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The signaling effect of mandatory labels on genetically engineered food

Abstract: It has been suggested that the adoption of mandatory labeling for genetically engineered food might send a signal to consumers that foods produced with biotechnology are unsafe or should be avoided. To date, however, there is little empirical evidence to substantiate this claim. This paper utilized data from two studies to explore whether consumers exposed to labels on genetically engineered foods expressed greater aversion to genetic engineering than consumers in control groups, who were exposed to decoy labels unrelated to the technology. We find little evidence of a signaling effect resulting from the mere exposure to labels. However, in Study 1, we find signaling operating in another fashion: there were stark differences in the implied willingness-to-pay to avoid genetically engineered foods when consumers were exposed to mandatory “contains” labels vs. voluntary “does not contain” labels. In study 1, we also find aversion to a non-GE technology – ethylene ripening – that is comparable to aversion to biotechnology.

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Alex’s Notes: Legislatures in Connecticut and Maine have recently passed mandatory labeling laws that will go into effect if a threshold number of other states pass similar measures, and in 2014 Vermont was the first state in the U.S. to pass an outright mandatory GE food labeling law. Unfortunately, similar ballots in Washington and California have failed. Advocates of labeling point to a “right to know” argument, and also argue that labeling is a trivial cost relative to the typical label changes that companies make to products.

But something that is often overlooked is that a genetically engineered (GE) label serves as an identifier, which consumers use to select the product they most prefer. Opponents of labeling argue that the mere presence of a label leads to consumer assumptions. For instance, Monsanto argued that “mandatory labeling could imply that food products containing these ingredients are somehow inferior to their conventional or organic counterparts.” It is tempting to dismiss this as self-interest, but the American Association for the Advancement of Science has also reached similar conclusions.

If the above arguments hold true, then this would create a tremendous incentive for companies to switch to non-GE ingredients. This occurred in the European Union and presumably other countries with mandatory labeling requirements such as Australia, New Zealand, Japan, and South Korea where companies resorted to substituting ingredients to avoid the label.

This brings us to the current study, which are actually two studies aimed at determining the potential signaling effect of GE labels. In a nutshell, both studies compared treatment groups (exposed to GE labels) to control groups (exposed to other labels unrelated to GE content) in terms of subsequent stated risk perceptions and willingness-to-pay to avoid GE food.The first study entails consumers making choices between apples that have, depending on the treatment, “does not contain” or “contains” GE labels, in addition to a control group where consumers are instead shown labels indicating whether the apples have been ripened with ethylene.In the second study, respondents a picture of a box of Cheerios that either does or does not contain a claim about GE content, and then asked to click on the area of the box that is most and least desirable. 

In total, 647 subjects participated in study 1 with an almost perfect split between males and females and between all age groups (18 to over 65 years old). About 45% were college graduates. Three main results emerged:

  1. Individuals who made choices between apples with mandatory GE labels (contains GE) did not believe GE foods are more risky and did not indicate greater willingness to pay to avoid GE food than individuals in the control who made choices between apples with ethylene labels.
  2. Individuals who made choices between apples with voluntary GE labels (does not contains GE) did not believe GE foods are more risky and did not indicate greater willingness to pay to avoid GE food than individuals in the control who made choices between apples with ethylene labels.
  3. Implied willingness-to-pay to avoid GE food involving mandatory labels was greater than implied willingness-to-pay to avoid GE food involving voluntary labels (9% vs. 6.5% premium, respectively).

For study 2, 419 subjects were recruited in the same manner as for study 1, with characteristics of the participants being very similar to study 1 as well. The main finding was that,

  1. Individuals who observed the cereal box with the mandatory (contains GE) GE label believed GE foods are more risky and indicated greater willingness to pay to avoid GE food than individuals in the control who observed the cereal box without a GE claim.

Interestingly, in study 1 it was also found that aversion to ethylene ripening in the control group was on par with aversion to GE food. For those skeptical of the signaling effect of labels, this raises the question, did the mere presence of the attribute signal consumers that it is something to be avoided? This is supported by the fact that mandatory “contains” labels had a significantly greater implied willingness-to-pay to avoid GE food than voluntary “does not contain” labels. Many consumers are skeptical of food safety, as has been exemplified in the past. When the FDA mandated the labeling of trans-fats on the nutritional facts panel, the negative consumer views of trans-fats led to a rapid and drastic reduction of the use of trans-fats across all food product industries.

Honestly though, trans-fats are just one issue.The numerous food crises and media scandals in recent decades has likely impacted the consumers’ confidence in the food system and created a form of disassociation from it. This in combination with the physical and intellectual disconnection from the food system itself suggests that the average consumer is unlikely to possess much information on a whole host of issues and technologies such as irradiation, cloning, rBST, sulfites, biotechnology, etc. Without the basic knowledge, it is not irrational to assume that most people readily adopt the information and beliefs they see posted on Facebook or food labels.

On a final note, a true labeling mandate imposed by law may well send a different signal about the nature of scientific and public concern than labels shown by researchers on a survey. If anything, the effects would be more pronounced. Regardless, the issue is complex, to say the least.

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