Placing Premium Pricing on Taste, Texture… And Discounted Pricing on Gene-Edited Produce

EDITOR’S NOTE: This article is an excerpt from a longer piece published on Jim Prevor’s PerishablePundit.com, based on a presentation given at The New York Produce Show and Conference. You can read the complete interview here: http://www.perishablepundit.com/index.php?article=3418

By Bradley Rickard

Professor Brad Rickard of Cornell University spoke with Mira Slott of Produce Business magazine.

As part of a five-year USDA project, called Vitis Gen (Next Generation Grapes), we conducted what we called a choice experiment, where we give consumers choices between various table grape products. This is where we change the fruit taste, the external appearance, the expected number of chemical applications and the breeding technique, as well as the price.

Then we ask people which of these two options would they choose. When they go through this exercise, you can imagine that there’s a lot of different possibilities of combinations of attributes. We don’t ask every person to answer every combination. That’s why we need so many people so that this distribution of choices is spread out across all of our different consumers. But then in the end, we can calculate average effects…

Q: Are the definitions straight-forward? Often the way something is worded can influence results…

A: I think we give fairly good definitions of what we mean if something has superior fruit taste or inferior fruit taste, if it has excellent external appearance or poor external appearance. And then for the breeding technique, we give detailed definitions of both conventional breeding and then gene-editing breeding. I shared this language during my presentation.

We borrowed from scientists, but within the definition of gene editing, we do say the USDA recently proposed that plants produced using gene editing will be treated the same as conventionally bred plants. And we mention that the USDA even says that we can assume plants produced using gene editing may be labeled as organic.

Q: Wow, that’s interesting, too.

A: There’s actually not a gene-edited, organically produced fruit that’s available. That scenario doesn’t exist in reality, but theoretically it could. And maybe it will in the future.

Q: Right. Or maybe the people who are doing organics don’t want to have it.

A: There’s that, yes, but that’s a major difference because if a plant is produced using genetic engineering, the USDA says specifically that the plant or the food produced from that plant cannot by definition qualify or be labeled as organic. But if the plant is bred using gene editing, if it follows the rules, it could be considered and labeled as organic.

I think for consumers who don’t want all the gory details, it signals that gene editing is a modification of the DNA structure of the plant, but it’s not as large a modification as what genetic engineering does.

At the New York Produce Show, I talked about some of the demographic characteristics of the people in our survey relative to the averages. For instance, people in our survey were a little bit older; they had a little more income; they had a few more members in the household; and they were a little more educated, I suppose, than the U.S. average. And the demographic skewed a little more female than the U.S. average. But the race demographics were close to the U.S. average, so that was well represented.

Q: I’m interested to learn how results break out with different consumer segments…

A: I talked about how there’s an average effect, and then there’s different groups of consumers who think about this differently.

You were asking about ranking of attributes, which is a good question… I presented the results on this looking at fruit taste and texture, external appearance, number of chemical applications, and the breeding technique. What we find here is that the fruit taste and texture is the most important attribute. It leads to the highest increase in willingness to pay relative to the other attributes.

And then second-most important is its external appearance. Third most important is the number of chemical applications, which is kind of surprising because table grapes are a crop that does use a lot of fungicides, so it is a crop that has been exposed to a lot of chemicals. You would think that of all the crops out there, consumers might be concerned about these chemical applications. But it turns out that they’re much, much more interested in fruit taste and texture and external appearance than they are about the number of chemical applications.

Still, when you tell consumers that this table grape was produced using 80 percent less chemicals applied to the crop than the industry average number of applications, consumers were willing to pay a premium for that, knowing that the premium is not as great as it was if you told them this is a beautiful looking table grape or this has a really sweet and crisp trait or profile.

We discussed many specific numbers also. But the rank order is definitely fruit taste and texture, and then maybe half as important is its external appearance, and then half as important again is its chemical applications. And then we do find that people want a discount for gene-edited table grapes. They’re willing to pay less for them if they were bred using gene editing.

The discount from gene editing is almost the same as the premium that they’re willing to pay when they know that it has a beautiful external appearance. Those two affects almost cancel each other out.

But the extra premium that consumers are willing to pay for tastier fruit or fruit with better texture… that premium exceeds the discount that consumers need to take to purchase the fruits produced using gene editing. That premium is quite large. It outweighs the discount from gene edited fruits.

There is a small premium they’re willing to pay for reduced number of chemical applications, but it is totally washed out and then some by the discount that consumers feel they should receive for accepting the gene edited fruit. pb

Bradley Rickard is an associate professor of Food and Agricultural Economics in the Charles H. Dyson School of Applied Economics and Management. His teaching and research focus on the economic implications of policies, innovation, and industry-led initiatives in food and beverage markets.

How Can We Overcome Ignorance?

By Jim Prevor

The issue of consumer attitudes toward various technologies such as gene editing and genetically modified organisms is a bit of quandary. Surely, there is no basis for thinking that the vast majority of the population has any knowledge of what these terms mean or any real ability or willingness to evaluate the health and safety implications of the use of these technologies.

Even if consumers did have knowledge in general about the technologies, there is a big leap between that and evaluating the specific implication of any use of such a technology. In other words, suppose some observer was both skeptical about genetic engineering and was skeptical about the use of synthetic pesticides. Yet let us assume that an item was genetically modified so that it could be grown with fewer synthetic pesticides. How could any significant number of consumers possibly evaluate the relative benefits of the use of such a technology in those circumstances?

Clearly the issue is not what consumers will assess about the produce. Most consumers are unlikely to know or care very much — the issue is more what the reaction might be of various special interest groups and how retailers and consumers will respond to that reaction. Here, there is not much doubt. Retailers will respond with cowardice, regardless of how consumers would respond on their own.

This is not particularly surprising. A giant category such as berries or bananas might account for 1% of supermarkets sales, much less of a supercenter or warehouse club. If you are looking at a category such as berries or grapes with many different varieties, any one item is likely to account for just a fraction of 1% of store sales. So, if the proposal on the table is to replace one variety of the category with an item possibly controversial, the decision for a supermarket CEO is clear: Why bother?

In other words, if a gene-edited or genetically modified grape that accounts for a third of 1% of store sales is going to lead to pickets and make some employees and shoppers uncomfortable, why bother? What is the upside?
The downside is obvious: If shoppers don’t want to cross a picket line because a $3 produce item is causing pickets, the store can lose hundreds of dollars in sales, the whole market basket. The upside? Consumers will like the taste of some items a bit more?

The issue seems to be more a matter of interest group power and government willingness to intervene than to any great feelings by consumers.

The exception that proves the rule is brave retailers such as Wegmans that have been willing to sell irradiated chopped meat. But there is a specific constituency: people with medical situations that preclude taking the risk of eating non-irradiated meat. For example, people who have a stem cell transplant and were bombarded with chemotherapy to destroy their immune systems… these people are advised that they could risk their lives by consuming a rare burger. Even those who oppose irradiation are forced to acknowledge that, at least in certain medical situations, it may be the best solution. This type of situation doesn’t really apply to breeding techniques and treatment techniques for fresh produce.

Another interesting perspective is that studies of consumers tend to focus on things such as taste, texture, appearance, etc. Yet, the reality is that most breeding in the world is actually about grower-valued attributes: Higher yield, pest-resistance, easy harvesting, etc. Of course, none of this matters if the produce can’t be sold, but the grapes being blown out on special at most supermarkets are not the most expensive or specialized varieties.

The experience with commodity crops such as soybeans has been that superior genetics — which lead to higher yields and easier harvesting — gradually take over the industry. Now there is an argument that because these are industrial products, used in making processed foods but not really a commodity a consumer eats, the technologies used to raise such a crop are too remote and don’t have much impact on consumers. Perhaps. Though in Europe, anti-GMO feelings have led to government restrictions that impact processed products as well as fresh.

The issue seems to be more a matter of interest group power and government willingness to intervene than to any great feelings by consumers. Even with GMOs, we know many Europeans who are living under these restrictions, yet when these friends and colleagues come to visit America, very few act to avoid eating the food that is legal and common in America, much of it produced with genetically modified soybeans and other items.

There are, of course, individuals who will elect to eat only organic or to be vegans or in other ways consciously restrict their diets. For most people, though, modern society is too complex, and they can no more evaluate the safety of their food than they can the safety of an aircraft engine. Most of us depend on the combination of a business’s interest in staying in business with government regulatory authorities to ensure the food we eat — and the aircraft we fly on — are both adequately safe.

This ignorance gives a kind of super power to organizers who want to protest. It is only natural, and very reasonable, for consumers to adopt a “better safe than sorry” when others are protesting, and it is very rational for supermarkets to want to avoid the controversy. Protesting organizers need things to protest about to raise money and maintain relevance. This dynamic winds up blocking technology and innovation, and so the world becomes poorer than it has to be.