of these alternative outcomes would not necessarily improve consumer information. If GM labelling is perceived to be of political value, governments have the option of requiring mandatory labelling; in this case the cost of labelling for GM content would be shared between the industry and consumers. Given that each food category faces different prices, the range of costs would vary widely across the food basket. There is growing evidence that consumers might not derive enough value from the added information to justify this cost – at least in some markets where consumers might end up bearing most or all of the incremental costs. Even where economic incentives might exist, it is not clear how the various supply chains would provide greater information about GM food products to consumers.
Recent voting initiatives in the US illustrate just how divided consumers are on this issue. Beginning in California in 2012 with Proposition 37 that called for mandatory labelling for GM content in all food products, several other states have held referendums or enacted legislation. Referendums on labelling have been held, and defeated, in California, Colorado, Oregon and Washington. Communicating and informing voters about the increased food costs of mandatory GM labelling has cost the agriculture and food sectors in excess of US$110 million. Maine and Connecticut have enacted legislation mandating GM labelling, however, this is premised on neighbouring states, having a regional population above 20 million, also enacting similar legislation. In 2014, Vermont passed legislation making GM labelling mandatory, however, this law is presently being challenged in the courts by the Grocery Manufacturers Association, the Snack Food Association, the International Dairy Foods Association and the National Association of Manufacturers, citing that the Vermont state law contravenes federal legislation.
One persistent concern across the debate over GM labelling is the cost. How much will it cost? Who will pay? Ultimately, consumers will pay. A study on the price increase of food products based on the debate in California in 2012 estimated an increase of US$400 per year.5 This represented an increase of about 8-10%, for a household to purchase the same groceries they presently purchased. As identified above, simply putting a ‘may contain’ label on a food product provides consumers with no valued information about the food product and therefore, firms in the food industry would have to individually verify the source of every single ingredient used in their food preparation and development processes to be able to credibly label food products. This, of course, costs money. Depending on the product and the firm, some of these costs may be borne by the firm, but in most instances the full expense of these costs would be passed on to consumers.
A final concern is that there is a strongly held consumer notion that labelling for GM content implies that there is a hazard or danger related to this label. This is predominantly due to environmental groups claiming that GM food products are ‘Frankenfoods’, thus implying there is some type of danger from consuming such products.6 Firms in the food industry remain unconvinced that differentiating GM products from non-GM products will not adversely impact sales of the GM labelled products. Given that the food industry does not perceive there to be a value to provide consumers with increased information about whether or not a food product contains GM, the probability of GM labels becoming commonplace, is remote.
A Final Thought
Returning to the analogy between information and money, perhaps it really is the case that information about GM foods is desirable in the way that more money is desirable, but only in the narrow sense that it can be traded for other valuable things. If this is true, then there is less presumptive support for mandatory labels than it would first appear. Clearly, if consumers were expressing true aversions to foods that may contain GM ingredients, this would be evident through reduced sales. Given that the food industry has not shifted to voluntarily label, indicates that consumer support is high when surveyed about their labelling preferences, but their revealed preferences when inside a grocery store bear little correlation to their stated preferences. Ultimately, many consumers may say they want GM labelling, but few to none are willing to pay higher food prices to have this piece of information added to existing food labels. The economics of consumer labelling is that if consumers are willing to pay for it, then firms will provide it. Until then, the labelling debate will continue to be waged.
References
[1] GMO Compass. (2010).http://www.gmocompass.org/eng/database/enzymes/83.chymosin.html(Accessed December 2014). [2] GMO Compass. (2009). http://www.gmocompass.org/eng/database/ingredients/124.yeast.html
(Accessed December 2014). [3] McGarry Wolf, M. et al. (2004). In R. E. Evenson and V. Santaniello (eds.) Consumer Acceptance of Genetically Modified Foods, Wallingford, UK: CABI Publishing, pp. 53-59. [4] Rousu, M. et al. (2007). Economic Inquiry, 45:409-432. [5] Zilberman, D. (2012). http://blogs.berkeley.edu/2012/12/20/lessons-from-prop-37-and-the-future-of-genetic-engineering-in-agriculture (Accessed December 2014). [6] Huffman, W. E. & McCluskey, J. J. (2014). In S. J. Smyth, P. W. B. Phillips and D. Castle (eds.) Handbook on Agriculture, Biotechnology and Development, Cheltenham, UK: Edward Elgar Publishing, pp. 467-487.
Department of Bioresource Policy, Business and Economics, University of Saskatchewan, Saskatoon, SK
(*Corresponding author email: Stuart.Smyth@usask.ca)
