The Economic Impacts of Biotechnology and Labeling

Agenda
February 28, 2000
10:00 - 11:30
Room SC-5
U.S. Capitol Building

The Economic Impacts of Biotechnology and Labeling

C-FARE Briefing
February 28, 2000

Summary
Bill Lesser
Cornell University

One of my tasks this morning is to provide some kind of summary statement which will, with luck, synthesize the valuable material we have heard here today. As a starting point, one can note Prof. Caswell's assertion that a consumer's 'right to know' is a philosophical concept about which governments disagree. Now as a secular nation, the U.S. Government has no formal philosophy, lest it be Pragmatism. And Pragmatism implies some balance of benefits and costs.

The benefits of the current generation of agricultural biotechnology products are notable for farmers, measured at around $30 per acre for 1997.¹ A problem is that this sum becomes invisible when the soybeans reach the consumer in the form of salad dressing or french fries. Consumers might and are asking, why must they accept a risk (even if a very small one) for no apparent benefit to them?

On the cost side we have some information, as Ms. Mattson has explained to us based on Best Food's experiences in Europe. The situation in the U.S. is likely to be different and presently colleagues here are working on producing those numbers. The suddenness of the attention on labeling and identity preservation caught all of us unprepared. Yet whatever the actual cost numbers are, they are certain to be substantial. And the effects of those costs are likely to be greater yet, for it is evident the strong competitive position of U.S. farm products in the world market is in no small part due to the efficiency of our logistical system. Not only can we produce cheaply, due to the skills of our farmers and our favorable resources, but deliver cheaply. An identity preservation system which moves away for the current streamlined bulk handling system could affect our competitive position as well.

Yet it may not be appropriate to ascribe all those costs to a domestic labeling and identity preservation system. Already, major overseas customers, including the EU, Japan and South Korea are presently, or will be within the year, requiring certifiable levels of GMO composition. To date it has been possible to grow and sell agbiotech crops without a price penalty because animal feeds have not been affected. But as importers move that direction, as indeed they are with Japan and South Korea poised to require the labeling of meat products produced with GMO-modified feed ingredients, identity preservation will be necessary to maintain our key export feed markets. At that stage with identity preservation already in place, separation and labeling for domestic sales will add only marginally to costs.

Dr. Golan provided an overview of the issues involved with how products are labeled and what are the effects of including differential information on the labels. One of the relevant issues which must be considered in this country is the use of a tolerance level for GMO materials in 'GMO free' product. Presently, neither the Kucinich nor the Boxer bills make reference to allowable contamination, suggesting by one interpretation that a zero tolerance is implied. Clearly, zero mixing is not feasible, as the experiences in Europe conveyed by Ms. Mattson indicates. Within the U.S., the proximity of GMO and non-GMO crops can lead to some inadvertent cross-pollination, and if not there then contamination can occur when common silos, trucks and barges are used.

The more relevant issue is, what should a tolerance be? Europe is at or approaching a 1 percent level while Asia seems to be favoring 5 percent. The difference can be expected to have major cost ramifications for identity preservation, something which should be measured while the date are being collected and analyzed. But perhaps the real costliness will be associated with multiple standards worldwide, standards which would require several levels of segregation. If there is yet no effort to shape an international agreement, then one is clearly called for.

What can be said about Ms. Mattson's deduction, drawn from the European experience, that a 'contains GMOs' label will convey tainted goods, and kill the market outright. Certainly there is precedence for that conclusion. In the UK, prior to the recent sensitivities, a successful tomato paste product utilizing a GMO tomato was sold . Following the labeling requirement it has been withdrawn. At home, Gerber and Frito Lay have pledged no GMO product contents for their baby and snack foods respectively. Seemingly, the potential cost differential for inputs in those high value added products was insufficient to counterbalance the possible loss of market. Does that represent a trend?

The short-lived FlavrSavr tomato might be indicative, but was on the market so briefly (and tasteless as a fresh tomato product independent of the GMO aspect) as not to establish a precedent. More indicative perhaps has been the consumer response to rBST, a genetically engineered substance which, injected into dairy cows, increases milk production. RBST received considerable publicity in the 10 plus years leading up to approved release in 1994. During that period, consumer surveys indicated a loss of market of up to 12 percent following release and adoption due to a loss of the 'purity' of milk. It has not worked out that way; aggregate production and price statistics indicate no nation-wide effect.² Consumers appear to have forgotten the controversy in the absence of any reports on ill effects, except possibly in states where milk may be labeled as 'BST-free'. Overall, the share of labeled dairy products has been "small"³ among the 13 states where labeling is used, with the exception of Vermont and Wisconsin where the most adamant opposition has arisen.

Opposition is in part based on health concerns, which in the U.S. are not a major factor, according to Ms. Pitman's surveys. But the major focus has been on affects on the viability of family dairy farms.⁴ In Wisconsin, voluntary labeling led to small percentage shifts between labeled and unlabeled products, but sufficient that "virtually all fluid milk sold in Wisconsin is now labeled 'farmer-certified rBGH-free.'"⁵ Vermont adopted a voluntary labeling law in 1997 after the mandatory statute was struck down. The extra costs of labeling are compensated by the higher price of the 'BST-free' product,⁶ a common pattern.

The evidence is limited, but the conclusion seems to be that sufficient public attention when products are labeled can lead to the reduction in the availability of agbiotech products even if the actual shifts in purchases are small. However, more than generalized health concerns may be required for such a response in this country.

Public Statements