National Public Policy Education Conference

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• National Public Policy Education Conference
• Salt Lake City, Sept. 22, 2003
• Consumers Acceptance of (and Resistance to)
  Genetically Modified Foods in High Income
  Countries Effects of Labels and Information in
  an Uncertain Environment
• By Wallace E. Huffman
• C.F. Curtiss Distinguished Professor of
  Agriculture and Professor of EconomicsIowa
  State University

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• The use of modern biotechnology to create
  genetically modified products haled by some as a
  revolution in innovation but scorned by others
• -Crop Genetic Improvement
• Conventional plant breeding is a 20th
  century phenomena
• Gene exchanges in sexually compatible species,
  largely crossing
• Selection on attributes, e.g., grain yield
  little DNA knowledge
• 
  
  Lamkey 2002
• Modern biotechnology is the human
  mediated insertion of a synthetic gene(s) into
  an organism
• Technique for recombinant DNA discovered by
  Cohen and Boyer (1973)
• Cohen-Boyer patent, gene-splicing
  technology awarded 1980,
• enabled the gene
  revolution in 1990s
• Transfers between sexually incompatible species
  
• Gene(s) produce(s) proteins of
  interest input/output traits
• 
  
  
• Precise, origin of the trait is known
  through DNA sequence
• Gene insertion at random
  location by gene gun or virus
  
  Lamkey 2002
• Process name genetic engineering,
  bioengineering, genetically
• modified or GM and even naming of
  the process is controversial

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• -More about the GM-Controversy
• Biotech industry emphasizes potential to
  reduce cost of
• food and fiber worldwide and improve
  environmental quality
• --They are an interested party,
  distributing positive GM information
• International environmental NGOs, e.g.,
  Greenpeace, Friends of the
• Earth, Action Aid have been vocal
  opponents /antagonists of ag
• biotech
• --They are an interested party,
  distributing negative information through
  websites, press releases, demonstrations
• claiming health and environmental
  hazards and
• Consumers have right to know wrt
  GM- labeling,
• technology only benefits large
  multinationals and not consumers,
• and invoking the precautionary
  principle
• Huffman, Rousu, Shogren, and Tegene 2003a
  Rousu, Huffman, Shogren, and Tegene 2003a

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• Not all seemingly useful goods have been
  adopted in US or other developed countries
• -Pasteurization of milk in the early 20th
  century
• --Right to drink raw milk
  Hotchkiss 2002, Pirtle
  1926
• --Thousands of deaths in US were
  preventable at low cost
• -Electricity generated by nuclear power
  over past 40 years
• --Early prospects were good for cheap
  and clean source of power
• --Low emissions--- CO2, nitrous oxides,
  sulfur oxides
• --International NGOs, e.g., Greenpeace
  and Friends of the Earth
• demonstrated strongly against in EU
  and US
• --Ruttan (2001) suggests environmental
  groups raised public risk
• perception of nuclear
  power---quadrupled the cost
• -Irradiated meat, poultry and other foods
  over past decade
• --Low cost method for killing
  harmful-to-human health bacteria,
• e.g., E. coli, salmonella,
  listeria, etc.
  Nestle 2003
• --Encountered stiff resistance from
  international NGOs
• --Failure to irradiate meat and poultry
  causes significant annual deaths

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• Biotech industry emphasizes reduced cost of food
  and fiber worldwide and improved environmental
  quality with herbicide tolerance and insect
  resitance
• --Input traits in the pipeline
  See Figure A
• -Reduce application of chemical
  insecticides and more efficient weed control
• --Output traits in pipeline Enhanced
  nutrient content of food crops, source biological
  
• materials (enzymes,
  pharmaceuticals, industrial oils, etc.)
• 
  Council for Biotechnology Education Johnson
  2002 Paarlberg 2002, 2001
• Early (mid 1990s) potential looked promising for
  GM- products in US, Canada, Argentina, and a few
  other countries
• --Successes Crops-US soybeans, cotton and
  corn, 1995 to 2001
• See
  Figure B USDA,
  Fernandez and McBride 2002
• Argentina
  soybeans and corn
• China
  cotton
• Livestock-US dairy, rBST
  adoption by dairy farmers has been modest
• --Failures US biotech growth hormone for
  hogs (rPST)
• US biotech
  tomatoes, potatoes, sugar beets

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Figure A(USDA)
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Figure B
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Figure C(Des Moines Register, Oct 2002)
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Figure D
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• International environmental NGOs, e.g.,
  Greenpeace,
• Friends of the Earth, Action Aid have been
  vocal opponents
• /antagonists of ag biotech
• --Negative information includes protests
  expressing concerns
• for human health (allergens) and
  environment
• (contamination of native species,
  pollen drift, killing
• beneficial insects)
  
  Sandra Batie
• --In 2002, fears by EU consumers of
  GM-products created an
• obstacle to acceptance of US food aid by
  poor Southern African
• countries and to new ag biotechnology
• 
  Johnson 2002 Paarlberg
  2002 Uma Lele
• --US food aid may contain GMOs
• --Southern Africa might be unable to
  export to EU in future
• due to contamination or high cost of
  identity preservation
• The consequences of technology and new product
  adoption decisions can be great, affecting the
  welfare of current and future generations.

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• Consumers and producers of food are exposed to
  conflicting information and attempt to make
  better decisions has stimulated interest in food
  labeling and new information sources
• -Labeling issue the effects on consumers and
  producers of
• different types of GM-food labels, e.g., plain,
  GM-content,
• GM-free without and with tolerance levels.
• The EU, Japan, Australia, New Zealand,
  Brazil
• require labeling for 1 to 5 impurity
  levels
• -Asymmetric information Interested
  partiesenvironmental
• NGOs and ag biotech industry disseminate
  information that
• reflects own self-interest and private
  information which is
• made available to consumers and producers
• Molho 1997
  Milgrom and Roberts 1986 Huffman and Tegene 2002

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• Objective To share new research methods and
  evidence using these methods for testing effects
  of GM-food labels and diverse information on
  consumers willingness to pay for and resistance
  to GM- foods
• Methods Hybrid---combining sample survey,
  statistical experimental design, and
• experimental economics
• Experimental Economics Auction market setting
  (a lab) where adult consumers
• bid on three food items--vegetable
  oil, tortilla chips, and russet potatoes---
• that might be genetically modified
  
  Rousu et al 2003a
• Subjects Randomly selected individuals gt18
  years of age in two major Midwestern
• cities were contacted by independent
  agency to obtain agreement to participate
• Total of 318 individuals were paid
  40 to coming to central location (lab)
• and provide information and
  participate in experiments
• Date of Experiments April and December, 2001
• Econometric Models Contain linear stochastic
  unobserved individual and
• country-specific effects which are
  differenced out in the analysis

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• II. More Information about the Methodology
• Tests of effects of plain vs GM-food labels and
  of diverse information on willingness to
• pay and resistance
• Labels plain and GM (See Figure 1)
  Huffman, Rousu, Shogren, and Tegene 2003b
• Biotech Information Perspectives
  Huffman, Rousu, Shogren, and Tegene 2003b
• Environmental Group Perspective
  (See Figure 2)
• Agricultural Biotech Industry Perspective
  (See Figure 3)
• Independent, Third-Party
  Perspective, Verifiable Information (See
  Figure 4)
• 
  Milgrom and Roberts 1986 Huffman and Tegene
  2002
• Information packets/treatments (i)
  industry perspective
• 
  (ii) environmental perspective
• 
  (iii) industry and environmental
• 
  (iv) industry and third party
• 
  (v) environmental and third party

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• Figure 2. Information given to participants
  Environmental Group Perspective
• The following is a collection of statements and
  information on genetic modification from
  Greenpeace, a leading environmental group.
• General Information
• Genetic modification is one of the most
  dangerous things being done to your food sources
  today. There are many reasons that genetically
  modified foods should be banned, mainly because
  unknown adverse effects could be catastrophic!
  Inadequate safety testing of GM plants, animals,
  and food products has occurred, so humans are the
  ones testing whether or not GM foods are safe.
  Consumers should not have to test new food
  products to ensure that they are safe.
• Scientific Impact
• Human Impact
• Financial Impact
• Environmental Impact
• Genetically modified foods could pose major
  environmental hazards. Sparse testing of GM
  plants for environmental impacts has occurred.
  One potential hazard could be the impact of GM
  crops on wildlife. One study showed that one
  type of GM plant killed Monarch butterflies.
• Another potential environmental hazard could
  come from pests that begin to resist GM plants
  that were engineered to reduce chemical pesticide
  application. The harmful insects and other pests
  that get exposed to these crops could quickly
  develop tolerance and wipe out many of the
  potential advantages of GM pest resistance.
  Rousu, et
  al 2003a

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• Figure 3. Information given to participants Ag
  Biotech Industry Perspective
• The following is a collection of statements and
  information on genetic modification provided by a
  group of leading biotechnology companies,
  including Monsanto and Syngenta.
• General Information
• Genetically modified plants and animals have
  the potential to be one of the greatest
  discoveries in the history of farming.
  Improvements in crops so far relate to improved
  insect and disease resistance and weed control.
  These improvements using bioengineering/GM
  technology lead to reduced cost of food
  production. Future GM food products may have
  health benefits.
• Scientific Impact
• Human Impact
• Financial Impact
• Environmental Impact
• GM technology has produced new methods of
  insect control that reduce chemical insecticide
  application by 50 percent or more. This means
  less environmental damage. GM weed control is
  providing new methods to control weeds, which are
  a special problem in no-till farming. Genetic
  modification of plants has the potential to be
  one of the most environmentally helpful
  discoveries ever.
  
  Rousu, et al 2003a

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• Figure 4. Information given to participants
  Third-Party Perspective
• The following is a statement on genetic
  modification approved by a third-party group,
  consisting of a variety of individuals
  knowledgeable about genetically modified foods,
  including scientists, professionals, religious
  leaders, and academics. These parties have no
  financial stake in genetically modified foods.
• General Information
• Bioengineering is a type of genetic
  modification where genes are transferred across
  plants or animals, a process that would not
  otherwise occur (In common usage, genetic
  modification means bioengineering). With
  bioengineered pest resistance in plants, the
  process is somewhat similar to the process of how
  a flu shot works in the human body. Flu shots
  work by injecting a virus into the body to help
  make a human body more resistant to the flu.
  Bioengineered plant-pest resistance causes a
  plant to enhance its own pest resistance.
• Scientific Impact
• The Food and Drug Administration standards for
  GM food products (chips, cereals, potatoes, etc.)
  are based on the principle that they have
  essentially the same ingredients, although they
  have been modified slightly from the original
  plant materials.
• Oils made from bioengineered oil crops have
  been refined, and this process removed
  essentially all the GM proteins, making them like
  non-GM oils. So even if GM crops were deemed to
  be harmful for human consumption, it is doubtful
  that vegetable oils would cause harm.
• Human Impact
• Financial Impact
• Environmental Impact
• 
  
  Rousu, et al 2003

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• Laboratory auction
• -Follows methods of V. Smith and J. Shogren
  Winners must pay dollars for food products, not
  require commodity exchange
• - Winner(s) are chosen is a random nth
  price auction where if have 15 participants and
  the random n is 5 than 4 highest bidders pay the
  5th highest price
  Shogren, Margolis, Koo, and List
  2001
• -Why is random nth price chosen over the Vickrey
  2rd price auction?
• Reduces frequency of insincere bidding because
  all participants have positive probability of
  being a winner
• -Institutional structure guarantees that each
  participant will be the winner of a
• most one unit of each of the three
  commodities
• ---eliminates
  negatively sloped demand curve effect and credit
  constraint
• -All bids on experimental food items were
  revealed at the end of the experiment
• and winners then paid for their
  product

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• III. Results A. Summary of sample attributes
  and results for test of GM-labels and information
  effects on willingness to pay and GM-resistance.
• Sample Mean Values (172 participants)
• -62 females
• -49.5 years of age
• -14.5 years of schooling
• -57,000 household income
• -42 claimed to be informed about genetic
  modification pre-experiment
• Results for Plain versus GM-food labels
• -Participants on average discounted GM-labeled
  foods by 14
• -No statistically significant effect of
  participants education, gender,
• household income, marital status
  on bidding
• Huffman et al 2003b
• -See Figure 7 histogram for each
  commodity

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Figure 7 Histogram of the difference in bid
prices for the plain-labeled and GM- labeled
version of each of the 3 commoditiesA.
Differences in bids () for the Vegetable Oil
(N172)
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B. Differences in bids () for the Tortilla Chips
(N172)
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C. Differences in bids () for the Potatoes
(N172)
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• Information treatments
• Environmental group information increases
  significantly the difference in bid prices,
  lowers bid for GM-labeled foods
• Biotech industry information reduces bid price
  difference but not generally statistically
  significant
• Independent third-party information is a
  significantly moderating force on environmental
  and/or ag biotech industry information
• Negative info is not dominating as in
  irradiated meat (Fox et al)
• Khaneman and Tversky (1979) suggests
  asymmetric value function
• When 3rd-party information changes
  behavior, it has value and
• nationally, we estimate its
  social value is 2.5 billion per year to US
• Gender, household income, age, or education does
  not have significant effect on differences in bid
  prices when information treatments are included
  
  Rousu et al 2003a

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• B. Consumers resistance to GM-food technology
  (See Table 5)
• Sixteen percent of consumers are out of the
  market for GM-labeled foods rel plain labeled
• Environmental groups perspective increases the
  probability that a consumer drops from the market
• for GM-foods and pushes some
  out of the market
• Verifiable information provided by a third party
  source dampens the effectiveness of negative GM-
• product information
• Participants who claimed to be informed about GM
  technology in pre-experiment survey were
• significantly more likely to
  be out of the market for GM-food products
  Huffman et
  al 2003
• C. Tolerance levels
• Experiments reveal non-GM or GM-free is
  superior quality product, and with voluntary
  labeling
• system, non-GM would signal
  its quality
• Cost of testing, segregation or identity
  preservation, and risk premiums are very high for
  GM-free

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Table 5. Probit Models All Products-Dependent
Variable 1 if a Consumer is out of the Market
for All Three Products (bids at least 1/3rd less
for GM- than Plain-Labeled Product)

• --------------------------------------------------
  --------------------------------------------------
  --------------------------
• Regressors (1)
  (2) (3)
  (4)
• --------------------------------------------------
  --------------------------------------------------
  --------------------------
• Environmental Info 0.718
  1.156 0.735
  0.786
• Ag Biotech Info -0.613
  -0.687
  -0.721
• Third Party Info
  -0.684
  -0.666
• H.H. Income
  -0.0034
  0.0029
• Labeled GM first
  -0.147
  -0.108
• Informed Before
  0.418
  0.530
• Intercept -1.198
  -1.744 -1.258
  -1.108
• __________________________________________________
  ___________________
• Significant at the 5 level
• Significant at the 10 level

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• C. Trust in Information Sources
• In post-auction questionnaire, participants were
  asked who would you trust to proved
• information on genetic
  modification?
• Trust in information sources is related to
  social and personal capital (Becker model)
• Results (n 318) Relative Frequency
• Six Types
  Frequency ()
• Government
  19.5
• University, Scientists, or third-party
  29.6
• Environmental/consumer group
  3.8
• Private Industry/organization
  5.0
• None
  6.0
• Other, media, or no answer
  36.1
• Multinomial results relative to
  third-party source
• -Household income does not affect
  relative preference

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• IV. Conclusions
• -New research methods have been developed and
  successfully tested
• -Information from diverse sources has effects on
  consumers demand for GM-foods, but no dominate
  type
• -The Environmental Group perspective reduces
  consumers willingness to pay, pushes some
  individuals out of the market ,and increases the
  probability that all consumers are out of the
  market for GM-foods
• -Third Party Information is a moderating force
  against the extremes of ag biotech industry and
  environmental group perspectives
• Third-party information dissipates virtually all
  resistance to GM-foods caused by environmental
  groups perspective
• -Socio-demographic attributes of consumers do not
  affect willingness to pay for GM-foods, but those
  claiming GM- informed are more likely to be out
  of the market
• -Schooling, Age, and Religion of consumers
  matters only when it comes to preferences for
  information sources on genetic modification