Biotechnology is often associated with promise…promise
to feed the world, promise to reduce environmental harm, promise
to
expand agricultural markets and production possibilities, promise
to create products that consumers want.
Farmers in the United States seem to be sold on these promises.
Although first generation biotech crops have been in commercial
use for only 8 years, farmers have rapidly adopted them because
of their ability to survive herbicides and/or pests. In 1996, fewer
than 5 percent of U.S. soybean acres were planted to herbicide-tolerant
(HT) seeds; in 2002, 75 percent of soybean acres were planted to
HT soybeans—a 1,400-percent increase in just 6 years. Adoption
rates of biotech commodities that are used for nonfood purposes—animal
feed and textiles, for example—have also increased rapidly.
Seed development, chemical, and pharmaceutical firms seem to be
sold, too. Anticipating significant returns from both agricultural
and pharmaceutical biotechnology, these firms acquired small biotech
start-up firms (and their biotech patents) in the 1990s and transformed
themselves into large
“life science” companies. While some pharmaceutical
firms have since divested their agricultural holdings after failing
to realize adequate returns on their investments, large agricultural
biotechnology companies—like Monsanto—have maintained
agbiotech research and development programs, partly because of expected
greater returns on second- and third-generation biotechnology.
But, are American consumers sold? Unlike their European counterparts,
American consumers have, so far, not been vocal about their opinions
on biotech food,
though they have been eating them. Biotech grains, in the form of cornmeal,
oils, and sugars, are used as ingredients in many foods that Americans consume,
such as corn chips. Because these foods are deemed substantially equivalent
to their nonbiotech counterparts, they are not labeled as “biotech.” As
such, consumers are largely unaware they are eating products derived from
biotechnology. But that may change when the new generation of products in
the pipeline actually
hits grocery stores. These new products may be substantially different from
their nonbiotech counterparts or, in some cases, completely new. When consumers
are made aware that these products are biotech, how will they react? As the
largest market for U.S. producers, American consumers will render the ultimate
verdict on the future of agricultural biotechnology in the United States.
Biotech Products Reap
Multiple Benefits
Much of what we know about agricultural biotechnology stems from our experience
with the first generation of biotech products, mainly crops with enhanced agronomic
traits, such as pest resistance or herbicide tolerance. These products help
farmers by reducing production costs or increasing yields.
Only about a third of the first-generation biotech products are
in commercial use; many more
are expected to come through the pipeline in the next few years
(see “What’s in the Pipeline?”).
The second generation of biotech products, currently being developed,
are mostly food products that offer benefits beyond the farm gate,
such as enhanced nutritional value. Golden rice, for example, contains
beta-carotene, a source of vitamin A. The products of the third
generation will also offer benefits to consumers and others through
a wide range of nonfood uses—from edible vaccines to environmental
cleanup to reducing the spread of malaria from mosquitoes.
Most farmers using first-generation products have generally benefited from
modest increases in yields and net returns from reduced use of insecticides
and herbicides. Users of HT crops have seen increased yields and returns, but
users of bacillus thuringiensis crops (Bt crops, which are toxic to certain
pests) have had more mixed results. The financial benefits of Bt crops depend
on the presence or persistence of pests. Farmers also realize nonfinancial
benefits in the form of convenience and reduced management time. Many farmers
who work off the farm rely on Bt crops to make more time available for off-farm
work.
And U.S. farmers aren’t the only ones who benefit. Based
on an analysis of three biotech crops (Bt cotton, HT cotton, and
HT soybeans),
the financial
benefits to U.S. farmers accounted for no more than a third of the estimated
total benefits associated with biotech crops in 1997. And, the distribution
of benefits varies by crop. Larger shares of the benefits went to the
biotechnology developers in the form of technology fees or to domestic
and foreign consumers
through lower commodity prices. Although the results depend on a number
of factors, including the estimated cost savings associated with biotech
adoption
and the sensitivity of supply and demand for each commodity to price
changes, they do suggest that consumers capture many of the financial
benefits associated
with more efficient production. When we consider benefits to consumers
in terms of stable or declining food prices, we see that agricultural
biotechnology
is part of a long line of agricultural technologies that continue the
secular trend of ever-increasing agricultural productivity and
declining real agricultural
commodity prices.
What’s
in the Pipeline?
A wave of mergers and acquisitions among pharmaceutical
and chemical firms in the 1990s was fueled by the
belief that agri-biotechnology, in the long run,
was good business. Large agricultural biotechnology
companies, such as Monsanto, Syngenta, DuPont, Dow
AgroSciences, Bayer, and BASF have considerable research
and development capability, financial depth, and
patents to support long, costly and risky new product
development cycles. These companies are pursuing
this new wave of agricultural biotechnology with
hopes that their products, particularly those in
the second and third generation, will offer substantial
societal benefits to consumers and substantial returns
on their investments.
First Generation
These products are able to survive pests and/or herbicides, making
them easier and/or less costly for farmers to grow. These products
are largely used for animal feed or are processed into by-products
like oils and are not consumed by humans directly. In addition
to existing HT and Bt varieties, new products in the pipeline include…
Second Generation
These products, in their final form, have qualities—such
as enhanced nutritional value or other functional characteristics—that
make them attractive to consumers and others.
Fruits and vegetables with longer shelf life
Golden rice
Phytase for animal feed (reduces phosphorus pollution from animal
waste)
Increased-energy-availability corn
Improved drought-response corn
Corn amylase for enhanced ethanol production
Soybeans with improved protein functionality
Third Generation
These emerging uses of biotechnology in nonfood products create
new markets for agriculture.
Plant-made pharmaceuticals. Plants are used to create
proteins that can then be used to produce edible vaccines and
antibiotics. Anticoagulants, blood substitutes, and hormones
can also be created from plants.
Products that have environmental benefits. These
include plants that are able to absorb and store toxic
and hazardous substances. Genetic engineering is also
being used
to help restore trees threatened by disease, such
as the American chestnut. Research is also being
conducted to reduce the ability of mosquitoes to
spread diseases such as malaria.
Industrial uses. These include specialty
machine oils and other inputs that
can be used in factories.
That Leads Us to the Consumers
U.S. consumers are a varied group and their reactions to new biotech
foods are likely to be varied as well. Their reactions to products
reflect their
demographic characteristics, needs, and preferences. Income, price, education,
age, family size, time constraints, diet-health information, and ethnic background
all affect the amount and type of food that families buy and consume. In
recent years, changes in household composition and growth in ethnic
diversity and
incomes have driven demand for greater variety, convenience, and quality.
By and large, the U.S. food marketing system is responding to
these demands. The total number of food products available in today’s marketplace
now exceeds 300,000 (although not all at once and not in every store), and
the
number of new food product introductions averaged over 10,000 items per year
throughout the 1990s. These new food products—ranging from calcium-enriched
orange juice to yogurt pops to shade-grown coffee—have many attributes,
including more convenience, ethnic variety, enhanced nutritional value,
and environmental benefits.
Second-generation biotech foods also promise variety and quality, making them
well-targeted to recent trends in consumer demand. Whether these foods can
successfully compete with other foods on grocery store shelves depends on consumer
attitudes toward agricultural biotechnology.
What Influences Consumer Attitudes?
Results of public opinion polls convey mixed messages about U.S. consumer
attitudes toward biotechnology. Over the past 2 years, polls by ABC News
have shown strong
support for mandatory labeling of bioengineered food, even while concerns
about the safety of these foods have abated. Other surveys have revealed
that consumers
do not know much about bioengineered foods, and most do not have firmly
held beliefs about these products. Commenting on results of a 2001 consumer
survey,
Mike Rodemeyer of the Pew Initiative on Food and Biotechnology argued that “Essentially,
public opinion is ‘up for grabs’ because this new technology has
moved faster than the public’s ability to fully understand it and
its implications.”
Consumer attitudes are also influenced by the regulatory environment,
which includes labeling policies. In the United States, biotech foods
that are
substantially equivalent to their conventional counterparts in terms
of composition, nutritional
attributes, allergens, and other characteristics do not need to be labeled
as “biotech.” So far, none of the biotech foods in the U.S.
market has required labeling.
In other parts of the world—including the European Union and Japan—labeling
of foods with biotech content is mandatory, even without scientific evidence
of specific health risks to consumers. Mandatory labeling policies in foreign
markets, while intended to satisfy consumers’ “right to know,” may
tend to accentuate concerns about product safety (see “Mandatory
Labeling Versus Voluntary Labeling”). U.S. policies, in contrast, have
helped to foster the passive acceptance of biotech products (for example, soybean
oil derived from biotech soybeans) by domestic consumers and food manufacturers.
Consumer attitudes are affected by the type and source of information
about agricultural biotechnology. In a recent
study, ERS and university researchers conducted experimental
auctions to assess consumer attitudes toward biotech foods, the
effect of labels, and the role of different kinds of information.
In 12 separate auctions, involving 172 consumers in two Midwestern
cities, participants were given the opportunity to bid for and purchase
three different food products—vegetable oil, tortilla chips,
and potatoes—with and without biotech labels. Before the bidding,
they were given information packets containing statements about
biotechnology from a variety of sources. Pro-biotech statements
were provided by a group of leading biotech companies. Greenpeace
provided anti-biotech statements. Science-based verifiable statements
were provided by a group of individuals knowledgeable about biotechnology,
none of whom had a financial stake in agricultural biotechnology.
The source of each statement was identified.
Mandatory Labeling Versus
Voluntary Labeling
In the absence of labels, foods derived from biotechnology are indistinguishable
from conventional food items. Consumers cannot subject their purchases
to rigorous scientific testing. And, for products like soybean oil
that contain no identifiable DNA or protein, testing is not possible.
For
that reason, nonbiotech foods fall into a category that economists
call “credence” goods—goods
with attributes that cannot be evaluated through the direct experience
of consumers, either before or after purchase.
Labels often provide the only practical way for consumers to differentiate
such products in the marketplace. In the interests of keeping consumers
fully informed, some countries require biotech foods to be labeled
as such. Mandatory labeling requirements, however, are not necessarily
the most effective means of keeping the public informed. To the contrary,
ERS research suggests that mandatory labeling for biotech content,
although informative to some consumers, can also lead to greater confusion
while reducing economic efficiency. An alternative to mandatory labeling
is a voluntary labeling system, in which firms choose to label their
products (such as those not containing biotech ingredients) according
to their own calculation of prospective costs and benefits. Whether
labeling is mandatory or voluntary, firms and regulatory agencies must
ensure that the claims on labels are credible, based on agreed standards
and systems for certification and enforcement.
Participants’ bids, or the amount they were willing to pay, for biotech-labeled
and plain-labeled foods were affected by the information packets they received.
Participants who received only pro-biotech information bid slightly more on
the biotech-labeled food for two of the three products. Participants who received
only anti-biotech information bid 35 percent less, on average, on the biotech-labeled
food than on the plain-labeled food. Those who received both pro- and anti-biotech
information bid 16-29 percent less, on average, on the biotech-labeled foods
than on the plain-labeled food, depending on the food product. These results
are consistent with other studies that show that individuals place a greater
weight on negative information than on positive information. However, when
participants received science-based verifiable information, in addition to
both pro- and anti-biotech information, the average price discount—the
difference between their bids on biotech-labeled foods and on plain-labeled
foods—dropped to between 0 and 11 percent. This confirms the powerful
role of credible, scientific information in shaping consumer attitudes. Consumers
react not just to the content of information about biotechnology, but also
to the source.
Will U.S. Consumers Accept New Biotech Foods?
It’s hard to say. We know consumers want and expect variety. Agricultural
biotechnology can be a tremendous source of variety—both in terms of
choices of production techniques for farmers in developed and developing countries
and in terms of new and different products for consumers. Further, biotechnology
may provide food quality enhancements not previously available (nonallergenistic
peanuts or other foods, for example) that consumers may greatly desire.
We also know that consumers are influenced by various types and sources of
information and make choices based on the information they receive, as well
as on their own needs and preferences. Consumers who are anxious about biotechnology
but who also want previously unavailable food characteristics will face new
tradeoffs among food choices.
What is the net effect? How will new biotechnology-derived food be judged in
the future? The jury is still out.
This article is drawn from...
Economics
of Food Labeling, by Elise Golan,
Fred Kuchler, and Lorraine Mitchell, AER-793, USDA/ERS, December
2000.