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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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