Biotech Regulation
Tuesday, March 07, 2006
Biotech Regulation
The global regulatory system for genetically modified foods is heavily fragmented. Some countries, including the US, consider genetically modified foods substantially equivalent to conventional ones and regulate them similarly. Others, including the EU, scrutinize and require mandatory labeling of genetically modified foods.
Labeling of genetically modified foods helps to safeguard consumers’ right to an informed choice. The mandatory labeling is necessary if markets when left on their own would fail to provide consumers with appropriate information and product choice.
But some other issues that need consideration is whether mandatory labeling laws necessary or cost effective and how different standards of mandatory labeling laws implemented in other countries can be compared.
Evaluation of the merits and relevance of mandatory labeling policy should be done against the standard criteria any regulation must confront:
MARKET FAILURE
The existence of market failure can be fully examined only through joint analysis of supply and demand conditions. The substantial voluntary labeling activity and product differentiation that exist today through various market initiatives around the world suggest that market failure is by no means obvious or demonstrated. But if there is chance of market failure in an economy, it is in interest of the citizens to have such regulations. Hence a mandatory regulation scores over here to prevent any such unwanted incidence.
EFFICIENCY
The regulation need not be in the best interest of society. For that, the regulation must be shown to be efficient economically — i.e. it generates more benefits to society than costs. Mandatory regulation obviously brings in some inefficiency.
COSTS
Compliance costs of the regulation — the incremental costs associated with physically separating as well as preserving, testing, and assuring the identity of various genetically modified or conventional foods across the agri-food marketing chain. Compliance costs can be substantial, especially in the case of commodities used in thousands of processed foods like corn and soybeans.
BENEFITS
We do not know about consumer’s preferences and their differential willingness to pay for genetically modified and conventional foods. Much of what is known today about consumer purchasing intentions toward genetically modified foods or interest in labels is inferred from attitude surveys which indicate widespread public skepticism toward genetically modified foods and interest in mandatory labeling. Attitude surveys can capture public sentiment towards genetically modified foods and biotechnologies but are constrained by their hypothetical structure, especially because they do not account for price and income effects on consumer-stated preferences. Attitude surveys may also engage their subjects as citizens rather than strictly as consumers.
COST- EFFECTIVENESS
Even if net welfare gains from labeling could be shown to be positive, some attention to the cost effectiveness of proposed mandatory labeling would still be warranted. Effectiveness considerations require that alternative policies that might achieve the overall policy goals at lower regulatory costs be explicitly considered.
CREDIBILITY
The relevance and optimality of mandatory labeling is also influenced by the credibility of the system or the probability of mislabeling. As the incident of mislabeling increases and consumer trust falls, the social benefits from labeling are reduced and its desirability is diminished.
Hence in the case of genetically modified foods, mandatory labeling emphasizes consumers’ right to information and has been set out to protect that right through an increasingly complex centralized bureaucratic regulation. Also such regulation brings into some inefficiency and cost related issues. But lower cost effective regulatory policies are not presently available. Significant welfare gains from such regulation are possible. The regulation will be certainly hampered if its credibility falls due to incidences of mislabeling.
The global regulatory system for genetically modified foods is heavily fragmented. Some countries, including the US, consider genetically modified foods substantially equivalent to conventional ones and regulate them similarly. Others, including the EU, scrutinize and require mandatory labeling of genetically modified foods.
Labeling of genetically modified foods helps to safeguard consumers’ right to an informed choice. The mandatory labeling is necessary if markets when left on their own would fail to provide consumers with appropriate information and product choice.
But some other issues that need consideration is whether mandatory labeling laws necessary or cost effective and how different standards of mandatory labeling laws implemented in other countries can be compared.
Evaluation of the merits and relevance of mandatory labeling policy should be done against the standard criteria any regulation must confront:
- Would there be a market failure necessitating regulatory intervention?
- If so, would regulation be efficient? That is, would the social benefits secured through regulatory intervention exceed the costs?
- Would the regulation be cost-effective?
MARKET FAILURE
The existence of market failure can be fully examined only through joint analysis of supply and demand conditions. The substantial voluntary labeling activity and product differentiation that exist today through various market initiatives around the world suggest that market failure is by no means obvious or demonstrated. But if there is chance of market failure in an economy, it is in interest of the citizens to have such regulations. Hence a mandatory regulation scores over here to prevent any such unwanted incidence.
EFFICIENCY
The regulation need not be in the best interest of society. For that, the regulation must be shown to be efficient economically — i.e. it generates more benefits to society than costs. Mandatory regulation obviously brings in some inefficiency.
COSTS
Compliance costs of the regulation — the incremental costs associated with physically separating as well as preserving, testing, and assuring the identity of various genetically modified or conventional foods across the agri-food marketing chain. Compliance costs can be substantial, especially in the case of commodities used in thousands of processed foods like corn and soybeans.
BENEFITS
We do not know about consumer’s preferences and their differential willingness to pay for genetically modified and conventional foods. Much of what is known today about consumer purchasing intentions toward genetically modified foods or interest in labels is inferred from attitude surveys which indicate widespread public skepticism toward genetically modified foods and interest in mandatory labeling. Attitude surveys can capture public sentiment towards genetically modified foods and biotechnologies but are constrained by their hypothetical structure, especially because they do not account for price and income effects on consumer-stated preferences. Attitude surveys may also engage their subjects as citizens rather than strictly as consumers.
COST- EFFECTIVENESS
Even if net welfare gains from labeling could be shown to be positive, some attention to the cost effectiveness of proposed mandatory labeling would still be warranted. Effectiveness considerations require that alternative policies that might achieve the overall policy goals at lower regulatory costs be explicitly considered.
CREDIBILITY
The relevance and optimality of mandatory labeling is also influenced by the credibility of the system or the probability of mislabeling. As the incident of mislabeling increases and consumer trust falls, the social benefits from labeling are reduced and its desirability is diminished.
Hence in the case of genetically modified foods, mandatory labeling emphasizes consumers’ right to information and has been set out to protect that right through an increasingly complex centralized bureaucratic regulation. Also such regulation brings into some inefficiency and cost related issues. But lower cost effective regulatory policies are not presently available. Significant welfare gains from such regulation are possible. The regulation will be certainly hampered if its credibility falls due to incidences of mislabeling.
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