Consumer benefits of labels and bans on genetically modified food – An empirical analysis using Choice Experiments

Applying an experiment on the choice of consumer goods, we show that Swedish consumers do not regard genetically modified (GM) food as being equivalent to conventional food. A central argument by proponents of GM is that the end products are identical to those where GM has not been used. That respondents in our survey disagree with this argument is supported by two observations. First, a positive significant WTP is found for a mandatory labeling policy. This result confirms previous observations that GM food can be a credence good causing a market failure. Second, consumers are also willing to pay a significantly higher product price to ensure a total ban on the use of GM in animal fodder. Even if scientists and politicians argue that most of today’s GM food is indistinguishable from GM-free food, consumers disagree. Selected Paper prepared for presentation at the American Agricultural Economics Association Annual Meeting, Denver, Colorado, August 1-4, 2004 Copyright 2004 by F. Carlsson, P. Frykblom, and C.J. Lagerkvist. All rights reserved Readers may take verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice occurs on all such copies. Fredrik Carlsson is Associate Professor, Department of Economics, Gothenburg University. Corresponding author, Peter Frykblom is Assistant Professor, Department of Economics, Appalachian State University, Boone, North Carolina 28608-2051, phone: 828.262.6121, fax: 828.262.6105, e-mail: [email protected] Carl J. Lagerkvist is Assistant Professor, Department of Economics, Swedish University of Agricultural Sciences. Introduction The use of biotechnology in agriculture increases at a fast pace. While the adoption rate is relatively faster in developing countries, it is mainly used in a few relatively large agricultural exporting countries. Argentina, Canada and the United States, account for ninety-five percent of the global biotechnology acreage in 2002 (Clive, 2002). The European Union (EU), on the other hand, has been relatively cautious about the new technology. A moratorium on the approval of new genetically modified (GM) organisms, required ability to trace GM through the food chain, and mandatory labeling are examples of policies undertaken in the EU in an attempt to at least slow down the advance of the use of GM. Other governments, including the United States (US), view the EU policies as non-tariff trade barriers (Carter and Gruere, 2003; and Sheldon, 2002). Trade barriers, traditionally viewed as welfare reducing measures, impose a cost on consumers in order to protect domestic producers. This conventional wisdom, however, may not apply to labeling of GM food since it has the potential to benefit domestic consumers (Lusk and Fox, 2002; Lusk, 2003; and Lusk, Roosen and Fox, 2003). Opponents of mandatory labeling claim that such a label implies a food safety risk that is actually nonexistent, raises marketing costs, possibly inhibits further development of GM technology, and is unnecessary since the products are similar to their conventional counterparts (Carter and Gruere, 2003). In response, proponents argue that GM foods are not equivalent to their conventional counterparts, consumers should be allowed to decide themselves what to buy, and biotechnology creates socalled credence goods (Sheldon, 2002). The first-generation GMs, also called processbased GMs, have primarily lowered production costs (Phillips and Isaac, 1998). While consumers eventually benefit from lower product prices, in general there have not been