Will consumers lose or gain from the environmental impacts of transgenic crops?

Opposition to genetically modified food encompasses environmental concerns, food-safety concerns and ethical objections. Potential environmental benefits from transgenic crops are not well accepted. Genetic modification is a credence attribute that cannot be detected by consumers without labelling. In the absence of labelling a pooling equilibrium results in an adverse quality effect for those consumers who prefer not to consume genetically modified (GM) food for environmental or food-safety reasons, but may result in a beneficial price effect for all consumers if the innovation is drastic. Labelling enables consumers to express their environmental preferences through the marketplace and can mitigate the adverse quality effect, but only in the absence of cheating. Both mandatory GM and voluntary non-GM labelling will impose segregation costs on the non-GM sector, leading to an increase in prices. The challenge will be to allow technological advances in agriculture that increase yields, reduce costs and improve product quality, while respecting consumer preferences. Future research could assist by improving our understanding of the consumer decision-making process, including how consumers react to new information and how consumers would respond to future GM products with direct consumption or environmental benefits.