Course:ECON371/UBCO2009WT1/Group 7/Article6

The government of Ireland has adopted a no-tolerance anti-GMO standard for cultivation within the country, as well as introducing a voluntary "GMO-free" label/standard for firms to market their products which do not use any GMO products within production.

Monopoly and Dumping Theory

While the European Union maintains a set of regulations with regard to the import of GMO crops, banning crop production within the country, while still allowing imports of some GMO crops (particularly those not covered under European Union blanket regulations) may cause a breakage in the competitive advantage granted to the segment of the market that does not have a preference GMO or not. Imports will be cheaper and more plentiful for GMO crops due to lower production costs but not subject to the same competitive forces, likely resulting in deadweight loss for many parties involved and a loss of market size for former GMO-friendly firms. For the segment of the market that does not have a preference, their willingness to pay for GM-free foods will decrease since it will be more expensive to produce them, therefore, the demand will decrease for this segment of the market. The demand and willingness to pay for GMO foods will increase.

GM-free producing firms will have an increase in production costs, so they will not be able to supply as much as they would have producing GMO foods. Their supply will decrease, leading to leftward movement of their supply curve. Ceteris paribus, the efficient point at which this firm will produce will also shift to the left, decreasing the amount of output.

Competitive Advantages?

The act refers to a "competitive advantage" in non-GMO foods granted to the country. It seems somewhat far-fetched to suggest that banning GMO foods would create an environment that would cause a competitive advantage in the non-GMO market to grow, particularly with seemingly no restrictions on imports. While it is clear that the GMO-free food market may increase the incentive to produce GMO-free food locally, and thus perhaps begin development of a technology-race within the country increasing its competitive advantage, the banning of GMO crop production alone seems unlikely to do that.

The "Feed Everyone" Problem

Distribution of food is still an issue worldwide. To some, it would seem quite arrogant to limit the types of food that can be used for production, while driving up world food prices and making food less accessible to many. The cost-benefit analysis done by the environmental crowd concerning the risk of GMO foods going "horribly wrong" as some environmentalists proclaim, the risk of GMO crops destroying other crops, etc. seems to grossly undervalue the real worth of feeding people, today. Feeding people is important.

Information Economics

As with most of these environmental problems, there seems to be a serious information problem on all sides. For one, the information about the true risks of GMO foods is not available. There is a latency issue with GMO foods since GMO foods have not been around long enough to measure the true effects, if they have any effect at all. I am certain that the immediate effects of GMO foods are completely safe, considering the amount of research done to create them. As we've seen in previous articles, GMO crops are often mixed with non-GMO crops, even by accident. In fact, some firms have been accused of doing this maliciously with patented crop varieties mixing in to their competitors farms to create a potential lawsuit.

This latter fact is quite important. If its impossible or difficult to know whether crops are GMO or not at the end of the day, a blanket ban on GMO crops in Ireland may decrease the risk in buying Irish food for the rest of Europe (where GMO crops may be frowned upon or outright banned), for it should be guaranteed that they do not participate in genetic modification. Contamination of any sort should be not an issue since it is geologically isolated, a selling point that many GMO-friendly markets may not be able to compete with.

This information problem may arise in the consumer market too, without a proper GM-free label, as Ireland has pioneered here. This label will tell consumers exactly what is in the food they're consuming. No feeding with GMOs for the entire life of the animal is the rule as it stands today. As the article mentions, as other countries release GMO-free labels, this may become confusing and even used deceptively to create even more information problems.

Prof's Comments

Information is certainly a large issue in this situation. Given that GMO foods are largely safe, that there is some uncertainty about what is and what is not GMO free, and that for most people in the developed world food is only a small share of expenditures, most people are not going to do a lot of research about their food. They want a simple indicator that they can use, and Irish GMO Free could serve this purpose. Thus, as a marketing exercise, this is probably a good move.

In terms of efficiency, it is a very interesting problem. Remember that value in economics comes from willingness to pay. There does seem to be a market for GMO free food. Whether this is rational or not, and whether it contributes to global hunger or not, is not the issue. Efficiency occurs where the marginal benefit - WTP of the last unit - equals the margin cost. An efficient food market will involve some amount of GMO free food.