Neoclassical consumer theory and genetically modified food

Three axioms underpin consumer choice in neoclassical theory: weak order, independence, and continuity. Two of these axioms may not hold, however, for consumers’ choices regarding genetically modified (GM) food. Consumers may evaluate product attributes differently depending on whether the food is GM or not, violating attribute independence. Some consumers may not want GM food at all, violating continuity. The axioms were empirically investigated with a choice experiment survey. The paper discusses evidence of violations of both independence and continuity, as well as a non-neoclassical approach to modelling consumer choice.genetically modified food, neoclassical, bounded rationality, choice modelling, Agricultural and Food Policy, Community/Rural/Urban Development, Consumer/Household Economics, Crop Production/Industries, Environmental Economics and Policy, Farm Management, Food Consumption/Nutrition/Food Safety, Research Methods/ Statistical Methods,

Estimated Contribution of Four Biotechnologies to New Zealand Agriculture

The impact of biotechnology is an important consideration for New Zealand. The country depends significantly on agricultural production and exports (Ministry of Agriculture and Forestry, 2004), and has relied in part on modern biotechnology for productivity increases over the last 20 years (Evenson & Gollin, 2003; Jacobsen & Scobie, 1999; Ovenden, Anderson, Armstrong, & Mitchel, 1985). A recent survey of individuals in agriculture and biotechnology generated a comprehensive list of products and processes that are derived from four specific biotechnologies and are commercially significant in agriculture (Kaye-Blake, Saunders, Emanuelsson, Dalziel, & Wreford, 2005). This innovative research generated primary data on the actual impacts that biotechnology is currently having on agricultural production and produced a unique dataset of biotechnology products and processes and their value to New Zealand agriculture. Analysis found that these four biotechnologies are contributing approximately 206 million per year to agriculture. This analysis, however, assumed perfectly elastic international prices, and thus that New Zealand agricultural producers would capture the benefits of increased productivity. Literature on the impacts of productivity increases suggests that the distribution of benefits from increased productivity depends on how widely a technology is adopted. For example, genetic improvements in the crops of one country can allow domestic producers to increase producer surplus at the expense of producers in the rest of the world (Frisvold, Sullivan, & Raneses, 2003). By contrast, domestic farmers may be worse off if innovations are adopted in both the home country and the rest of the world (Moschini, Lapan, & Sobolevsky, 2000). The literature also suggests that specific impact of a novel technology is important to its impacts on agricultural producers. For example, technology that increases yields may be less beneficial for farmers than technology that reduces costs (Moschini et al., 2000). In addition, innovations that increase productivity of commodity products with low price elasticities of demand may not benefit farmers as much as innovations that increase consumer demand for agricultural products (Saunders & Cagatay, 2003). These findings are relevant because some features of New Zealand's primary sector suggest that international price impacts may be important. New Zealand is an open economy (Ministry of Agriculture and Forestry (MAF), 2004) and a significant exporter on world markets, particularly in pastoral products (Ministry of Agriculture and Forestry (MAF), 2004; Saunders & Cagatay, 2003). Modelling the movement of international prices may be done in several ways. The general equilibrium GTAP model (Hertel, 1997), for example, has been used to examine the potential impacts of biotechnology on producer and consumer welfare assuming different levels of adoption and consumer acceptance (e.g., Anderson & Jackson, 2005; Stone, Matysek, & Dolling, 2002). These impacts have also been analysed with partial equilibrium models, in particular models derived originally from the Uruguay Round of trade negotiations (Roningen, 1997), such as SWOPSIM (Frisvold et al., 2003; Roningen, Dixit, Sullivan, & Hart, 1991) and LTEM (Saunders & Cagatay, 2003). Partial equilibrium models are particularly appropriate for analysing impacts on a single sector of the economy: they allow substantial disaggregation by commodity and examination of the linkages that lead to model results (Gaisford & Kerr, 2001). In order to investigate the possible impact of biotechnological innovations on commodity prices and agricultural producers, the results of the original findings based on elastic prices were incorporated into a partial equilibrium model of world agricultural commodity trade (Cagatay & Saunders, 2003; Saunders & Cagatay, 2003). The model contained 19 commodities, including the major trade commodities for New Zealand (dairy products and meat). World trade was divided into 17 countries and the rest of the world, including New Zealand as a separate entity as well as the US, EU, Australia, Japan and others. As a partial equilibrium model, it examined the agricultural sector in isolation from other sectors of the economy. The base year was 2000, and impacts were modelled to 2005. The base solution modelled current production, which included biotechnological innovations. Alternative scenarios modelled the impact of the absence or loss of biotechnological innovations. The first scenario modelled the absence of innovations in all countries, while the second scenario examined the impact of innovations specific to New Zealand. The contribution of biotechnology to productivity was assessed separately for each commodity, using the original dataset (Kaye-Blake et al., 2005). For each commodity in the model, the analysis calculated the change in producer prices and total producer returns (price x quantity). The modelling results conformed to expectations. In the first scenario, a worldwide reduction in productivity in the primary sector led market prices to adjust upward in response to the lower production. For the second scenario, the price impacts were smaller for sectors with innovations specific to New Zealand. These changes were then combined with the original, constant-price estimate to calculate price-adjusted figures. The constant price analysis found that the contribution of the biotechnologies was 206 million. The first modelling scenario found that the economic benefit of the biotechnologies was only $19 million because increased productivity reduced commodity prices. The second scenario yielded an economic benefit of$191 million, suggesting that adopting New Zealandspecific innovations might not have a large impact on aggregate trade and might have allowed domestic producers to capture much of the increased welfare from innovations. Economic impacts, however, were spread unevenly across the commodities. In both trade scenarios, dairy producers increased producer returns through biotechnology, regardless of how widely the innovations were adopted. Meat producers, on the other hand, improved their returns when the innovations were specific to New Zealand, but were somewhat worse off when the innovations were available worldwide. This research contributes to understanding of the impacts of biotechnology in several ways. First, the productivity impacts were based on empirical findings regarding estimated impacts of actual commercially released biotechnologies; these were estimates of impacts that have actually occurred. Secondly, the productivity effects varied by commodity in the model, so that the impacts on different commodities could be estimated. Finally, by using a disaggregated, multi-commodity model, the cross-effects from resources shifting into other agricultural uses could be captured.Research and Development/Tech Change/Emerging Technologies,

Modelling Climate Change Impacts on Agriculture and Forestry with the Extended LTEM (Lincoln Trade and Environment Model)

In the land-based sectors, agricultural production generally is a source of carbon, while forestry may be thought to act as a sink. This paper focuses on new research examining the interaction of the two. The core of the research is the Lincoln Trade and Environment model (LTEM), a partial equilibrium model which links trade in NZ with the main trading countries overseas, through to production and associated environmental consequences . This paper reports on research expanding the model to include forestry from incorporating the capabilities of the Global Forest Products Model (GFPM) into the LTEM and hence producing an integrated model of agricultural and forestry land-uses for NZ and overseas. The paper extends the environmental modelling capabilities of the LTEM to include the impacts of climate change. The paper thereby reports on the development of a model of international trade that encompasses major agricultural commodities and forestry, complete with linkages and feedback with the environment and differentiated international markets. The paper then presents results of scenarios around changes in consumer behaviour and production using the new model.Environmental Economics and Policy,

Capital Based Sustainability Indicators as a Possible Way for Measuring Agricultural Sustainability

This paper takes the capital based approach to sustainability and applies this to examine the sustainability of different farming methods. The capital based approach argues that for future generations to be as well off as the present than the capital base should at least be maintained. The paper explores some of the issues around this approach such as the definition of capitals, their measurement and weakness in the approach which do not account for the resilience of system and/ or the substitutability of capitals. The paper outlines how this could be applied to agriculture and show sustainability across different farming methods. The data used is from the ARGOS (Agricultural Research Group on Sustainability) project which has collected data on social, economic and environmental factors from kiwifruit orchards green, green organic and gold, for five years. The results show little significant differences across orchard types. This may be due to the homogeneity of kiwifruit orchards and it is intended to expand this to the sheep sector to examine this further.Agricultural and Food Policy,

Process versus product: which determines consumer demand for genetically modified apples?

One debate in the literature regarding consumers’ reactions to genetically modified food (GMF) centres on whether consumers react to the process of gene technology or to the specific GMF products. Results from a choice experiment survey in New Zealand indicate that consumers are heterogeneous with regard to GMF and that some modifications are viewed more positively than others. These findings suggest that for some consumers the process of gene technology is the decisive factor in evaluatingGMF, while for others the different potential GMF products are valued according to their enhanced attributes.choice modelling, consumer surveys, food, genetic modification, preferences, Consumer/Household Economics, Demand and Price Analysis,

Water management in New Zealand: a road map for understanding water value

With New Zealand facing poorer water quality, and shortages, this paper examines the water situation and the policy challenges it presents. Introduction Better water management will benefit all New Zealanders. The focus on water policy has been driven by poorer water quality, shortages, and unease at the costs with poor water allocation. This paper examines the characteristics of the water situation in New Zealand and the policy challenges it presents. We develop a multi-faceted framework for examining those challenges, with a view to helping stakeholders think about what needs to be done for freshwater policy to more accurately reflect society’s preferences. It has been prepared as part of the NZIER’s public good programme to provide an independent and succinct review of what we know and do not know about the topic. In preparing this report, we found that a lot has already been written. We did not want to repeat it – we refer to various publications that the reader may seek out. Instead, we wanted to produce a way of thinking about water, water policy, water management and water allocation that would allow us to reflect on current problems and work towards solutions. The goal is to use water wisely for the benefit of New Zealanders. How we do that depends on a wide range of factors, as this report describes. Most importantly, it depends on how we think about water resources. Thus, we focus on producing some mental models that we hope others will find helpful. This report does not consider any issues arising from the Treaty of Waitangi. We recognise that those issues are important, but we are not experts on them. In addition, the focus of the report is on better water management to improve the wellbeings of all New Zealanders, including tangata whenua. Water policy in New Zealand has been in a state of flux for quite some time. The uncertainty is driven by increased competition for water, a lack of understanding of society’s preferences, a lack of scientific information about water quality and inertia on the part of some users and institutions. It is clear that this situation is changing. We hope this report contributes something positive to that change

Economic impacts on New Zealand of GM crops : result from partial equilibrium modelling

This paper reports findings from economic modelling of the impacts on New Zealand agricultural producer returns from the commercial use of genetically modified (GM) food crops. Several possibilities are considered in the modelling, including different rates of GM crop adoption, positive and negative consumer responses, increases in productivity, first- and second-generation GM crops, and control of the intellectual property. The results are consistent with theory, other studies and expectations. Thus, it is not surprising that New Zealand producers increase their revenue the most when they concentrate on products that have a premium in the market because consumers prefer them. If consumers prefer non-GM products, New Zealand producers gain by focusing on those crops. If consumers prefer second-generation GM products, producers increase their returns by growing those crops. Secondly, it is also consistent with theory, experience and expectations that an increase in productivity does not necessarily lead to increased returns. This is dependent upon whether NZ has sole access to the technology or whether it is or becomes available overseas. Thus, even where a product has a consumer preference, producer returns can fall when productivity increases. Thirdly, controlling access to preferred products or to productive technology has beneficial effects for New Zealand commodity producers

Consumer attitudes towards sustainability attributes on food labels

With current concerns about climate change and the general status of the environment, there is an increasing expectation that products have sustainability credentials, and that these can be verified. Labelling is a common method of communicating certain product attributes to consumers that may influence their choices. There are different types of labels with several functions. The aim of this study is to investigate consumers‟ purchase decisions towards certain sustainability claims on food products, particularly by displaying the reduction of carbon emissions. Choice outcomes will be evaluated using Discrete Choice Modelling (DCM). Data for the study is obtained by a web-based consumer survey undertaken in the United Kingdom (UK). Results provide information on different attributes effects on consumers‟ purchase decisions, particularly their willingness to pay. This study provides information on consumers‟ attitudes that will assist industries and firms to benefit from market opportunities, in particular assessing the methods by which carbon footprinting measures can be incorporated alongside information on other sustainability criteria in product marketing.food labeling, carbon footprint, discrete choice modeling, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Environmental Economics and Policy, Food Security and Poverty, Health Economics and Policy,

Business strategies and employment decisions: Interviews with New Zealand firms

A firm’s business strategy does not exist in a vacuum; it requires employees to implement it. However, firms often say that they have difficulties hiring certain types of employees. Through interviews with firms and analysis of the 2008 New Zealand Business Operations Survey, this research explored the interaction between strategy and employees’ skills, and differences between high value-add (HVA) and medium value-add (MVA) firms. MVA firms focused more on production methods, technical skills, and margins over costs. HVA firms focused more on the business skills of a few, professional core employees, as well as the marketing aspects of their products.The research was conducted with funding from the Ministry of Economic Development and the Cross- Department Research Pool (CDRP)

Preliminary economic evaluation of biopharming in New Zealand

From the academic literature, this report derives an economic model or framework for considering biopharming. This model is based on a cost-benefit approach to valuing changes in products and production methods. The model indicates the product dimensions that are likely to be affected by biopharming methods and how these dimensions may affect the costs and benefits of production. It also identifies the uncertainties in existing analyses. Finally, it demonstrates a method by which careful analysis of the economic costs and benefits of biopharming could proceed. Two potential products are discussed using this model: recombinant human lactoferrin (rhLF) produced in cow’s milk and low-GI potatoes