the economics of genetically modified food labeling

Running Head: THE ECONOMICS OF GENETICALLY MODIFIED FOOD LABELING 1

The Economics of Genetically Modified Food Labeling

Kelsey E. Zook

Wilkes University

THE ECONOMICS OF GENETICALLY MODIFIED FOOD LABELING 2

Abstract This paper aims at realizing trends and relationships within food marketing through

examination of food regulation and legislation, food production, and consumer behaviors and decisions relating to genetically modified food labeling. In the United States there has been an increase in more recent years in consumer concerns surrounding what producers are putting into food, and what regulators are allowing to be sold from grocery store shelves. Trends in food labeling have changed significantly since the turn of the century, and by further studying changes in food marketing over the past few decades it is possible to gain more insight into what is happening in the food industry. This study utilizes peer-reviewed articles from online databases, journal articles, and publications by United States government agencies such as, the Department of Agriculture (USDA) and associated agencies of the department. Data describing trends in consumer buying habits will also be evaluated from a time period spanning the past few decades. This study will examine the relationships that have evolved between legislation, production, and consumers and how all three of those areas affect genetically modified food labeling. Because decisions made by regulators affect the way in which agricultural producers are able to grow food, it is important to evaluate how legislation impacts producers’ inputs and decisions in production stages. Both of these areas subsequently affect how consumers view food products, and how those consumers make their final selections on which products to purchase. By outlining trends in genetically modified food labeling, and how food marketing influences consumers’ buying decisions, it is possible to make predictions for the future of food marketing as well as identify challenges and opportunities for food producers, food regulators, and consumers.

Keywords: Food Marketing, Food Labeling, Consumer Trends


Introduction

With an increasing demand by consumers for transparency in the food and beverage industry, there has been a significant increase in food and beverage companies taking initiative to add voluntary labels to their consumer products. In more recent years, Millennial consumers have established a greater presence in the food buying marketplace. Millennials especially are playing a key role in driving the change in food labeling and food marketing seen over the past few decades. Along with the younger members of the food consumer group, members of all ages show an increased awareness towards the link between health and food. Because of this remarkable increase in consumer awareness, in July 2015 a heavily debated food labeling act was passed by the United States House of Representatives. The Safe and Accurate Food Labeling Act of 2015 set the standards for voluntary food labeling by food product companies (Landi, 2015). Since 2015, the proposed legislation has moved further towards becoming Federal law as it was passed by the United States Congress in July of 2016 (PR Newswire, 2016).

This trend in food labeling has taken off in more recent years, but these changes in food marketing found their start well over a century ago. At the turn of the twentieth century the United States government passed the Food and Drugs Act of 1906. This piece of legislation was the first regulatory statute to address food labeling; it encompassed a total of 14 areas of concern within food labeling (Hutt, 1993). The total amount of nutrients in food, levels of those nutrients in food, and disease prevention claims were three areas of particular importance covered in the Food and Drugs Act of 1906. In 1938, The Federal Food, Drug, and Cosmetic Act was passed in order to address increasing concerns in the three areas of food labeling previously outlined. The main issue of concern was misbranding and confusion surrounding false or misleading labels put onto food products (Hutt, 1993). Decades later in 1990, the United States government signed into law the Nutrition Labeling and Education Act which focuses even more intensely on the areas of nutrient descriptors, health claims, and nutrition labeling as it outlined the mandatory framework for nutrition labeling in food (Frazao & Lynch, 1991).

While food labeling is something Americans are generally familiar with, voluntary food labeling is something relatively new for consumers. With concerns surrounding antibiotic and hormone residues, as well as genetically modified (GM) material in foods as issues at the forefront of consumer awareness, more companies are applying labels to their packaging stating clearly to consumers what they will, and will not find in the food or beverage products. These labels serve as a way to differentiate a company’s product from their competition (Landi, 2015). There has been an increase in legislation regarding this topic as seen with the passing of the Safe and Accurate Food Labeling Act of 2015. However, questions about the level to which the United States government and subsequent agencies involved in the subject should intervene in mandating these types of food labels remains a highly debated topic.

Skeptics of voluntary food labeling have sounded warnings that these types of labels hinder a food product’s acceptability by consumers because they perceive the labels to show products that are safer for human consumption. In a 2013 study, it was discovered that United States consumers were willing to pay more for products with labels as a means of risk aversion (Tran, Yiannaka, & Giannakas, 2014). A study from just two years earlier supported the argument that labels on food packaging resulted in consumers perceiving food products as higher risk, and the labels lowered the consumers’ perception of benefits when selecting those food


products. Some critics of the mandatory food labeling movement argue that labels placed onto food products may also trigger consumers to believe that the product is harmful, and treat the additional labels as a warning (Tran, Yiannaka, & Giannakas, 2014). With that argument aside, many producers can realize higher profits as a result of voluntary labeling, as consumers see their products as higher value. Given the findings of these studies little question remains as to why food marketers have been taking advantage of higher potential profits from consumers by simply placing additional labels onto food products.

This discussion about food marketing will continue by examining what food labels for GM foods means for not only regulatory agencies and legislation in the United States, but producers and consumers as well. The economics of this situation will be more closely investigated from every side of the topic. Just how will food labeling continue to evolve and affect food buying habits in the United States? By studying the past, present, and future of the topic it is possible to make predictions to address that question. Food marketing and legislation passed in the United States addressing food labeling affects the daily business decisions made by food producers, and ultimately the selections made by consumers and the food buying habits that form over time as a result. It is important for all stakeholders in the agriculture and food industries to understand the crucial interrelation between these three areas and how food labeling trends affect them. While there are many areas of food labeling that could be examined, this paper will focus on GM foods. GM foods are those food products in which any change to heritable traits of the organism achieved by intentional manipulation has been made (Premanandh, 2011).

Background of Food Labeling

When faced with a decision between food products in a grocery store, a consumer is provided with a great deal of information by the labels strategically placed on the surface of the food product’s packaging. By simply scanning the sides of a package of a food product, a consumer can quickly gather information about nutrition, ingredients, where and how the food was produced, allergen alerts, as well as third party affiliations of the product contained within the carefully designed packaging. While the food labeling system in place today is remarkably thorough, this was not always the case. Prior to the passing of the Pure Food and Drugs Act of 1906, there was a high level of consumer uncertainty and corruption within the food production industry. The Pure Food and Drugs Act put an end to the alarming, unethical practices within the food industry, set up parameters for food labeling, and increased transparency within the sector as it prohibited the sales of misbranded or adulterated food products (Premanandh, 2011). This piece of legislation was the first step in the push for increased product information and understanding of the consumer, and authorized Federal regulation of the safety and quality of food. In 1966, the Fair Packaging and Labeling Act which required all consumer products in interstate commerce to contain accurate information to facilitate value comparisons was passed into law (Golan, Kuchler, & Krissoff, 2007). Food labeling functions as the primary means of communication between producers and consumers. With each consumer having his or her own individual preferences, in order to be successful in the markets it is vital that food producers can differentiate their products to consumers by way of labels. Food labels ultimately allow consumers the opportunity to exercise freedom of choice and consumer sovereignty (Premanandh, 2011). With one of the most comprehensive food labeling systems in the world, it may come as a surprise to some that there is still talk of adding mandatory labeling policy for yet another area of food labeling; the labeling


of genetically modified (GM) food products. The conversation surrounding mandatory labeling relates directly to GM food and beverage products. The proposed legislation that awaits approval by the President of the United States would change the way in which food producers of GM food products prepare their consumer good for the marketplace. Types of Food Labeling In the conversation involved in the labeling of genetically modified (GM) food products there are two types of food labeling that exist. It is important to note that food labeled as containing GM ingredients has some amount of a substance for which the genetic material has been intentionally altered in order to obtain a more favorable outcome (Premanandh, 2011). Although GM foods typically pertain to transgenic modification in a laboratory, simple, century-old technologies such as basic cross-breeding techniques can also be considered genetic modification. The genetic modifications carried out through these traditional and modern technologies are performed in an attempt to enhance desired traits such as resistance to herbicides, improved nutritional value, or pest resistance just to name a few (Premanandh, 2011). Seeing as there is currently no legislation that mandates that all GM foods be labeled as such, food producers currently have the option to voluntarily label their food products if they so choose. Voluntary labeling is described in a publication relating to the effectiveness of food labeling created by the Economic Research Service (ERS) and its parent organization the United States Department of Agriculture (USDA). In the publication it is outlined that voluntary labeling involves a food business adding information to the packaging of a food product to convey to the consumer an attribute which that business feels increases the desirability of the respective product (Golan, Kuchler, & Krissoff, 2007). In the publication the authors explain that a food producer will add the label identifying the product’s attribute as long as each additional message eventually generates more benefits than costs. The main benefit from voluntary labeling comes in the form of increasing profits or maintaining profits in the face of new competition in the market (Golan, Kuchler, & Krissoff, 2007). A widely known example of voluntary food labeling is seen today with the movement created by the third party organization the Non-GMO Project. The Non-GMO Project Verified Label has become one of the fastest-growing label claims in the food and beverage industry (PR Newswire, 2016). In a competitive marketplace voluntary labeling of food products signals to many customers an elevated level of quality. Companies are motivated to label foods voluntarily for all positive attributes, because many food producers know that not having a label on the packaging of a food product can signal to the consumer the lack of an attribute entirely (Golan, Kuchler, & Krissoff, 2007). While producers may see many reasons to voluntarily label their food products, voluntary labeling can consequently leave information gaps. Even when using voluntary labels, manufacturers may only provide relative information about a given food product. In order to make the most informed decision possible, consumers need absolute information on the true values of the food products (Golan, Kuchler, & Krissoff, 2007). An example of this situation came when a cereal brand made claims through labeling indicating the absence of genetically engineered wheat. As described by the authors of the USDA publication, in reality no food product contains GM wheat, because no wheat crop has been genetically engineered or modified (Golan, Kuchler, & Krissoff, 2007). This is one example of the ambiguity that voluntary food labeling can create.


The other side of this food labeling conversation involves mandatory food labeling. Mandatory food labeling has been required in some situations to put an end to deceptive marketing practices, and as a way to target information gaps and social objectives. Mandatory labeling involves government intervention in food labeling in which a food producer is required by law to label food products if they fall within the specifications of the legislation. While the ideals behind passing regulatory standards which require companies to label their food products are developed in good thought, many empirical studies have found mixed results on the efficacy of labels in educating consumers and changing consumers’ consumption behavior (Golan, Kuchler, & Krissoff, 2007). In the case of mandatory labeling, marketing experiments have shown that customers do not notice certain labels on the food packaging when they become too familiarized with said labels. Research has also shown that a long list of warnings, or an excess of information on food labels can cause a consumer to disregard the information on the labels completely. As a result, consumers may underreact to important information on a label (Golan, Kuchler, & Krissoff, 2007). Genetically Modified Food Labeling Legislation While there is currently no Federal law in effect that mandates all genetically modified (GM) food products be labeled as containing GM food material, many state governments have already passed laws creating mandatory labeling framework for genetically engineered food within that states’ respective boarders. A total of 26 states have passed legislation that requires genetically modified food labeling (Supermarket, 2014). However, this situation can create confusion for consumers when considering interstate commerce and inconsistencies in food labeling from one state to another. For that reason, consumers and supporters of the Safe and Accurate Food Labeling Act have been pushing for the approval and passing of the bill into law. Should this bill be passed in its entirety by the government, it would nullify all state GM food labeling laws (PR Newswire, 2016). Current United States’ policies involved with food labeling are based on the rationale that a consumer’s right to know should be mitigated by the fact that scientific testing can determine whether biotech foods are materially different from their traditional counterparts. Legislation that could potentially be seen in the future may mimic the basis of the European Union’s mandatory labeling policy which is based on the consumer’s right to full disclosure (Harrison, & McLennon, 2004). While the aforementioned bill would mandate the labeling of GM food products, it would not require food producers to use GM, or GMO labels directly on food packaging. Rather the legislation would require food companies to utilize one of the approved disclosure options. Those options include a QR (quick response) code on packaging that can be scanned using a smartphone or other similar device, printing a website URL or a phone number that a customer can use to obtain additional information about the food product (PR Newswire, 2016). The passing of the Safe and Accurate Food Labeling Act would also require the United States Department of Agriculture (USDA) to work out an entire area of details including the discussion of whether or not refined products like oils and sugars derived from genetically modified crops would need to be included in the labeling mandate (PR Newswire, 2014). United States legislators may look towards any of the 64 countries that currently mandate the labeling of genetically modified foods; those countries include China, Saudi Arabia, and the European Union (Supermarket, 2014).


Contributing Agencies. As legislation is passed that addresses issues and concerns with food labeling, the Federal government as well as local governments rely on organizations and other agencies within the government to assist in the enforcement and compliance with the policies signed into law. The United States Department of Agriculture’s (USDA) Food Safety and Inspection Service regulates the labeling of all meat and poultry products, while the Food and Drug Administration (FDA) regulates the labels found on all other food products (Frazao, & Lynch, 1991). The FDA oversees many more areas of food labeling in terms of scope of product, and as a result has extraordinarily broad authority to take regulatory action against any form of misleading food labeling (Hutt, 1993). Since 1907, the FDA has served as the United States’ most trusted food safety authority (Supermarket, 2014). When considering the many aspects of food labeling it is important to focus on the two agencies mentioned above. However, when looking specifically at genetically modified food products there are other key organizations as well. At the international level three organizations have crucial roles in overseeing the regulatory framework which surrounds genetic modifications to food products. The Codex Alimentarius commission was created in 1963 by the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO) to develop food standards. Codex Alimentarius is recognized globally as the international organization responsible for setting the standards relating to food safety. Other organizations involved in the international regulation of genetically modified (GM) foods are the World Trade Organization (WTO), and the Cartagena protocol on biosafety (Premanandh, 2011). There are also third party agencies involved in servicing food companies with GM good labeling. As previously mentioned, the Non-GMO Verified Project is a key player in the GM sector of the food and beverage industry. This organization runs a program that allows producers the opportunity to voluntarily label their food products as being completely free from any GM food material. This is portrayed to consumers via a label placed on the food product’s packaging (PR Newswire, 2016). Third party labeling services are an important part of food labeling. These services are offered by an entity other than the buyer or the seller which can increase a label’s value by increasing its reliability and credibility. As seen with the Non-GMO Verified Project, these third party labeling agencies and services improve market efficiency by reducing uncertainty for producers, as well as search and information costs for consumers (Golan, Kuchler, & Krissoff, 2007).

Production With only two percent of people working in the United States finding themselves employed

in agricultural production, the individuals working in this field are faced with the task of producing more food in less time, using less natural resources than in years past. That task has led to an increase in use of genetically modified (GM), otherwise known as GMO, seeds in crop production. While the initial efforts of genetic modification were focused on bacterium, the greatest commercial application of this area of biotechnology has been food production (Fairfield-Sonn, 2016). The first GM food product widely available was the herbicide-resistant soybean, which hit markets in 1994 (Zhao, et al, 2013). That same year, the Food and Drug Administration (FDA), within the United States Department of Agriculture (USDA), approved a strain of tomatoes called Flavr Savr, which became the first commercially available GM food product. The newly approved food, developed by Calgene was designed with the intent of providing greater shelf life. However,


this particular GM product was not well received and was pulled from grocers’ shelves after just three years (Fairfield-Sonn, 2016).

Since the release of the first GM products, the landscape and scope of the food and beverage production in the United States has continued to change. A 2012 report shared that in modern agriculture practices, corn, soybeans, rapeseed, and cotton are among the most commonly produced GM crops (Vigani, Raimondi, & Olper, 2012). In the state of Illinois, one of many states found in the corn belt, more than 90 percent of all corn and soybeans grown in the state is cultivated from GM seeds (Trotter, 2016). Looking beyond Illinois, according to 2013 data provided by the USDA, 93 percent of soy acres, 90 percent of corn acres, and 90 percent of cotton acres planted in the United States utilize GM seed technology. By far the United States is the largest GMO producer in the world. Today, nearly all of the foods available in grocery stores across the country are derived from GM crops, with the exception of those food products bearing the USDA certified organic label (Fairfield-Sonn, 2016).

Industry Trends Due to the high number of United States’ agricultural producers that are utilizing genetically modified (GM) crops in their operations, it is important when examining the agriculture industry to include an assessment of GM seed producers as well. Beginning in the 1990’s seed producers across the United States entered into a race against each other to develop the genetic, and biotechnology of their firms in order to produce a newly differentiated product for farmers that boasted additional benefits over the seed offered by competing firms. The United States is home to the two largest GMO seed producers worldwide. Those companies being Saint Louis, Missouri based Monsanto, and DuPont which is headquartered in Wilmington, Delaware (Fairfield-Sonn, 2016).

The level of concentration in the GMO seed producer marketplace is incredibly high. The level of consolidation in the market share of the largest ten GMO seed producers increased to 73 percent in 2013, from just 37 percent in 1995. Within the agriculture industry this trend towards consolidation of market share is common across other sub-industries, and commodity markets as well. Along with this increased level of consolidation within markets comes larger food manufacturing firms. Many of these large food manufacturing firms, including Kraft Heinz and Mondelez International support voluntary GM labeling of their food products versus mandatory labeling. These two Chicago based food manufacturing firms in particular shared their concerns with a mandatory labeling regime saying labels may mislead consumers as well as force additional, unnecessary costs onto their food production efforts (Trotter, 2016). Producer & Industry Reactions to GMO Labeling According to the senior vice president of federal affairs for the Grocery Manufacturers Association, Mike Gruber, mandatory labeling is “inherently misleading” because it appears to be a warning when the food is completely safe for consumers (Trotter, 2016). Seeing this reaction from the leader of a prominent group within the food production industry it comes as no surprise that food manufacturers across the United States are applauding the recent Safe and Accurate Food Labeling Act that has recently passed through the House of Representatives. This bill bans individual states from passing legislation of their own requiring specific labels for foods containing genetically modified (GM) material (Starzee, 2015). By March of 2016, the bill had found its way to the United States Congress. This bill would also establish a uniform, national voluntary labeling standard for GM food and beverage products. This bill was voted out of the


Senate Agriculture Committee with widespread support from the food industry. Supporters of the bill argue that the issue is not related to safety, but rather economics, noting the regulatory oversight of the issue from three federal agencies: The United States Department of Agriculture’s (USDA) Animal and Plant Health Inspection Service, the Environmental Protection Agency, and the Food and Drug Administration (FDA) (Trotter, 2016). Some industry leaders, however, have taken matters into their own hands when it comes to the labeling of their food products. Campbell Soup Company [Campbell’s], has taken the issue of whether or not to label their products for GM ingredients by simply deciding to label all of their products even though they are not required to do so by law. In January of 2016, the company announced its support of a federal, single, mandatory labeling standard for foods derived from GM materials (Vogt, 2016). Seeing how many millions of dollars producers within the food industry have poured into programs that aim to defeat state-wide voting for labeling in the battle of the GM labeling question, Campbell has decided to increase transparency with consumers about the foods they are producing. The company shared in a statement that if a solution is formulated at the federal level in a reasonable amount of time that it is prepared to label all of its products for the presence of GM ingredients (Vogt, 2016). While so many of the food industries largest producers are fighting mandatory labeling legislation at the federal level, Campbell Soup Company stated that it will withdraw entirely from all efforts led by groups opposing mandatory labeling legislation. While Campbell is in favor of mandatory labeling through federal legislation, it is still against what it refers to as “a patchwork of state by state labeling laws”, which it views as being, “incomplete, impractical, and [creating] unnecessary confusion for consumers” (Vogt, 2016). In their stance to increase transparency and share more product information with consumers, Campbell has created a website called What’s in My Food. Campbell Soup Company believes that its customers will continue to buy foods produced by the firm even with the labels disclosing GM ingredients. The company trusts that its target consumers’ buying habits will be driven mainly by price regardless of what the labels show is present in the food. Campbell has declared where it stands amongst other leading food producers voicing their opinions in this discussion surrounding GM labeling. The company plans to seek guidance from both the USDA and the FDA as it revamps its labels to show consumers which of its products contain GM material (Vogt, 2016). Campbell Soup Company has gained appreciation from many organizations throughout the food production industry. But other producers are receiving backlash for their labeling efforts. In a 2015 Business Wire publication, Just Label It Chairman and Co-Founder and Chairman of Stonyfield Farm, Gary Hirshberg stated that labeling efforts carried out by PepsiCo were completely disingenuous. PepsiCo the parent company of Tropicana, made the decision to place a “non-GMO” seal on its Pure Premium products (“Just Label It”, 2015). Hirshberg argues that large food production firms’ decision to selectively label some products as “non-GMO” while relentlessly fighting efforts to pass federal, mandatory GM labeling laws is contradictory. He states that labeling that is done in this manner is simply part of a marketing ploy which shows a blatant disregard for consumer choice (“Just Label It”, 2015). A great deal of controversy remains between food producers involved in this discussion to support or oppose mandatory federal GM food labeling.

Consumers Of course, this conversation surrounding genetically modified (GM) food labeling and the possible effects of mandatory labeling legislation on producers would not be relevant, or


even possible without consumers. Consumers play a crucial role in this discussion because it is ultimately the consumer, and the corresponding dollar votes the consumer is in control of that dictate what a food and/or beverage producer does or does not do and how those decisions relate to the trends happening within the industry. Food labeling is incredibly important to consumers and the food buying decisions each individual consumer makes. As reported in 2016 at the time of the congressional passing of the Safe and Accurate Food Labeling Act, around 56 percent, over half of American adults actively seek out nutritional information and guidelines on food labels (PR Newswire, 2016). A total of 1.3 million American consumers have signed a petition demanding that the Food and Drug Administration (FDA) mandates labeling for GM foods. Today more than ever before consumers are pushing for transparency in the food and beverage industry at incredible levels (Supermarket, 2014). Consumers wish to know what is in the food they are buying, who is making the food product and how, and from where the food they are consuming is coming. With that in mind, it is no surprise that 93 percent of American consumers polled, regardless of age, income, gender, or race want to be informed of whether or not food contains GM ingredients (Supermarket, 2014). While there are clearly two distinct sides to this argument, from a consumer stand point it is incredibly important to assess both vantage points. Those taking a stand against mandatory food labeling argue that consumers are fearful of GM food products and that is the main driving force for labeling efforts. But as noted by Johnathan Frenzen, a clinical professor of marketing at the University of Chicago, the possible risks imposed by GM food products represents a technically complex issue that many American consumers may never be able to understand fully. He argues that mandatory labeling of GM foods places policy-making authority into the hands of consumers as they hastily make selections at the grocery store (PR Newswire, 2002). Consider the distractions that exist as a consumer rushes through grocery store aisles bombarded by a myriad of purchasing decisions. Frenzen states that GM food labeling places a decision that deserves careful and thoughtful consideration by the consumer into an environment characterized by quick decisions. Jensen solidifies his opinion on the matter by stating, “It [GM food labeling] will encourage hysterical reaction and discourage thoughtful deliberation about the risks posed by biotechnology” (PR Newswire, 2002).

Activists taking a stance on the other side of the issue, in support of mandatory genetically modified food labeling believe that consumers have a right to know what is in the food products they are purchasing. Craig Winters is the executive director of the Campaign to Label Genetically Engineered Foods, a political advocacy organization in the United States aimed at encouraging grassroots lobbying to push legislation relating to the topic forward to completion. Winters argues that statements made by those against mandatory labeling legislation for genetically modified foods that such labeling will create confusion among consumers is simply an attempt to keep information from Americans about what they are consuming (PR Newswire, 2002). Consumer Preferences Many studies conducted more recently show mixed results when it comes to consumer preferences surrounding the topic of genetically modified (GM) food labeling. Examples of these mixed results can be found in a publication taken from the Journal of Agricultural and Applied Economics. In this article the authors analyze the results of several research studies and discuss the implications of the findings. The article reports that according to one study focusing on a total of 604 residents in New Jersey, 84 percent of respondents were in favor of mandatory


labeling of GM foods. From the same sample of participants, 60 percent stated they would still consider purchasing fresh produce if they were labeled as having been produced by genetic modification (Harrison & McLennon, 2004). More results from this study show that 58 percent of consumers would not specifically seek out biotech labels while shopping, but 42 percent of respondents said they would look for fresh produce labeled as “non-GMO”. Other studies conducted have shown similar results as those outlined in the above study. While many individual findings to research survey questions differ, two apparent trends in consumer preferences are apparent. First, the majority of American consumers support mandatory food labeling policies for genetically modified foods. And secondly, consumers are definitely influenced by mandatory labeling policy (Harrison & McLennon, 2004). Three researchers, Teisl, Bockstael, and Levy opted to use a cost/benefit approach in their study in order to analyze the effects of nutritional labeling in combination with an information campaign on consumer welfare and purchasing behavior. What they discovered in their research, was that nutrition labeling along with an information campaign significantly affects consumers’ behavior, but does not necessarily cause consumers to switch their consumption away from foods the consumer may deem to be “unhealthy” (Harrison & McLennon, 2004). One study linked consumers’ perceived risk of GM food products to level of information received by the consumer about food labeling. Intuitively, the researchers overseeing the study, Hine and Loureiro proved that consumers who were well informed about biotechnology and genetic modification of foods do not appear to be as concerned about mandatory labeling (Harrison & McLennon, 2004). Consumers’ preferences are indeed affected by the level to which they feel they understand what the labels mean and the information they are conveying. Another area important to note in the discussion of consumer preferences comes not with the information factor, but rather what can be referred to as the “feel-good” factor. Food labels that relate a consumer to “natural” food products reach a sentimental or pastoral feeling with some consumers. Market research shows that consumer preferences often rely on habitual methods, imagery-based emotions, and subconscious impulses (Amos et al., 2014). Consumers look for food products not touched by biotechnology to achieve their goals of consuming products they view as being more natural. This more recent trend in consumer preferences shows over the past three decades with the increase of the organic food industry, which has developed from a small fad market to a mainstream multi-billion-dollar industry. Positive attributes consumers connect with a product they perceive to be more natural are so prevalent in belief systems that it is possible that consumers may simply rely on a method in food buying in which anything perceived as natural is superior. This connection translates that a strategically worded label placed on a food product could be enough evidence to suggest that a product is a better option (Amos et al., 2014). With current day concerns surrounding humans’ effect on the environment, as well as individual physical health, it comes as little surprise that these two issues also have a great impact on consumer preferences. In general, these two factors play a role in how many consumers make their own purchasing decisions, but this is especially true in the conversation about genetically modified foods. Environmental concerns that consumers have include the potential for GM crops to interact with conventional crops. This could possibly lead to contamination of organic crops (Harrison & McLennon, 2004). Consumers also have concerns about GM crops and the unanticipated harmful effects they can have on non-targeted organisms, as seen in the development of Bt-resistant insects. With health and environmental concerns at the forefront of issues American consumers have with GM food products, it is unknown if these two


factors will drive legislators to mandate labeling of all genetically modified foods. However, these two factors were incredibly strongly exhibited among consumer preferences in Europe, Japan, Australia, and New Zealand; these factors have helped to push the passage of mandatory labeling laws for GM food products in all of the countries listed (Harrison & McLennon, 2004). Millennials Driving Change. The current situation among consumers as a whole is one which sees an increase in consumers urging food and beverage companies for increased transparency within the industry. This consumer movement is being driven by and large the millennials within the consumer group; where millennials are those consumers born since 1980. According to vice president of MTV’s (Music Television) Insights and Innovation research initiative, Alison Hillhouse, Millennials are not only driving the movement, they are demanding transparency (Landi, 2015). According to Hillhouse, millennials are what MTV researchers refer to as “Real-searchers”. She further states, millennials are the consumers that are constantly trying to determine what is real and what is fake, and ensuring they steer clear of what is unauthentic. Hillhouse also reports that millennials are quick to fact check information found online or from sources they deem to be questionably true. The MTV executive also reports that millennials are doing a lot of their own product research, uncovering whether or not products live up to claims on the packaging (Landi, 2015).

Millennials are the consumers that will pick up a food product and scour the packaging to inspect the ingredients. They look for shorter ingredient lists complete with only those ingredients they can pronounce. Mintel, an international marketing research leader reported in a consumer survey that nearly two thirds of millennial consumers pay close attention to labeling, in comparison to just over 50 percent of Generation X and baby boomer respondents. When it comes to nutritional labeling, 60 percent of millennial respondents stated that producers should do a better job of incorporating informative labeling on product packaging (Landi, 2015). Millennials also exhibit a lower level of trust in large food and beverage producers when compared to other age groups as reported by Mintel. With the potential for QR (quick response) codes to be added to food and beverage products, in order to convey additional product information to consumers, it is important to note that nearly 40 percent of millennial consumers are already utilizing QR codes on packaging (Landi, 2015).

Millennial consumers have been referred to as the “ultimate day traders” by industry research professionals. They are known by this name because they have grown up with a wealth of information at their disposal, and they have processed that information and are willing to trade up or down depending on their personal preferences. The more a millennial consumer feels a product is unique, meaningful, and authentic the more price elasticity, and brand loyalty the brand will realize (Landi, 2015). Across many categories of consumer goods outside of food and beverage products, some of the highest performing brands among millennial buyers show appeal as meaningful, innovative, authentic, and unique. Alison Hillhouse followed up her conversation about MTV Insights and Innovation’s findings by mentioning the important role social media plays in millennials’ lives, and subsequently how it affects their food buying decisions. Social media provides an outlet for millennial consumers to voice their concerns immediately and point out authenticity flaws among companies that fail to meet expectations. Hillhouse states, “Millennials have a take-no-prisoner mentality and will jump on any inconsistency between marketing and actual product” (Landi, 2015). Millennials are passionate consumers who always seek out what they believe to be the very best product available to them; this belief holds true for


millennial consumers and their concerns surrounding labeling of genetically modified food products (Landi, 2015). Consumer Trends from Primary Data. In the spring of 2016 a study was conducted through an online survey that was shared with participants through social media and email. The survey was around ten question in length, and it collected primary data specifically related to organic and “non-GMO” food labeling. A total of 105 participants responded to the survey’s multiple choice and open ended questions. The survey design incorporated actual pictures of fresh and processed food products that included the food labels for United States Department of Agriculture (USDA) certified organic, and non-GMO Verified Project food products. The intent of the survey design was to make the participant’s experience as realistic as possible. Any consumer over the age of 18 was encouraged to share his or her input. The majority of respondents, 76.2 percent were in the age range of 18 to 30 which would place them into the millennial age group (Zook, 2016). After reviewing the responses for each question, a series of hypothesis tests were performed to further analyze the resulting data. The first test performed involved the data relating to millennial participants and their support of sustainability, based upon their responses to questions pertaining to preferences relating to organic and non-genetically modified (GM) foods. Out of all respondents, the sample size for this test was ten; ten respondents that prefer only organic products. The null hypothesis for this one sample hypothesis test for the proportion was stated as, “most millennials do not support sustainability”, while the alternative hypothesis was stated as, “most millennials do support sustainability” (Zook, 2016). The proportion tested against was defined as 51 percent. The resulting statistics showed the absolute value of the test statistic was greater than the critical measure. The p-value for the test was also less than the alpha value, meaning the null hypothesis can be rejected. Therefore, this hypothesis test showed that the data in this model supports the claim that most millennials prefer organic, non-GM products (Zook, 2016). For more information, and to see how this one sample hypothesis test for the proportion was organized and performed, refer to Appendix A. Assessing the data relating to millennials from this study further, lead to the development of a second hypothesis test. The second test was a two sample hypothesis test for the proportion which looked at whether or not millennials view organic, non-GM foods as safer than conventionally produced foods. The null hypothesis for the test was stated as, “Millennial consumers do not believe that organic products are safer than conventional products”; this category involved all participants that selected either strongly disagree or somewhat disagree to the corresponding survey question. The alternative hypothesis was stated as, “Millennial consumers do believe organic products are safer than conventional products”; this category included all participants that responded either strongly agree or strongly disagree to the corresponding question (Zook, 2016). This one-tailed test resulted with a critical value greater than the absolute value of the test statistic, and a p-value greater than the alpha level. Because of these results the test shows that the null hypothesis cannot be rejected and the data does not support the claim that millennial consumers believe organic, non-GM foods are safer than conventionally produced food products. For more information and to see how this two sample hypothesis test for the proportion was performed, refer to Appendix B. Additional information gathered from the primary research survey showed important trends relating to all of the age groups, not just millennials. The research found that across all age groups that responded to the survey questions, age alone did not necessarily influence whether or not consumers chose organic, non-GM foods. Location also showed no significant influence on a


consumer’s buying decision. A regression analysis of the data showed that consumer familiarity and perceived understanding of what the labels placed on USDA certified organic, and non-GMO Project verified foods represent did in fact affect decisions regarding food purchases. Finally, when assessing only the millennials who responded to the survey, it was found that while millennial consumers show preferences for organic, non-GM foods, they do not automatically believe that these products are safer than their conventionally made counterparts (Zook, 2016). Emerging Trends in Consumer Purchasing Habits Since 2009, the number of families that do not purchase organic food products has steadily decreased from 30 percent to just 18 percent today. While familiarity of certified organic food products continues to increase among consumers across all age groups, organic food purchases become more frequent and consumption of these food products also increase (“Millennials”, 2016). Millennials especially have played a crucial role in this trend. According to a 2016 PR Newswire publication, parents that fall within the 18 to 34 age range are the biggest group of organic buyers in the United States. This publication shared information found through a survey carried out by the Organic Trade Association (OTA) studying the buying habits of American households across all age groups. The OTA surveyed more than 1,800 households across the United States with at least one child under the age of 18 for its “Families’ Organic Attitudes and Beliefs” tracking study. Among household leaders, more than 52 percent of organic shoppers are millennials. According to Laura Batcha, the Chief Executive Officer and Executive Director of the OTA, “The millennial consumer and head of household is changing the landscape of our food industry.” She shared that according to the OTA 2016 survey, millennials seek out organic because they are more aware of the benefits of organic, and they see purchasing organic food products as a means to support a sustainable food system (“Millennials”, 2016). When assessing consumers within other age ranges, comparisons can be made to millennials and the preferences of other groups. Looking at consumers’ wants to live sustainably, a higher number of millennials believe that consuming organic, non-genetically modified (GM) food products is a key eco-conscious habit that is important for efforts toward this goal. A total of 32 percent of Generation X-ers, those consumers between 35 and 50 years old agree with that ideal, while only 28 percent of consumers between 51 and 69 years of age, also known as Baby Boomers agree. In comparison to these two age groups, of millennials 40 percent of consumers in this age range feel that purchasing organic food products for their families is an important part of sustainable living (“Millennials”, 2016). Of all survey participants, millennial consumers show the greatest knowledge of the United States Department of Agriculture (USDA) certified organic label. Nearly eight out of ten millennial survey participants responding that they were either, “well informed” or “know quite a bit” when asked about USDA labeling. Along with that understanding of organic labeling, comes an increased trust in organic food products with 54 percent of millennial parent shoppers reporting that they have confidence in the integrity of the USDA certified organic (“Millennials”, 2016).

Taking information from other academic studies more comparisons can be made to better understand consumers’ preferences and habits for food purchases across all age categories. When looking specifically at millennial consumers, members in this age group are spending $500 less per year in grocery stores, and nearly $1,000 [in inflation adjusted dollars] than 25 to 34-year-old consumers in 1990 (Gallagher, 2016). In the conversation about GM food labeling it is important to look at emerging trends in consumer buying habits. Millennials, making up the youngest


group of consumers, are one group of consumers to which food producers and manufacturers should pay close attention. In a 2016 trade journal publication, that assessed millennial consumers’ meat buying habits author Amanda Radke outlines the important role millennials play in shaping the future of the food industry. Radke writes that millennial consumers are at the point in their lives where they are forming lifelong food buying habits based on personal beliefs. She iterates that millennials look to reflect their views through their food buying decisions, and they look to feed their families in a way that also aligns with their values. In more recent years, millennials have become the largest generation among consumers, representing $75.4 million in the market (Radke, 2016).

Legislation & Regulation Regulation and legislation relating to the food industry and food production has been present in the United States since the beginning of the twentieth century. The first formal legislation passed in the United States relating to food production was the Food and Drug Act of 1906 (Hutt, 1993). In 1938, the country saw further consumer protection from misleading or misbranding of food as Congress replaced the previous act with the Federal Food, Drug, and Cosmetic Act. As a result, misleading food labels have been illegal in the United States for more than a century (Hutt, 1993). While regulation of the food industry has been present for a fair amount of time, new trends in food labeling have been focused entirely on genetically modified food products, and whether or not legislation should be passed to make labeling of these foods mandatory. Current Legislation The United States offers more commercialized consumer products than any other country worldwide. Because of this it is surprising to some that this country still does not have any kind of legislation in place that would implement mandatory labeling of genetically modified (GM) foods. In more recent years there have been conversations in Washington D.C., United States’ capital of implementing regulatory actions that could make either mandatory, or conversely voluntary labeling uniform across the entire country. With the passage of the Safe and Accurate Food Labeling Act by the United States Congress food producers, and consumers alike are one step closer to having answers about GM food labeling. The Safe and Accurate Food Labeling Act was introduced to the United States Congress in March of 2015, by Representative Mike Pompeo of Kansas. In his own words, Pompeo the author of H.R. 1599 said, “mandatory labeling laws would be unnecessarily costly due to the fact that the FDA [Food and Drug Administration] has deemed GMOs safe” (Starzee, 2015). The bill was passed by Congress in July of 2015 with a vote of 275 to 150. Pompeo’s bill overrides any state legislation already in place which outlines labeling laws within the boundaries of each individual territory. According to the wording of Congress’ proposed legislation any company that would like to label their food products as “GMO-free” would have to undergo a certification process outlined by the United States Department of Agriculture (USDA). Many trade groups commended the House of Representatives’ passage of H.R. 1599. One trade group leader, Peter Larkin president and chief executive officer of the National Grocers Association applauded the passing of the Safe and Accurate Food Labeling Act. Larkin shared his support of the bill and was enthusiastic about the need of a uniform, federal labeling standard for non-GM food products. Many supporters of the house GM labeling bill feel it is necessary for effective


interstate commerce of both GM and non-GM food products to have consistent labeling (“Trade Groups”, 2015). However, not everyone was in complete support of Congress passing this GM food labeling bill. Those in opposition to the bill refer to it as the Denying Americans the Right to Know Act, or the DARK Act. Detractors of the bill have dubbed it as the DARK Act because it does not require that food producers put labels onto packaging of GM food products to clearly show consumers which products have utilized genetic modification in the production processes (Starzee, 2015). The bill does, however, contain some consumer protections. Developers of any GM food product must submit a premarket biotechnology notification to the FDA. For non-GM foods, the product can only be labeled as such if the ingredients are subject to specific supply chain processes and controls. Under H.R. 1599, the FDA can also specify labeling to inform consumers of a difference between GM foods and comparable non-GM foods if a material difference does in fact exist (Starzee, 2015). Following the Safe and Accurate Food Labeling Act passing through the United States Congress, the bill found its way to the Senate to await deliberation. The first step towards enactment came in the spring of 2016 as the Senate Agriculture Committee overseeing the Safe and Accurate Food Labeling Act approved the bill with bipartisan support. Applauded by the food industry, but simultaneously sparking outrage among critics of the bill and consumer advocacy groups, the GM food labeling bill is now up for consideration from all Senate members (Spencer, 2016). Minnesota Senator, and Senate Agriculture Committee member Amy Klobuchar was a supporter of the bill. She stated that she did not believe the bill would pass the entire Senate vote without modifications, and some pro-consumer amendments. Klobuchar was one of only three democrats on the Senate Agriculture Committee in support of the GM labeling bill. She stated that she supports the bill because she knows how important it is to pass a piece of legislation quickly in order to avoid a patchwork of state laws relating to the issue (Spencer, 2016). Just a few months after passing the Senate Agriculture Committee, the Safe and Accurate Food Labeling Act cleared the United States Senate with a vote of 63 to 30. Revisions were made to the GM food labeling bill which sent it back to the House of Representatives for consideration. While some members of Congress do not support certain revisions, there is still a fairly high level of support for the bill. The Senate’s modifications would give food producers the option of labeling the existence of GM ingredients through different ways: including QR codes, and website information for accessing additional information (Haddon, 2016). Small food manufacturers can use websites and telephone numbers to meet labeling requirements. Very small food manufacturers and restaurants are exempt from labeling requirements entirely. Producers of meat and dairy food products harvested from animals fed feed and grains made from GM crops are also included in the exemption; they do not need to label their food products differently (Shearer, 2016). Farm associations and organizations from the food production industry have praised the Senate’s work to pass the bill quickly. American Farm Bureau Federation President Zippy Duvall shared in a statement, “this bill is not perfect, but it would avoid the chaos of 50 different state laws and a confusing array of labels for ingredients scientifically proven safe” (Haddon, 2016). The mandatory guidelines in the Senate’s reworking of the bill are markedly different from Congress’ version which called for the voluntary labeling of food with GM ingredients (Haddon, 2016). The Senate’s passing was, “the most important bill in the last 20 years for United States agriculture”, according to the chairman of the Senate Agriculture Committee, Pat


Roberts. He states that this piece of legislation allows farmers to continue to use sound science to produce more food with less resources. Roberts goes on to say that the bill also provides more flexibility to food manufacturers in disclosing information about their products, while also allowing consumers increased access to food information (Shearer, 2016). Once Congressman Mike Conaway was able to see the revised bill passed by the Senate he had some concerns with the changes made. Congressman Conaway is the chairman of the House Agriculture Committee said that the Senate bill is riddled with ambiguity. He also expressed concern with the level of discretion granted to the Secretary in the revised bill. Conaway along with many other Congressional members still plan to vote for the Senate bill regardless of their concerns (Shearer, 2016). Just as Conaway and many other members of the House stated they passed the Senate bill through Congress with a 306 to 117 vote. Now that the Safe and Accurate Food Labeling Act has cleared Congress it will await its final passage by the President (“United States”, 2016). Once the Safe and Accurate Food Labeling Act is passed in its entirety, the USDA will have a total of two years to write new labeling rules. While some legislators believe the bill is too weak, and allows food manufacturers ways of labeling that are vague, and can obscure the presence of GM ingredients (“United States”, 2016). Economic Assessment of Food Labeling In a paper presented at the American Agricultural Economics Association Annual Meeting in 2014, researchers Tran, Yiannaka, and Giannakas of the University of Nebraska-Lincoln shared information relating to an economic analysis of the labeling of genetically modified (GM) food products. The researchers shared that according to a 2013 study conducted by Brown and Kuzma, American consumers are willing to pay for GM food labeling as a means of avoiding risk, even when the risk was perceived to be minimal. In the 2014 study, Tran, Yiannaka, and Giannakas state that skeptics of GM food labeling argue that such labels will hinder the acceptability of these technologies to consumers who view the products are intrinsically harmful even though the perceived risks are not scientifically validated. Another study conducted in 2011 showed that participating consumers support the argument that GM labeling resulted in an increase of perceived risks and a reduction of perceived benefits compared to no labeling (Tran, Yiannaka, & Giannakas, 2014). Because many consumers who took part in research studies feel that GM food labels will enhance the perceived risk levels of products containing GM ingredients, the researchers from the 2014 study took a closer look at what this would mean for producers. An adverse consumer response to mandatory labeling legislation could mean a slower adoption of GM food labeling from producers and processors. Such a strong negative response from consumers could even hinder companies from voluntary labeling efforts as well. Tran, Yiannaka, and Giannakas conducted their research study as a way to address the issue that no systematic analysis of the impacts of GM food labeling on market and welfare existed prior to their research. The researchers crafted their study around two separate scenarios; the first involving a no-labeling regime, and the second a mandatory labeling regime (Tran, Yiannaka, & Giannakas, 2014). Looking at the research conducted in the 2014 study, for the sake of this paper the second scenario outlining market equilibrium and consumer welfare under a mandatory labeling regime will be assessed in more detail. If a mandatory GM food labeling regime would be put into place two major effects could result: a cost effect and a preference effect. Under the cost effect of labeling, changes in consumption, consumer welfare, and supplier profits due to additional costs


are considered. From a producer standpoint, the producer would face increased costs under a mandatory labeling regime which would subsequently increase the prices of GM foods that consumers would face regardless of where they make their food purchases. Upon realizing the increase in GM food products, fewer consumers would be willing to purchase GM products as a result. The producers of GM food products would also see lowered profits as a result of mandatory food labeling, as less of their product would be sold (Tran, Yiannaka, & Giannakas, 2014). While producers of GM food products are set to face adverse effects of a mandatory labeling regime, suppliers of conventional and organic food substitutes are better off as a result of the cost effect. This situation happens as both the demands and prices for conventional, and organic substitute products increase. There are also implications to the consumers that must be assessed. The consumer in this scenario experiences welfare losses as a result of the higher prices for all food products. It is important to note that in this study the researchers assumed that the labeling regulation for GM foods only affects the cost structure of the GM foods sector (Tran, Yiannaka, & Giannakas, 2014). Other implications that have to be considered involve changes in consumer preferences that surface in a mandatory GM food labeling regime. Consumers are more informed of food ingredients as a result of the presence of the labels on product packaging, which should serve as a way to eliminate uncertainty for consumers; otherwise referred to as the uncertainty effect of GM food labeling. However, the presence of GM food labels on products also creates a stigma effect which can negatively influence consumption of GM food products. The stigma effect happens when consumers view labels on GM foods as a warning that the product is hazardous for human consumption. In this situation, the consumer becomes more averse to GM foods under mandatory labeling (Tran, Yiannaka, & Giannakas, 2014). The University of Nebraska-Lincoln researchers shared in their work that when the preference effect works in the same direction as the cost effect, more consumers will opt to switch from GM food products to an available substitute. When this happens the market demand for GM foods will drop even further, thus lowering profits for GM food products more as well. In contrast, when the preference effect works in the opposite direction to the cost effect the market demand for GM foods would increase as a result (Tran, Yiannaka, & Giannakas, 2014). It is crucial to this type of study to determine the nature and magnitude of effects of labeling regulation on the market equilibrium of all food products, consumer welfare, as well as producer profits. Taking a closer look at the direct impact of mandatory GM labeling regulation on food products, the researchers provide a better idea of how legislation mandating the additional labels affects other factors in the market. The overriding theme of their 2014 study stated that prices of genetically modified food products would increase as a result of mandatory labeling legislation. In a situation of mandatory food labeling, any producer having GM food ingredients in a product will incur an additional cost involved in additional labels on the packaging, stating what is present inside the product. This increased cost of production is then reflected onto the consumer through the market price of the product. The higher price for consumers causes a decrease in the total quantity of GM food products sold in response to the increased prices. As discussed with changes to consumer preferences due to labeling, consumers’ increased aversion towards GM food products results in an increase in the magnitude of the slope of the demand curve, which results in a reduction in the quantity product sold as the price remains unchanged (Tran, Yiannaka, & Giannakas, 2014). The combined direct effect of mandatory GM food labeling on


the corresponding sector and the cost and preference effects is shown in the graph found in Appendix C. The next situation Tran, Yiannaka, and Giannakas consider depicts the effects of GM food labeling across all food markets. As the researchers showed in the section of their research described above, an increase in the price of the GM food product, will cause a rightward shift in the demand curve of the conventional food. This will result in an increase in the demand and price of conventional food products. The increase in price in this sector will in turn, cause a rightward shift in the market demand for both organic and GM food products. Because of that shift in the demand curve, the market price for organic and conventional foods will increase (Tran, Yiannaka, Giannakas, 2014). The whole scenario shows itself as a sort of snowball effect, where one change in a product leads to a change across sectors in other types of food products. As prices and demand increase within the conventional and organic food sectors, suppliers of these products will gain increased profits under a mandatory labeling regime. Contrarily, as demand for GM products decreases, suppliers of products in this sector will see loss of profits. On the consumer side of this scenario, consumers showing the most aversion to regulatory intervention in the GM food sector will see the greatest loss in consumer welfare as a result of a mandatory labeling regime. For this classification of consumers, the greater the cost of labeling for producers, the greater the loss in consumer welfare, and the greater the loss in GM food producers’ profits. While some stakeholders in this scenario are suffering losses, profits for competitors in the organic and conventional food markets are seeing increased profits (Tran, Yiannaka, & Giannakas, 2014). Ultimately the cost and preference effect are both key components to consider. Under the cost effect, the increase in cost of producing GM food products will lead to a rise in price of GM foods, which will lead to a decreased market demand for those products. Looking at the preference effect, the market demand for GM foods will decrease if the labels placed on these food products are perceived by consumers to be a warning of danger to the consumer (Tran, Yiannaka, & Giannakas, 2014). Consumer Impacts. Expanding on the discussion above of the research conducted by Tran, Yiannaka, and Giannakas of the University of Nebraska-Lincoln, there are other scenarios that directly affect the consumer. As outlined above, it is clear that according to the 2014 study, under a mandatory labeling regime consumers’ preferences change as they become more averse to selecting GM food products. When a consumer perceives a food label to signal that the consumption of GM foods will involve an unanticipated risk, they will opt to purchase a substitute product from either the conventional or organic markets (Tran, Yiannaka, & Giannakas, 2014). The food industry as a whole shows near perfect competition, therefore the substitution effect is strong for food products and substitutability is an important component of this discussion (Zhao, et al, 2013). In this assessment of the consumer, it is important to take a closer look at the relationship between the cost effect and the preference effect. From the consumer standpoint if the cost effect dominates the preference effect than consumers will switch from GM food products to one of the substitute products from the alternate sectors. Thus, reducing the consumption of GM foods in this case. Conversely if the preference effect outweighs the cost effect, within the market it would be seen that consumers become more averse to GM foods compared to organic or conventional options. In this scenario involving a dominate preference effect, a downward pressure will be put onto the price of the GM products when food labels are introduced. When


considering this case there are two types of consumer groups that surface. The first group includes those consumers that see no real issue with intervention in the production process; these consumers will switch from conventional products to GM products. The other group includes consumers that have a moderate aversion to regulatory intervention in the production process. Consumers in this group will opt to change from the GM food products to conventional or organic substitutes. This trend is observed in the market because the consumer becomes reluctant to choose the GM product which is perceived to be more intrusive than conventional products when mandatory labeling regulations are passed (Tran, Yiannaka, & Giannakas, 2014). From the consumer side of this research study a third subgroup of consumers is discovered in this assessment or market and welfare impacts of mandatory labeling regulation. Under a labeling regime some consumers prefer GM food products to conventional and organic food products. For this group of consumers, the certainty effect dominates the stigma effect, as these consumers see the consumption of GM food products as more desirable than their conventionally produced counterparts. The outcome of this situation involves an increase in the demand for GM food products, as well as an increase in price for these products. Because GM foods will still be sold at a higher price, due to increased costs of production as outlined in cases previously discussed, there will still be a decrease in overall consumption of GM foods even under these circumstances. The change in market demand, whether it will increase or decrease, is completely dependent on the relative magnitude of the two aforementioned effects. If the cost effect dominates the preference effect under these parameters, then consumption of GM foods will increase. The opposite also holds true in this case (Tran, Yiannaka, & Giannakas, 2014). In another study taken from Food Policy journal, written by Zhao takes a closer look the relationship between consumer welfare and GM food labeling. What this study found, was that from an exclusively consumer standpoint voluntary labeling is superior to mandatory labeling when facing higher market separation costs. In this 2013 study, a total of 216 consumers were surveyed. The results of this study showed that mandatory GM food labeling is superior to voluntary labeling when market separation costs are low. However, the findings of this survey also proved that as the price difference between conventional and GM food products becomes greater, voluntary labeling shows more advantages than the voluntary option. This same study showed that consumer welfare is higher under voluntary labeling in comparison to a mandatory labeling regime when market separation costs are high (Zhao, et al, 2013). Producer Impacts. As the research study completed by Tran, Yiannaka, and Giannakas shows, and as previously discussed, from the genetically modified (GM) food producer standpoint the main implication of the passing of mandatory labeling legislation would be decreased profits. The decrease in profits can be attributed to increased cost of production under a labeling regime. On the contrary, producers of conventional and organic food products would see increased profits. In a situation of dominate cost effect producers of conventional and organic products will see increased consumer demand for their products, while producers of GM food products will see decreased profits due to an increase in price of the GM products. Producers of substitutes for GM food products seem to benefit the most from the situations outlined in the 2014 study. However, one situation described by the researchers in which the producers of GM food products see added benefit occurs when consumers view GM foods as enhanced conventional foods. Consumers in this case seen GM foods as having additional utility and gravitate towards these products. This is one case when mandatory GM food labeling could advantageous for a producer of these products (Tran, Yiannaka, & Giannakas, 2014).


In most scenarios that are predicted under a mandatory labeling regime, producers of GM food products will see the demand curve for their products shift leftward, reflecting a shrinking market demand. In many of the cases explained in the study, a producer in one sector will see increased demand and profit at the expense of another (Tran, Yiannaka, & Giannakas, 2014). This trend has been explored in the discussion of the research.

Conclusions Challenges Related to Genetically Modified Food Labeling Looking at the information gathered for the analysis of the impacts of genetically modified (GM) food labeling, there are some clear challenges that surface for producers, consumers, and legislators alike. An important point to make is that there are many challenges facing each of these key players surrounding the topic of GM food labeling, but some of these challenges are more apparent than others. When considering challenges that face producers there are a few important concerns that must be given some thought moving forward. One of the more obvious challenges resulting from the recently passed GM food labeling legislation and the redesigning, and revamping of labels found on food products that will need to happen in the near future. As stated previously, food producers and manufacturers will have up to two years until the United States Department of Agriculture (USDA) will have to release newly formulated guidelines for food labeling for GM and non-GM foods (“United States”, 2016). Another challenge that remains for producers is consumers’ perceptions of GM food products. Along with consumers’ preferences for GM and non-GM foods, producers face growing concerns by critics of the newly passed Safe and Accurate Food Labeling Act that the legislation still does not provide consumers with enough information about food products. From the consumer standpoint there are some challenges that face stakeholders in this area as well. Relating to the transparency issue stated above, consumers are faced with some challenges relating to their food buying decisions. According to national surveys conducted by the Just Label It campaign, as many as 9 in 10 Americans desire to know whether or not their foods contain GM ingredients (“Just Label It”, 2016). The issue for consumers now involves what the Safe and Accurate Food Act has outlined as a national standard for labeling of GM food products through ways that do not involve the food labels explicitly stating the presence of GM ingredients in food. Representative Peter Welch of Vermont was one member of Congress opposing this piece of GM food labeling legislation from being passed. He argued, “If there is an acknowledgement about the right of a consumer to have access to information, why not give them the information in…simple English?” (“United States”, 2016). Perhaps the largest challenge to include in this discussion surrounding the labeling of GM food products involves the concerns and issues that relate to international trade of GM food products. Years before the Safe and Accurate Food Labeling Act was even a proposed bill, Gary Goldberg, the Chief Executive Officer of the American Corn Growers Association (ACGA) reported that markets for corn growers in the United States, both domestic and foreign were disintegrating. In a statement, Goldberg reports on behalf of the ACGA, “It is quickly becoming impossible to guarantee the marketability of GM food products…” (“US Farmers…”, 2000).

European markets were some of the first markets to disappear from United States farmers’ radar as many countries in the European Union (EU) passed anti-GM food legislation (“U.S. Farmers…”, 2000). The issue that faces international trade for American food producers utilizing GM technologies in their production methods is the fact that public policy on GM foods differ strongly across countries; the legislation is not universal. A large area of concern for


international trade regulatory organizations comes as there is a serious problem for developing countries’ strategies in deciding GM food production and legislation (Vigani, Raimondi, & Olper, 2012). Today, there is a global issue stemming from the high level of disparity between the stringent GM food regulation in food product importers like the EU and Japan, and the ‘soft’ GM food legislation in food exporting countries like the United States. In a study conducted in 2012 that analyzed how GM legislation can affect international trade and vice versa, the researchers found that of all regulatory dimensions, labeling of GM food products has the greatest effect on international trade of GM food products (Vigani, Raimondi, & Olper, 2012). Besides legislative barriers hindering international trade, cultural dimensions and characteristics are also a key factor that could disallow trade of GM food products globally. While the United States serves as the epicenter of the GM food industry, not all countries are as quick as this nation to push production of GM crops and encourage consumption of GM food products within their borders. In most developing countries the reaction to GM food imports has been relatively muted with the exception of Peru and Kenya. GM food products have actually been banned in these two developing countries (Fairfield-Sonn, 2016). When considering international trade of GM food products, a nation’s culture is one factor that cannot be overlooked. One important tool that should be used to analyze a country’s culture is Hofstede’s dimensions, specifically the four that relate to a country’s culture: power distance, masculinity-femininity, individualism-collectivism, and uncertainty avoidance. In situations where there are clear differences among these key cultural dimensions, trade of GM food products can be especially difficult (Fairfield-Sonn, 2016). Opportunities Related to Genetically Modified Food Labeling Along with the challenges outlined above, there are of course conversely several opportunities that exist for all three groups of stakeholders included in this discussion. Although consumers appear to be the least fortunate group in the passing of the Safe and Accurate Food Labeling Act, there are key opportunities that exist for consumers in the United States. For consumers who were hoping for a set of stricter guidelines for food producers to follow when labeling the genetically modified (GM) content of their food products there is still opportunity for consumers to seek non-GM foods through labels that already exist. For example, while the United States Department of Agriculture (USDA) will release new standards for non-GM food labeling, consumers can still avoid GM foods if they so choose by selecting those foods bearing the USDA certified label on the packaging. In many ways consumers are still benefiting from the passage of the Safe and Accurate Food Labeling Act as it will make it mandatory for many food manufacturers to provide ways on the food product packaging that will allow consumers to find out more information about ingredients in many commercially available products. While many food producers and manufacturers are questioning just how they will provide the necessary information on their product packaging to meet the USDA’s updated protocol, a great deal of opportunity is available to producers whether they produce GM foods or non-GM foods. One opportunity that will continue to show promise for food manufacturers is the organic food market. For consumers who are truly trying to avoid GM foods, the USDA certified organic label should be a go-to. Producers have the option to capitalize on the increasing number of consumers seeking organic food products by diversifying their product offerings to include organic foods. Another opportunity for producers involves a trend seen with millennial consumers. Millennial consumers seek non-GM foods, as well as organic foods more frequently than any other age group of food buyers. Along with that trend millennials are also more inclined


to snacking throughout the day rather than consuming three larger meals. Food producers looking to increase their appeal to millennial consumers may diversify their product offerings to include non-GM foods that are classified as snacks. A survey completed for the Private Label Manufacturers Association (PLMA) shows there is opportunity for snack foods to be merchandised particularly in the dairy, deli, and bakery departments (Gallagher, 2016). From a legislative and political standpoint, opportunities exist for the use of GM foods well into the future regardless of the clear challenges that are present with the international trade of GM food products. Food insecurity is a major concern for an already large, and continually growing world population, and many individuals involved in the food industry have identified GM technology and food production as an important part of a possible solution. Proponents of GM foods have been pushing to make the case that by creating new strains of food it will be possible to address growing levels of world hunger (Fairfield-Sonn, 2016). While many scientific and institutional communities believe GM foods may be a viable solution to addressing food insecurity on a global scale, there is a lot of information yet to be gathered relating to GM crops and possible unwarranted outcomes resulting from cultivation of biotech foods. Even with recent passage of the Safe and Accurate Food Labeling Act, this conversation surrounding the potential of GM foods is far from finished. One fact that remains, even with the ongoing debate, the use of GM foods has continued to grow throughout the world.


References

(2000). U.S. farmers losing domestic markets while Japan sets new restrictions for GMO corn imports. PR Newswire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2002). How consumers process information at heart of debate over labeling of genetically modified foods. PR Newswire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2014). Taking sides: Mandatory GMO labeling. Supermarket News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2015). Should companies be required to label genetically modified foods? Backers of the idea say consumers deserve to know what’s in the food they eat. Critics say labeling is a ploy to make consumers worry. Wall Street Journal (Online). Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2015). Trade groups applaud House passage of GMO bill. Supermarket News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2016). GMO labeling: The great debate. PR Newswire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2016). Just Label It chairman says PepsiCo’s Tropicana ‘non-GMO’seal is “disingenuous”. Business Wire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2016). Millennials and organic: A winning combination. PR Newswire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2016). Packaged facts: Congress decides on GMO labeling, but will consumers be happy?: 56% of U.S. adults seek information and transparency on food & beverage labels. PR Newswire. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

(2016). United States: U.S. Congress passes bill on GMO food labeling. Asia News Monitor. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Amos, C., Pentina, I., Hawkins, T. G., & Davis, N. (2014). “Natural” labeling and consumers’ sentimental pastoral notion. The Journal of Product and Brand Management, 23.4/5, 268-281. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Fairfield-Sonn, J.W. (2016). Political economy of GMO foods. Journal of Management Policy and Practice, 17.1, 60-70. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomlete/.

Frazao, E., & Lynch, L. (1991). Food labeling regulations changing. FoodReview, 14. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Golan, E., Kuchler, F., & Krissoff, B. (2007). Do food labels make a difference?...sometimes. Economic Research Service – USDA, 5, 10-17. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Haddon, H. (2016). U.S. Senateapproves legislation requiring GMO labels: GMO label bill to be considered by House. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Harrison, R. W., McLennon, E. (2004). Analysis of consumer preferences for biotech labeling


formats. Journal of Agricultural and Applied Economics, 36.1, 159-171. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Hutt, P. B. (1993). FDA regulation of product claims in food labeling. Journal of Public Policy & Marketing, 12. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Landi, H. (2015). Labels under scrutiny. Beverage World, 134. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Premanandh, J. (2011). Global consensus – need \of the hour for genetically modified organisms (GMO) labeling. Journal of Commercial Biotechnology, 17.1, 37-44. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Radke, A. (2016). How the beef industry can capitalize on millennial meat buying habits. Beef. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Shearer, P. S. (2016). GMO labeling bill passes Senate. National Hog Farmer. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Spencer, J. (2016). Bill outlawing state GMO labeling laws passes Senate committee. TCA Regional News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Starzee, B. (2015). Food manufacturers applaud food labeling act, Long Island Business News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Tran, V. T., Yiannaka, A., & Giannakas, K. (2014). An economic of nanofood labeling. American Agricultural Economics Association. Retrieved from http://ageconsearch.umn.edu.

Trotter, G. (2016). GMO labeling debate puts food industry on defensive. TCA Regional News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Vigani, M., Raimondi, V., & Olper, A. (2012). International trade and endogenous standards: the case of GMO regulations. World Trade Review, 11.3. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Vogt, W. (2016). Taking on the GMO labeling question. Farm Industry News. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Zhao, L., Gu, H., Chengyan, Y., & Ahlstrom, D. (2013). Consumer welfare and GM food labeling: A simulation using an adjusted Kumaraswamy distribution. Food Policy, 42, 58-70. Retrieved from http://search.proquest.com.ezproxy.wilkes.edu/abicomplete/.

Zook, K. “Food Buying Habits: Organic versus Conventional.” MBA 512. Wilkes University, 2016. https://voicethread.com/myvoice/#thread/7857465/42984220/43840311.


Appendix A This one sample hypothesis test for the proportion was derived from a study carried out by Wilkes University, Masters in Business Administration student Kelsey Zook throughout the spring semester of 2016. As described in the text, the online survey collected responses from a total of 105 participants. The survey collected qualitative and quantitative data relating to consumers’ food buying habits, and how food labels for United States Department of Agriculture (USDA) certified organic, and non-GMO Verified project products. The results from the one sample hypothesis test for the proportion addressing the topic of whether or not millennials support sustainability, shown through their preference for organic, non-genetically modified food products are shown below.


Appendix B From the same primary research study outlined in Appendix A, a second hypothesis test was performed. The second test was a two sample hypothesis test for the proportion which analyzed the topic of whether or not millennial consumers believe that organic, non-genetically modified food products are safer than conventionally grown food products and the corresponding results are shown below.

Appendix C Combined direct effects of the labeling regime on the genetically modified food sector

the economics of genetically modified food labeling

Documents