The Economics of GMOs

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A group called Stop Costly Food Labeling (SCFL) is fighting Prop 37, California’s ballot initiative that would require genetically engineered food (GMOs) to be labeled as such. The group, mainly funded by biotech companies and GMO food distributors, is pouring millions of dollars into the campaign, begging the question: what are the economics of GMOs? How much would a labeling law shift public opinion and purchasing behavior, and thereby cut revenues for GMO companies? Monsanto, the world’s biggest GMO company, has said repeatedly that GMO foods are safe, or rather that there is no evidence they’re not safe, so why would they worry about a labeling law? For this article, I went ahead and asked them.

There are GMO labeling laws in at least 40 countries around the world (most of Europe, but also China, India, and several other developing nations), but so far in the U.S., no states require labeling of GMOs. SCFL is sponsored by biotech companies that produce GMOs, and is outspending proponents of Prop 37 by an 11-to-1 margin. The main funders of the Yes on Prop 37 campaign are the Organic Consumers Fund, Lundberg Family Farms, Dr. Bronner’s (natural soap company), and Nature’s Path Foods. The major funders against Prop 37 are the Council for Biotechnology Information (an industry front-group representing Monsanto, Syngenta, Pioneer, and other biotech companies), PepsiCo, Kellogg, and Coca-Cola. Despite the overwhelming outside money interest, Prop 37 looks like it has broad support and will likely pass into law. But outside money and PR campaigns changes things, and the Biotech industry has proven that it can beat popular measures aiming to label GMOs in Connecticut and Vermont (although it may come back up soon in Vermont).

So how much would biotech companies expect to lose in GMO sales if the law passes? I asked a senior scientist at Monsanto, one of the world’s biggest producers of GMO foods, if there were any studies showing how much sales declined after labeling became mandatory in other countries.

Here’s our conversation, via email:

Inspired Economist: Economically speaking, do you have any studies I can read through, or information generally about the impact of labeling laws on the sales of GE foods in the countries where they’ve been required? 

Monsanto: There does not seem to be a clear consensus as to the additional costs of labeling.  According to a 2007 study by the international Food Policy Research Institute, cost estimates range from $.20 to $10-20 per capita per year.  It will depend on the threshold level and the enforcement protocols imposed.   More importantly will be the cost of substituting with non-GMO ingredients which will require testing and analysis, confirmation as well as government oversight.  For example, corn is GMO, wheat is not.  Substituting wheat for corn may then require labels that the product contains gluten.  You may be able to get more specific information from, They are the group sponsored by farmers, food producers, Council for Biotechnology Information and Grocery Manufacturers Association and concerned with the labeling ballot initiatives in California.

Not much of an answer, and interesting that they would point out that farmers are sponsoring the No on 37 campaign, and not mention that most of the money is coming from PepsiCo, Coca-Cola, and Kellogg. Follow up emails with Monsanto, Syngenta, and Pioneer also yielded no results.

An article on Freakonomics’ website might clear up the reason why the biotech industry is so fearful of California’s Prop 37:

More devastating than the label itself, could be the cost of avoiding the label on non-GE foods that may nevertheless contain trace amounts of GE material. In the U.S., the highest-grade corn can contain as much as 2% foreign material, like crop residues. In Europe, a food product can contain as much as 0.9% genetically engineered material and avoid a GE label. But the California law would impose a nearly twice as stringent purity standard, tolerating only 0.5% GE content in non-GE food.

Such a high purity standard would likely require farmers to invest in separate planting, harvesting, storage, hauling, processing, and packaging equipment for GE production in order to avoid revenue losses and liability from contaminating their non-GE operations or those of competitors. Because the costs of risk reduction generally increase exponentially in the level of safety, California’s stringent purity standard may be a death sentence to GE producers who could spread the high fixed costs of contamination avoidance across only the low levels of production that the market would initially support. 

Facing diminished revenue prospects and high fixed costs to prevent even trace contamination, processors may abandon GE production altogether. Farmers would stop planting GE crops, and scientists would stop agricultural biotechnology research. Much as a decade-long moratorium on GE crops in Europe caused the agricultural biotechnology R&D pipeline to contract around the world, a labeling regime in the most populous state of the world’s most aggressive GE-adopting country could cause firms to shelve potentially life-saving innovations. Food prices would rise and consumer choice would be diminished.

Clearly the author supports the fight against Prop 37 and any labeling laws, but his point is valid. To avoid contamination, farmers might very well abort all GE operations entirely. But this has not been the case in the 40 countries which have labeling laws, potentially meaning that the consumer avoidance of GMOs may not be as strong as the biotech industry fears. The biotech industry has long held the stance that genetically engineered foods are safe. Proponents of Prop 37 want to give the choice of eating GE foods to consumers, and have made the fairly convincing argument that, well, if they’re safe, why do the biotech companies spend so much money trying to keep them from being labeled as such?

What do you think? Do you support GMO labeling? Is there any study anywhere showing a real loss of revenue following a GMO labeling law? If so, please leave a link in the comments below!

Genetic Engineering Photo from Shutterstock



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