Volume 4, Issue 1

The emergence of agricultural biotechnology and the subsequent introduction of genetically modified organisms (GMOs) into the food system have been among the most controversial issues surrounding the increasingly scrutinized agri-food system. They have received considerable attention in the economics literature with the main focus being on the optimal regulatory response to products of biotechnology. This paper builds on the literature on the regulation of products of biotechnology by placing the analysis of labeling decisions in a multi-country context. Specifically, the objective of this study is to examine the effect of the strategic interdependence between countries on their regulatory responses to products of biotechnology. The paper analyzes the strategic effects of national regulatory decisions on labeling of GM products and identifies the determinants of the non-cooperative Nash equilibrium labeling regimes in a small number of producing countries that supply the world market of an agricultural product. Analytical results show that the Nash equilibrium configuration of labeling regimes in countries that have adopted the GM technology depends on (i) the distribution of consumer preferences and the level of consumer aversion to GM products; (ii) the size of the segregation and labeling costs in these countries; (iii) the relative productive efficiency and the cost effectiveness of the GM technology; (iv) the market power of the life science companies; and (v) the strength of intellectual property rights in these countries.

In this paper we develop a model of food safety regulation that considers the employment of a differentiated food market with two types of government certified quality standards: a minimum standard and a higher one. Individuals, heterogeneous in their susceptibility to food-related health risks, choose which safety-grade of food to consume based on price and their vulnerability. The model is then extended to the case where consumers misperceive their susceptibility to health risks associated with food consumption. The theoretical presentation is followed by an application of the model to examine campylobacteriosis and salmonellosis caused by consumption of beef, pork, and chicken. The paper demonstrates that the benefits from multiple quality standards hinges fundamentally on the distribution of vulnerabilities across the population and the associated distribution of population health risks for a given level of food quality. Uniform standards are generally preferred to differentiated ones under either stringent or lax regulations on population health risk. If the population distribution of vulnerabilities is unimodal and consumers misperceive their vulnerability, the value of a differentiated policy will depend on which quality standard is attracting the majority of consumers. The empirical results confirm the importance of the population distribution of vulnerability on the relative desirability of single versus multiple quality standards.

Psychological experiments have revealed that more choice does not always make one better off. For example, consumers are sometimes more likely to purchase a product from a small variety than a large variety. Some have suggested that this excessive-choice effect may have implications for how well markets serve society. This paper constructs an economic model where the excessive-choice effect results from search costs. The model shows that it is possible for markets to produce too much variety, but there are also incentives inducing markets to provide an optimal variety. Advertising, retailer market power, and slotting fees are not just signs of imperfect competition, but mechanisms of ensuring consumers are presented with an ideal choice set.

Organic farmers have traditionally relied on a variety of marketing channels, suggesting that earned organic income will depend on the farmer's experience in producing and selling organic products and their comparative advantage in bargaining and marketing skills. A discrete choice model of the choice of marketing channels is developed which accounts for the role of selectivity bias. Farmers who are most likely to sell through a diversified set of outlets or to use a single outlet have increased earnings relative to farmers who overlook these marketing options. Producers with less experience gravitate toward use of a single marketing outlet while more experienced producers tend to diversify and market through all three channels. Constraints in selling organic products tends tend to have a negative effect on farm income.

Although many theoretical industrial organization models are based on the existence of a critical mass of exogenously “brand loyal” consumers, we find little empirical evidence supporting these assumptions in the orange juice retail market. There are very few loyal consumers. More importantly, the frequency with which stores conduct sales affects the share of loyal types so that loyalty is endogenous rather than exogenous. Households’ demographics have statistically significant but economically minor effects on switching behavior. Switching across frozen and refrigerated states is very common, leading to more complicated substitution patterns and less loyalty than one observes looking at each state separately.

Strategic trade theory offers a way of conceptualizing and testing for strategic government interventions in imperfectly competitive international markets. This survey critically assesses recent empirical evidence, with a focus on food and agricultural markets. One finding is that while many international markets are characterized by oligopoly, price-cost markups tend to be small, and the potential gains from intervention are modest at best. In turn, empirical work has turned up few examples in which government intervention has been optimal in a strategic trade sense. Nonetheless, governments are found to frequently intervene on behalf of domestic firms and play a major role in shaping the nature of international competition. Suggestions for future research are made.

This paper investigates the existence of market power in the Swedish food and beverage industry and how market power has been affected by European competition (the Single Market and Swedish EU membership). The study makes use of a census of some 500 firms for the period 1990–2002. The results show that firms in the Swedish food and beverage industry do enjoy some market power, the degree of which varies significantly across the sectors of the food and beverage industry. Increased foreign competition has contributed to reducing market power in sectors that were protected by tariff and non-tariff barriers to trade prior to Swedish EU membership.

This paper undertakes a detailed market segmentation analysis of the demand for GM derived animal foods in the UK with the aim of illustrating how this analysis can provide distinct information that can assists in evaluating the welfare impacts of proposed changes to the EU's GM labelling policy. The specific modelling approach employed was the latent segment (LS) model which allows for the simultaneous determination and explanation of both segment membership and product choice. Based on psychometric and demographic variables as well as choice data, the LS model was able to identify three distinct and behaviourally consistent consumer segments. Further, the LS model was found to outperform alternative econometric approaches for accounting for preference heterogeneity. Finally, our analysis shows how it can yield distinct information over the segmented nature of the food market that can uniquely assist both European policy makers in designing GM labelling regimes and public awareness campaigns as well as the agricultural and food industry in developing pricing, marketing and new product development strategies.

Four articles have been published in this Journal about the historic cattle trial, Pickett v Tyson Fresh Meats, Inc., in which Plaintiff cattlemen alleged that Tyson/IBP—the buyer—used captive (contracted) supplies of cattle to manipulate the cash market in violation of the 1921 Packers & Stockyards Act (PSA). The first article gave a Trial's eye view by David Domina who served as co-lead counsel representing Plaintiff cattlemen. Domina's article led to a published comment by Thomas Green who was the lead attorney representing Tyson during the Trial phase of lengthy legal proceedings. Green alleged that Domina's article was "littered with rank speculation and baseless opinion." Domina countered that "proof is not litter, and evidence is not rank speculation" and that Green's commentary was "abusive." The adversarial exchange between Domina and Green was followed by another advocacy article in which William Rosales maintained that Pickett "represents an opportunity for the judiciary to reform the meatpacking industry … (and) awaken the (PSA's) intended power to dethrone the economic kings of the meatpacking industry."After a five week Trial in Federal Court, the Jury found Tyson/IBP guilty on all counts and assessed actual damages of $1.28 billion over 2/1994 -10/2002. Justice for Plaintiff cattlemen was short, as the Trial Judge set aside the Jury's verdict—a rare but not unprecedented legal action—and entered summary judgment for Tyson. The Eleventh Appellate Court subsequently sided with the Trial Judge. On March 24, 2006, the United States Supreme Court denied without comment Plaintiff's Petition to rehear the case, thus ending legal activities in Pickett v Tyson and effectively killing similar legal action pending against two other major beef packers, Excel (Cargill) and Swift (ConAgra).This article emphasizes three significant and troubling legal and economic issues from the historic litigation: (1) the Courts' narrow and extreme interpretation of the antitrust rule-of-reason; (2) the Courts' endorsement of a "meeting the competition" defense, and (3) whether the Courts inserted themselves above the Jury as fact-finders in the case, contrary to the 7th Amendment to the U.S. Constitution that establishes the Jury as the only fact-finder in civil litigation.In essence Pickett was filed under the Packers and Stockyards Act, tried under Sherman and Clayton antitrust law, and overturned, in part, under the Robinson-Patman Act.