National Public Policy Education Conference Salt Lake City, Sept. 22, 2003

1. 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

2. The use of modern biotechnology to create genetically modified productshaled 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

3. -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]

4. 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

5. 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 EU imposed moratorium, 2001, approval of GM crops and required labeling See Figures C and D

6. Figure A(USDA)

7. Figure B

8. Figure C(Des Moines Register, Oct 2002)

9. Figure D

10. 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. [Huffman and Tegene 2002; Rousu et al 2003a]

11. 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 parties—environmental 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]

12. 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 =>18 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

13. 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 (vi) all three types One of two food Iabels and one of six information treatments with two replications were randomly assigned to each experimental units of 13-16 individuals

15. 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]

16. 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]

17. 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]

18. 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

20. III. ResultsA. 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 participant’s education, gender, household income, marital status on bidding [Huffman et al 2003b] -See Figure 7 histogram for each commodity

21. 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 (N=172)

22. B. Differences in bids ($) for the Tortilla Chips (N=172)

23. C. Differences in bids ($) for the Potatoes (N=172)

24. 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]

25. 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” What are consumers’ preferences for tolerance levels? Participants (n=56) bid on certified “GM-free,” “1% impurity, and 5% impurity Results: Bids on average were 10% less for products having not more that 1% GM impurity relative to “GM-free” [Rousu et al 2003a] Bids were not significantly different for 1% and 5% impurity!

26. 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

27. 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 -Schooling lowers odds for all sources relative to third-party/university -Conservative religious affiliation reduces odds of trusting industry/ org. and increases odds of trusting nobody relative to third-party [Huffman, Rousu, Shogren, and Tegene 2003c]

28. 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