Chapter 11 The Effect of GM Labeling Regime on Market Outcomes

Purpose – This chapter investigates the role that mandatory genetically modified (GM) labeling versus voluntary labeling has played in the split between those countries with small GM markets and those with large GM markets. Methodology/approach – Data on product introductions and other market evidence are used to examine market outcomes and identify the likely drivers of GM market bifurcation. Findings – Labeling has negligible effects on consumer choice or on GM differentiation costs and therefore does not explain the split in GM market outcomes. Other factors have driven market outcomes: namely, consumer confidence in government and the safety of the food supply, competition among manufacturers and retailers, market momentum, and most importantly, the affordability of a non-GM strategy. Ultimately, a non-GM market strategy is feasible only if consumers are willing to cover the additional costs associated with non-GM production and marketing. The two elements composing the cost/price wedge between GM and non-GM products – the cost-reducing benefits of the GM technology and the costs of differentiating non-GM products – therefore play an important role in market outcomes. In the mid-1990s, when producers, manufacturers, and retailers were determining their strategies, neither element was very large. As a result, both GM and non-GM marketing strategies were economically feasible. Practical implication – Regardless of the labeling regime, changes in the cost/price wedge between GM and non-GM products could change the mix of GM and non-GM products on the market. Originality/value of paper – This analysis extends the literature by focusing on the impact of labeling regime on both consumer behavior and the cost/price wedge between GM and non-GM products.