Biotech Communications Workshop for Chinese Ministry of Agriculture and Triangle biotech professionals, Day 2 Presented by Zachary Brown, GES Center, NC State University Tuesday, 10/3/2017

1. Forecasting consumer responses to
agricultural biotechnology in the food
supply
Zachary S. Brown
Assistant Professor, Department of Agricultural &
Resource Economics, GES Center
October 2017

2. Outline of this lecture
• First 30 minutes:
1. Objectives & challenges in forecasting consumer
response
2. Economic & marketing methods
3. Previous applications to genetically engineered
organisms, research findings
• 10 minutes: Discussion
• 30 minutes: Current research on consumer responses to
gene drives
• Remaining time: Discussion

3. Objectives & challenges of measuring
consumer preferences & choices
Objectives of measuring consumer preferences & choices:
Consider the introduction of a new product, or a change in
price quality for an existing product…
What economists ask: How are
consumers affected by this
change?
What marketers ask: How will
demand & sales be affected by the
change?
Tied together!
(Quantify
costs &
benefits.)

4. Objectives & challenges of measuring
consumer preferences & choices
Challenges of measuring consumer preferences & choices:
For both economists & marketers, we require models
that can quantitatively predict consumer behavior in
counterfactual scenarios
For economists… how do we infer preferences &
welfare based on observed behavior & choice?
(Something that’s never
happened before.)
What if we have no history of
observed choices to analyze, like
when introducing new products?

5. Economic & marketing concepts
• Maximum willingness to pay (WTP) for the product:
– Price point at which consumer indifferent between
purchasing or not
• Minimum willingness to accept (WTA), to give up the
product:
– Amount of compensation at which consumer is
indifferent between giving up a good
– Example: Suppose we increase the risks of a product
to lower its price (or keep it low): What is the minimal
discount to the good at which consumers tolerate the
risk? How would economists or marketers use
WTP or WTA differently?

6. Economic consumer welfare measure
• Consumer surplus:
WTP – the price actually paid
Welfare impacts of increased risk…
• Compensating variation:
How much would we have to pay consumer to exactly
offset lost welfare from risk?
WTP & WTA form foundation of Benefit-Cost Analysis:
Net benefits = (WTP for a change) – (WTA costs/risks)
WTP
WTA
WTP for mandatory GMO
labeling?
v.
WTA costs?

7. Economic consumer welfare measure
Many factors underlying WTP and WTA:
Costa-Font et al. (2008, Food Policy)

8. How do we measure WTP and WTA?
For existing products/markets, we can use observed choices,
sales & price data…
– Robust econometric models available to predict sales
response.
– This is called revealed preference valuation: we have
actual choices to use?

9. How do we measure WTP and WTA?
For non-existent products, how do we predict
WTP or WTA?
– Stated preference valuation: a fancy
term for basically asking consumers’
their value for a hypothetical good (or
cost of a risk).
For example…
How much would you be willing to pay
for…
• Salmon that tasted like chocolate?
• Caffeinated rice?
• Chicken that cooked faster?
• Vegetarian meat?

10. Stated preference valuation methods
Research sequence
1. Determine valuation objective & outline methods
2. Focus group discussion (FGDs) with target
population
3. Analyze FGDs
4. Develop survey (sampling method & survey mode)
5. Pre-test survey
6. Analyze pre-test results & revise survey
I will focus on how we do valuation research in this part of the process

11. Focus group discussions
• Critical for effective valuation research!
• Questions to answer with FGDs in valuation research:
“Does what I’m trying to do make sense to people?”
“Do consumers reject the valuation premise & scenario?”
An iterative process: we are
trying to uncover our own
blind spots, as researchers.

12. Survey-based valuation
General survey research methods:
(see Prof. Binder’s presentation)
• Target population, sample size
• Survey mode: in-person, telephone, mail, web-based?
– Response rates?
– Questionnaire length?
• Cost of survey?
Implications for valuation questions:
Survey mode determines:
– Level of information detail provided to respondents
– Type of valuation questions that can be asked
– Can affect estimated WTP and WTA

13. Types of survey-based valuation
questions:
Contingent valuation
Open-ended
How much would you be willing to pay for
10oz of GM salmon?
__________ Dollars
Payment card
Please check box indicating how much
you would be willing to pay for 10oz of GM
salmon:
Dichotomous choice
Would you be willing to pay $5 for 10 oz of
GM salmon? (Check one.)
___Yes ___No
Conjoint valuation
$0
Greater than $0
& less than $5
$5 or more
Please select your preferred alternative
from the following menu:
Product A Product B
Would
not
buy
$ per oz $5 $6 -
GM or
conventional
GM Conventional -
Farm or wild Farmed Wild -
Atlantic or
Pacific
Atlantic Pacific
Choice:
(check ONE)

14. Types of survey-based valuation
questions:
Contingent valuation
Open-ended
How much would you be willing to pay for
10oz of GM salmon?
__________ Dollars
Payment card
Please check box indicating how much
you would be willing to pay for 10oz of GM
salmon:
Dichotomous choice
Would you be willing to pay $5 for 10 oz of
GM salmon? (Check one.)
___Yes ___No
Conjoint valuation
$0
Greater than $0
& less than $5
$5 or more
Please select your preferred alternative
from the following menu:
Product A Product B
Would
not
buy
$ per oz $5.50 $6 -
GM or
conventional
Conventional Conventional -
Farm or wild Farmed Wild -
Atlantic or
Pacific
Atlantic Pacific
Choice:
(check ONE)
Experimentally
vary alternatives
across choice
tasks

15. Types of survey-based valuation
questions:
Contingent valuation
Open-ended
How much would you be willing to pay for
10oz of GM salmon?
__________ Dollars
Payment card
Please check box indicating how much
you would be willing to pay for 10oz of GM
salmon:
Dichotomous choice
Would you be willing to pay $5 for 10 oz of
GM salmon? (Check one.)
___Yes ___No
Conjoint valuation
$0
Greater than $0
& less than $5
$5 or more
Please select your preferred alternative
from the following menu:
Product A Product B
Would
not
buy
$ per oz $5.50 $5.75 -
GM or
conventional
Conventional Conventional -
Farm or wild Farmed Farmed -
Atlantic or
Pacific
Atlantic Pacific
Choice:
(check ONE)
Experimentally
vary alternatives
across choice
tasks

16. How do determine the valuation
question?
Focus groups
Focus groups
Focus groups
Pre-test
Pre-test
Pre-test

17. WTP and WTA studies related to GM food
& labels
One of the earliest published choice experiments in the US
(Jayson Lusk & co. 2003, Am. J. Ag. Econ.):

18. WTP and WTA studies related to GM food
& labels
One of the earliest published choice experiments in the US
(Jayson Lusk & co. 2003, Am. J. Ag. Econ.):

19. WTP and WTA studies related to GM food
& labels
• Many studies measuring WTP & WTA.
• Might want to do meta-analysis: combine all of these
studies to get better statistical evidence, examples:
Lusk et al. (2005, J. Ag. Res. Econ.)

20. WTP and WTA studies related to GM food
& labels
• Many studies measuring WTP & WTA.
• Might want to do meta-analysis: combine all of these
studies to get better statistical evidence, examples:
Lusk et al. (2005, J. Ag. Res. Econ.)

21. WTP and WTA studies related to GM food
& labels
 Mean premium for non-GM in
this study was 29% - 42%
 40% higher premium in
Europe
 WTA premia 45% higher
than WTP
 Non-hypothetical: -40%
 This study is old, and
people’s prefs change!
Lusk et al. (2005, J. Ag. Res. Econ.)

22. WTP and WTA studies related to GM food
& labels
Costa-Font et al. (2008, Food Policy)
Preferences, WTP & WTA can change in response to
media, ‘animal spirits’ …
More useful to identify who
has high or low values?

23. WTP and WTA studies related to GM food
Yue, Zhao & Kuzma (2015, J. Ag. Econ.)
• Consumer segmentation: Identify different consumers in
terms of stated values & sociodemographic
characteristics… Below example is GM rice..

24. WTP and WTA studies related to GM food
Yue, Zhao & Kuzma (2015, J. Ag. Econ.)
• Consumer segmentation: Identify different consumers in
terms of stated values & sociodemographic
characteristics… Below example is GM rice..

25. WTP and WTA for GM food information:
mandatory & voluntary labeling
Costanigro & Lusk (2014, Food Policy)
• Researchers tested for signaling effect of
mandatory v. voluntary GMO labels
• WTA product with GMO labeled products is
2.44 times the WTP for non-GMO products
• (WTP to avoid other tech roughly similar to
GMO)
• Do consumers differentiate the technology?
• Is the label communicating an implicit norm
or reference point?

26. Discussion
Questions to ponder…
• How are these methods useful for evaluating consumer
responses to next-generation biotech?
– How would they need to be modified?
• Is there an application of these methods that would be
relevant for you?
• What is the ‘right’ info to provide respondents to get ‘true’
values?

27. APPLICATION: WTP FOR
FOOD PRODUCED WITH GENE
DRIVES

28. Attribution
Following material adapted from focus groups conducted
by GES PhD students
Mike Jones & Johanna Elsensohn
Assessing Public Perceptions of Gene Drives
for Invasive Species And Pest Control
USDA National Institute of Food &
Agriculture
Investigators
Z. Brown, J. Delborne, M. Jones, P. Mitchell
(Univ. WI-Madison)

29. Motivation for study
• ‘Gene drives’ are a new
technology for controlling
pests & disease vectors
• Recent 2016 National
Academies report raised
many questions about
public values & concerns
for gene drives
• Our basic question: How
could the public &
consumers react to this
tech? Ex ante eval.
– I’ll focus here on WTA/WTP

30. Gene drives in a nutshell…
Things you could do with this technology:
• Spread a gene for male or female sterility
• Spread a gene that immunizes an insect against a human disease (e.g. malaria)
• Key feature is self-sustaining spread of a target genetic trait

31. Case Study:
Spotted Wing Drosophila
• Infests ripening berry fruits
– Strawberries, raspberries, cherries,
blueberries, blackberries
– Many non-crop plants
• Problem for organic growers
Following
informational material
developed by Johanna
Elsensohn (NCSU)

32. CA: 2008
1916
1940
2008
* *
2013
Global Invasion
* NC: 2010

34. • Insecticides
– whenever fruit is ripe in field
– every 5-7 days
• Organic growers have fewer options
Current control methods

36. • Genetic modification to make female
offspring unable to reproduce
• Males not affected
Gene drive to
lower insect populations

37. • Genetic modification to make female
offspring unable to reproduce
• Males not affected
Gene drive to
lower insect populations

38. Example choice experiment
We are interested in your preferences when buying blueberries produced under
different pest control methods. Your answers here are very important and will be
included in our final report.
For the following section, imagine you are making a regular shopping trip to your
normal grocery store. In the produce section, you see the following two options for
fresh blueberries. We would like to know which of these products you would
purchase, if any.
You may choose only one option for each set of choices. Please indicate whether
you would rather choose Option A, Option B, or whether you would choose neither.
When making your choices, please consider the price of the product carefully
compared to your household's grocery budget. (In questions about hypothetical
purchase choices, people often tend to overstate their willingness to purchase some
products.)

39. Example choice experiment

40. Example choice experiment
On your own (or in pairs):
• Select one of the alternatives
• Think about why you chose that alternative
• If you had the choice data from this experiment, what
questions would you want to answer?
• What product attributes on the page are important to you
(if any)? Are there any important attributes that are
missing?