Agricultural Biotechnology And Organic Agriculture: National Organic Standards, Labeling And Second-Generation Of Gm Products

This paper examines the effect of the introduction of labels for products of biotechnology on the markets for GM, conventional, and organic food products. In addition, the paper analyzes the market and welfare effects of the introduction of consumer-oriented, second-generation GM products. Analytical results show that while a no-labeling regime is generally beneficial for the organic sector, when segregation costs are sufficiently high the introduction of labels for GM products can enhance the consumption share and growth of the organic sector while driving the conventional products out of the market. The analysis also reveals that the introduction of the consumer-oriented GM products can change the nature of the relationship between GM and conventional and organic products from one of vertical to one of horizontal product differentiation and can enhance both consumer welfare and the market acceptance and growth of agricultural biotechnology. When the value consumers place on the new product is sufficiently high, the introduction of the consumer-oriented GM products can drive the first-generation of GM products and their conventional counterparts out of the market while reducing the consumer demand for organic food. Overall, the market and welfare effects of GM labeling and the introduction of the consumer-oriented GM products are determined by the size of marketing and segregation costs under labeling of GM products, the level of consumer aversion to genetic engineering, the production share of the GM product in the no-labeling case, the structure of the agricultural biotechnology sector, and the benefits consumers perceive from the second-generation of GM products.