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Mandatory Labeling in
India
Bharat Ramaswami
Indian Statistical Institute
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Plan of Talk

Mandatory labeling provisions in India

Likely Consequences

Mandatory vs Voluntary Labeling: The key difference might
lie in the `stigma’ or signaling impact of labels

Consumer responses: Aversion to GM foods (as a result of
labels) consists of an informational and a signaling impact.
This is examined in an experimental framework.
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The Law

Effective from January 1, 2013

“Every package containing the genetically modified food
shall bear at the top of its principal display panel the words
`GM’”.
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Important Features

The law applies only to packaged foods.

Unpackaged foods that constitute more than 90% of foods
sold in the Indian market are exempt.

Regulation is impossible to enforce for this sector.

With greater prosperity, the packaged foods sector is
increasing. At the margin, the law constitute a disincentive to
transit to packaged foods.
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Features….II

The law does not make a distinction between processed
foods and fresh/raw produce.

Packaging is more prevalent among processed foods – yet it
is in processing foods that testing for transgenic DNA is
either not possible or very costly.

Compliance and enforcement of labeling for processed
foods would require identity preservation and segmented
channels of production, processing and marketing.
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Features… III

The law does not prescribe a tolerance level –i.e., a
maximum threshold level above which a food is considered
to be genetically modified.

If even the slightest co-mingling of GM and non-GM foods is
not to be tolerated, the cost of providing and tracking such
perfect segregation systems would be high.

The cost of claiming `GM-free’ status for processed (and
packaged foods) would therefore be high.
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Likely Industry Response

Bt cotton is the only GM crop that is permitted to be grown in
India.

Cottonseed oil is used in many parts of the country and that
is the only GM food for human consumption.

But it is mostly sold unpackaged.

Further, as it is not a premium oil, the small packaged portion
of the cottonseed oil sector is likely to adopt the GM label
and not bother with providing GM-free oil.

The law is not likely to have much impact in this sector.
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Soya oil

India is a big importer of soya oil from countries that grow
GM soybean.

Often sold as blended with other oils either as packaged or
unpackaged oil.

Once again, it is not a premium oil (and nor is it a traditional
cooking oil like peanut, sesame or mustard). So suppliers are
likely to adopt the GM label without much consequence.

Some soya oil is blended with premium oils such as
sunflower or rice bran oil. This may stop.
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Other imported foods

With the exception of soya and palm oil, imported foods do
not enter the diets of the poor.

Breakfast cereals, tortilla chips, multi-grain crackers, tofu,
chocolates,….

The demands of these foods from the wealthy may be
sensitive to the GM label – one might see the composition of
food imports shift towards organic labels.
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In sum…likely consequences

Supply chains for foods largely consumed by the nonwealthy are unlikely to be affected – either they are not
packaged or if packaged, they will be labeled as GM.

Supply chains for foods consumed by the wealthy might
change modestly – especially for imported foods – this might
move more in the direction of organic foods.
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A fundamental question

Economists like the idea of voluntary labels.

If the premiums from GM-free foods do not justify the costs,
there will be no product differentiation by voluntary labels.

Mandatory labeling does not change the economics of
product differentiation – so if product differentiation is not
profitable, then that will continue to be so. The product will
be labeled GM.

Similarly, if it is profitable to product differentiate by private
labels, mandatory labeling will also lead to the same
outcome.
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Fundamental question…2

In this sense, mandatory labeling is redundant in the
presence of voluntary labeling.

But if mandatory labeling is equivalent to voluntary labeling,
why are corporates and the U.S. against it?
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EU position

Mandatory labeling responds to the consumer’s right to
know.

The label simply identifies the food and does not carry any
safety warnings.

Consumers have preferences over the process by which food
is produced and such informed choice is promoted by
mandatory labeling.
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US position

Principle of `substantial equivalence’: If a GM food
demonstrates the same nutritional characteristics and
composition as its non-GM counterpart, then it is deemed to
be safe.

No need for mandatory labeling.

Consumers have preferences over products and not
processes.
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US position…2

Mandatory label for a substantially equivalent GM food may
mislead a consumer into believing that the food is unsafe.

“Mandatory labeling will only frighten consumers……..” (US
Health Secretary, 2002)

Implication: Labels even when neutrally worded are signals
and therefore change consumer behavior.
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Summary of EU and US positions

Both agree that mandatory labeling will reduce demand for GM
foods.

However, they differ in mechanisms.

EU: Labels have an informational role. Previously uninformed
consumers become informed and adjust their demands
accordingly.

US: Labels have a signaling role. Consumers see label as a
signal that the product may have unspecified health
consequences and adjust demand accordingly.

If preferences change because of labeling, mandatory and
voluntary labeling may not be equivalent. Standard welfare
analysis is also not possible.
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Stigma and the non-equivalence of
mandatory and voluntary labeling

Suppose there are 3 types of consumers: decisively GM averse,
the stigma sensitive and indifferent. The stigma sensitive are
GM averse only when they see the label.

Under voluntary labeling: supplying only GM (i.e., no labeling)
loses the decisively GM averse consumers.

Under mandatory labeling: supplying only GM (i.e., labeled
product) loses the decisively GM averse and the stigma
sensitive.

If there are fixed costs of supplying `GM-free’, then it is possible
that for some range of fixed costs, supply of `GM-free’ is not
profitable under voluntary labeling but it is under mandatory
labeling.
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Bansal, Chakravarty and
Ramaswami
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Can we figure out the extent of `stigma’?

Devise an experiment that elicits consumer reactions to
labels.

Design the framework such that we can estimate a lower
bound of the informational impact of labels on GM food
aversion.

We are not aware of this being done earlier or even the
problem being posed in this manner.

Another novelty: investigating consumer preferences in a
developing country using experimental methods.
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A theoretical framework
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Idea of Experiment

Measuring aversion to GM foods requires two data
points: consumer valuations for a non-GM food and
consumer valuations for a GM food that is otherwise
identical.

The idea of our experiment is to insert an intermediate
stage and obtain three data points.

The intermediate stage consists of valuations for a food
that is perceived as genetically modified with some
probability (in the interior of the unit interval).
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Experiment in brief

The experiment consists of three rounds of bidding for two
products – a GM cookie and non-GM cookie. In the first
round, price bids are elicited on the basis of blind tasting.

In the second round, subjects are invited to read a one pager
describing GM foods and their status in regulation. Subjects
are also asked to speculate on the probability that the
products are genetically modified. Thus after planting some
doubt that either one or both products might be transgenic,
subjects are asked to make price bids.

The third round price bids happen when one of the products
is labeled and, thus revealed to be, as genetically modified.
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The informational component of GM
Aversion

The difference in third round price bids between the unlabeled
non-GM product and the labeled GM product (normalized by
the first round quality difference) is the expressed aversion to
GM foods.

The difference between the price bids of the two products in the
second round (normalized once again) is the aversion to GM
foods that comes from the diffuse and generalized information
distributed in the second round. This information is crystallized
in terms of subjective probabilities that one or both products are
genetically modified.

The extent of aversion in the second round relative to the
third round is the lower bound to the informational impact
of labels on GM aversion. This is formally shown in the paper.
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Our Experiment

Subject Pool: 64 students and 50 university teachers. 39% of
pool is female.

Sample representative of urban consumers with above
average family income and education.

Their attitudes and lifestyles aspired to by other socioeconomic groups

Primary consumers of packaged foods that are subject to
labeling laws.
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Experiment Design
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Subjects endowed with 200 units of lab currency (equivalent to
Rs. 50).

Were required to bid for two products A (non-GM cookie) and B
(Gm cookies).
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4 rounds of auctions: BDM mechanism
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At the end, one round was randomly picked and a price for each
of the two products was picked from the uniform distribution
[1,100].

Participants whose bid was above this valuation purchased a
unit at the drawn price; otherwise the endowment is cashed in as
rupees.
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Auction Design
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
First round: Subjects sampled both products without its
packaging or labeling.

We elicited their ranking on a taste scale from 1 to 7.

Then products were auctioned simultaneously
Second round: At the beginning, subjects received a handout
containing information about GM foods. Information
neutrally worded.

Subjects then asked to evaluate the likelihood of either product
being GM on a scale of 1 to 5.

Both products auctioned simultaneously
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Auction Design…2
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Third round: Product B labeled “This product subject to
genetic modification”.

Both products simultaneously auctioned
+ Taste Rankings – Blind Test (cumulative
density function): Product A dominates
120
100
80
tastea
60
tasteb
40
20
0
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
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Subjective probability that product is
GM: Product B dominates
120
100
80
gmproba
60
gmprobb
40
20
0
1
1.5
2
2.5
3
3.5
4
4.5
5
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Prior subjective probabilities

Out of 113 subjects that report subjective probabilities (of
whether a product is GM), 88 of them have a probability of at
least 0.5 on either or both products.

In addition, only 20 subjects report prior probabilities of less
than or equal to 0.25 on both products.

Therefore, for the bulk of the subjects, the probabilistic
perception about the products is in mid-range. Background
information on GM foods provided in round 2 leads subjects to
form high subjective probabilities for at least one of the
products.

Such high probabilities should affect the price bids of those who
are GM averse.
Dependent Variable: Second Round Price Bid
Variables
-1
-2
-3
0.847***
0.85***
0.85***
0.05
0.05
0.05
-15.80***
-15.52***
14.84***
Probability that other product is GM
3.80
4.08
4.77
Taste Ranking of product
-0.85
-1.09
-1.02
First round price bid
First round price bid for other product
Probability that product is GM
Taste Ranking of other product
-2.515**
Youth
-2.763** -2.692**
3.48
Male
2.21
3.32
Exercise
-3.69
-3.66
Snack
-0.25
-0.32
Income
1.60
2.37
Constant
Observations
R-squared
28.51***
29.04*** 26.22***
202.00
202.00
202.00
0.65
0.66
0.66
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Informational Effects on Price Bids

From the regression in levels, an individual with a probability
perception of 0.5 has a valuation lower by Rs. 8 than an
individual with a probability perception of zero.

These effects are entirely due to information (no label as yet).
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Information Inert Consumers
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Out of the 101 subjects who report price bids for both
products, 36 (about a third) did not alter price bids from
period one to period two.

Their price bids are invariant to the background information
and elicitation of prior probabilities: “information inert”
subjects.
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Classification of Subjects
# Subjects
% of sample
GM Averse
51
50%
GM indifferent
25
25%
GM loving
25
101
25%
Total
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GM Aversion: Magnitudes and
Informational Component
M: Premium of nonGM product to GM
product
V: Lower Bound to
the informational
component of M
Proportion of M due
to V
Observations
Sample of GM Sample of GM
averse and not
averse and
information-inert information-inert
24.07
22.63
All
sample
Sample of
GM averse
7.44
23.76
(2.62)
(3.43)
(4.04)
14.27
18.2
(3.42)
(4.16)
-----
60%
76%
0%
101
51
40
11
-----
(6.4)
0
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Lower bound to the Informational
Impact

Among the GM averse, 60% of the aversion to GM foods (in
entire sample) is accounted by the probabilistic information
provided in round 2. Thus, the informational component
dominates.

For GM averse who are not information inert, 76% of the nonGM value premium comes in round two, i.e., most of their GM
aversion is because of information.
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Signaling Impact?

For information-inert consumers, there is no action in round
two.

The fact that all the aversion to GM foods for informationinert consumers comes from the label is suggestive that
signaling is more important for these consumers. Cannot be
inferred for sure since a label also provides information.
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Concluding Remarks

Current mandatory labeling provisions are not likely to have a
large effect.

There could be some effect on food demand from the wealthy.

Is it likely to be because of greater information (given
preferences) or because of signaling that changes preferences?

Previous studies looked at the impact of labels on consumer
behavior and aversion to GM foods.

But what happens prior to the expression of aversion to GMlabeled foods?

This is what we did – looking at the effect of probabilistic
information on GM food aversion.
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Conclusions….
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Findings are contextual. Studies have shown very low
awareness of GM foods in India.

On average, sample consumers are willing to pay a price
premium of about 16% for GM free products.

However, GM averse consumers account only for about 50%
of subjects.

Within GM averse consumers, the informational impact of
labeling dominates the signaling impact.

Finally, there is a subset of GM averse consumers who are
information-inert. For them, the signaling impacts are
probably important.
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Information Handout
 1.
What are genetically modified foods?
 Foods
derived from plants that are genetically modified
are called genetically modified (GM) foods. A plant is
genetically modified if it contains genes that have been
inserted using genetic engineering techniques.
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 2.
How is genetic engineering different from traditional
plant breeding?
 Genetic
engineering makes it possible to insert a gene
from another organism (such as another plant species,
bacteria or animal) into the plant variety of interest. This
is not possible with the traditional techniques of
producing improved plant varieties.
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Handout…2
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3. Why are GM foods produced?
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GM foods are developed – and marketed – because there is some
perceived advantage either to the producer or consumer of these foods.
The first generation of GM plants have given more direct benefits to
growers than to consumers although the latter have possibly gained from
lower prices.

4. What are examples of genetically modified plants?
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The principal examples of genetically modified crops occur in
soyabeans, maize (i.e., corn) and cotton. For instance, genes
from a commonly found soil bacteria have been used to produce
soybeans, maize and cotton that are naturally resistant to certain
pests.
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Handout 3…
 5.



Why are GM foods regulated?
There are two broad concerns with GM plants. First,
because the foods are novel, the must be tested for toxicity
and possible allergenicity. The second issue is whether
the engineered gene can escape into wild populations and
other unintended plants. For these reasons, GM crops
must be assessed for food and environmental safety before
they can be planted.
6. What is the status of GM foods in India?
In India, no GM food crop has been approved for
planting yet. Therefore, foods produced from
domestically produced crops are not genetically
modified. Foods that are imported could contain
ingredients that are genetically modified. As of now,
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Handout 4…
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7. Why do some people oppose GM foods?
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
Several NGOs and individuals claim that GM plants pose unacceptable risks
to food safety as well as environment safety. They argue that transferring
genes between organisms creates new risks for human health that cannot be
fully comprehended by our existing scientific knowledge. They would
therefore recommend that GM foods should be banned or severely curtailed
until risk assessments are more comprehensive in testing the adverse effects
on human health.
This is disputed by biotechnology advocates who point out that GM crops
are extensively tested before they are approved. According to the World
Health Organization (WHO), "GM foods currently available on the
international market have passed risk assessments and are not likely to
present risks for human health. In addition, no effects on human health have
been shown as a result of the consumption of such foods by the general
population in the countries where they have been approved