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Abstract
This paper analyzes price, production and trade consequences of changing
consumer preferences regarding the use of genetically modified organisms (GMOs) in
food production. The analytical framework used is an empirical global general
equilibrium model, in which the entire food processing chain – from primary crops
through livestock feed to processed foods – is segregated into genetically modified (GM)
and non-GM lines of production. This model is used to analyze the implications of
widespread use of genetically engineered crops in some regions whilst consumers in
Western Europe and High- income Asia adopt a critical attitude toward GM foods. Two
different representations of consumer preference changes are illustrated: (1) a change in
price sensitivity: i.e. consumer demand is less sensitive to a decline in the price of GM
foods relative to non-GM varieties, and (2) a structural demand shift: for a given price
ratio consumers simply demand less of the GM variety relative to the non-GM variety.
This analysis finds that developing countries adjust their trade patterns in
response to preference changes in important trading partner countries. Non-GM varieties
are diverted to GM-critical regions while GM varieties are sold to countries in which
consumers are not sensitive to GM content. Furthermore, the development of segregated
GM and non-GM food creates a potential niche market for producers if the non-GM
characteristic can in fact be preserved and verified throughout the marketing system at
reasonable costs.