EXECUTIVE
SUMMARY The Base Case: New Zealand’s clean green
image
Surveys of respondents in overseas markets and
inbound tourists within New Zealand confirmed that in the
perception of environmental image, New Zealand was
consistently ranked ‘above average’ or ‘among the
best’.
The survey in overseas markets was of a net sample
of 444 people in three of New Zealand’s main overseas
markets, namely Australia, United Kingdom and United States.
The respondents’ image of the New Zealand environment was
excellent, with 85% in both Australia and United Kingdom
stating that their image of New Zealand’s environment was
‘above average’ or ‘among the best’, and only 5% had no
image of New Zealand. The remaining 10% had images of New
Zealand as average or below. The response was different in
United States where only 70% had images of New Zealand as
‘above average’ or ‘among the best’, and this difference was
perhaps because 19% had no image of New Zealand. Similar to
the other two markets, in United States 10% had images of
New Zealand as average or below.
The survey of inbound
tourists was of a sample of 93 visitors to Christchurch, and
99% of these had an image of New Zealand as ranked ‘above
average’ or ‘among the best’. Clearly there were none of
these respondents who had no image of the New Zealand
environment, and only 1% thought it was ‘average’.
Variations in percentages between these two surveys can be
expected because of the relatively small sample sizes, but
also with the inbound tourist survey, perhaps the reality
has reinforced their prior perceptions, and there could also
be some “be kind to host” effect which could bias their
responses.
In terms of New Zealand phrasing, these surveys
confirmed that New Zealand has a clean green image (CGI),
with its existing genetic modification (GM) status.
Questions remain as to the value of the CGI in overseas
markets.
Impact on CGI of changing New Zealand’s GM
status
The release of genetically modified
organisms (GMOs) has a varied impact on that image. Should
New Zealand use GMOs in pest control or livestock feed,
approximately 55% of respondents stated their image either
would not change or would improve in such a situation. This
included 29% who stated their image did not change and 25%
who said their image would improve. Approximately one-third
of all respondents stated that their image of the New
Zealand environment would get worse.
Should New Zealand
use GMOs in human disease prevention, approximately 68% of
respondents stated their image either would not change or
would improve. This included 29% who stated their image did
not change and 39% who said their image would improve. About
20% said their image of the New Zealand environment would
get worse.
These numbers show that the magnitude of the
effect on New Zealand’s CGI of GMO release depends upon the
purpose for which the GMO is released. There are also
variations in response in different markets.
Should New
Zealand not use GMOs then over 50% stated their view of New
Zealand’s image would remain unchanged, while one-third of
overseas respondents stated that their image would improve.
Of inbound tourists, nearly 50% stated that their image
would stay the same, and a similar percentage stated that
their image would improve.
World consumer reaction to
release of GMOs
Survey results indicate that the
release of GMOs in New Zealand has an impact on foreign
consumers’ purchase intentions. There is a large group of
consumers (ranging between 40% to 70%) who state their
purchasing behaviour would remain unchanged. This share
ranged from 43% who whose fruit purchasing intentions would
remain unchanged, through 54% with dairy product purchasing,
to 72% whose holiday choice would remain unchanged if there
was a release of GMOs in New Zealand.
There is also a
significant group of consumers (ranging between 20% to 30%)
who state they would cease purchasing New Zealand
commodities if New Zealand released GMOs, though only a much
smaller 5% to 10% would not choose New Zealand for a holiday
in that instance. From the smaller survey of inbound
tourists the numbers were substantially lower than
these.
In addition to these two groups there is a third
group of consumers. This group indicate that their responses
would be contingent on prices, and furthermore, the degree
of sensitivity to price changes is considerable. This
implies that there are consumers who, following a New
Zealand GMO release, are disinclined to buy but would
re-enter the market if there is a relatively small reduction
in price. The characteristics of these groups of
price-responsive consumers has enabled us to determine the
impacts on demand for New Zealand goods and services
following a GMO release, and flexibility of pricing and
supply by New Zealand suppliers in the export markets.
The
stated purchasing intentions if New Zealand’s GM status
changed, as measured by these two surveys, provided the
information on expected world market demand changes in the
various scenarios of the economic model experiments.
There
is uncertainty around the relationship between the purchase
intentions as stated in the surveys and the actual
point-of-sale purchases. There are at least two factors that
need to be borne in mind when generalising from scenarios as
presented in a survey to ‘real life’ The first relates to
information at point-of-sale. It is unlikely that consumers
would know, or bring-to-mind at point-of-sale, the GM
attributes of New Zealand in other contexts, and yet in the
survey context, of necessity this has been brought
specifically to their attention.
Secondly, the
price-quality characteristics of the product, relative to
those from other countries can assume a powerful if not
predominant influence in the product choice for many
consumers, including in particular trade-offs of immediate
tangibles (cost, appeal) against intangible and more remote
perceptions of other considerations like GMOs.
There is
one type of consumer response which is not sensitive to
price which expresses an aversion to GM food which is
categorical, a similar purchasing behaviour to vegetarians
or consumers guided by religious codes.
The durability of
the consumer perception figures will depend on the
dissemination of favourable, unfavourable and neutral
information about GMOs, and the way this is received by the
public. It is common for people to be cautious about such
innovations until sufficient time has elapsed for them to be
proven.
In other words, it has to be acknowledged that
there are many influences that determine purchase behaviour.
Price is one of these influences. Amongst others is a wide
spectrum of product characteristics integrated with buyer
knowledge and taste preferences. In addition, these
influences change across time as external events impact on
consumer behaviour.
The relationship between stated
consumer perceptions and actual purchasing patterns is also
likely to be compounded by the behaviour of institutional
‘gatekeepers’ in a range of export markets. In some cases
their behaviour may amplify consumer concerns. If consumer
attitudes on GM remain stable over time, ‘gatekeeper’
behaviour is likely to reflect those attitudes. Should
consumer attitudes in markets change, the ‘gatekeeper’
behaviour could be expected also to change.
Technology
and New Zealand production system
New Zealand’s main
productive industries are based on production from plants
and animals and so economic wealth could be created by GMOs
applied in agriculture, horticulture, plantation forestry,
aquaculture and medicine. GM also has the potential to
create entirely new products and sectors of economic
activity.
Three specific examples of GMO releases were
investigated and scenarios specified for pastoral
agriculture, pest control, and human therapeutics. These
scenarios assume effects on productivity in industries due
to the release of GMOs.
Economic model
experiments
Two economic models were used to undertake
various experiments simulating the impact on the New Zealand
economy of the release of GMOs, as well as the scenario of
New Zealand foregoing GMOs: an agricultural trade model and
an economy-wide model.
The modelling assumes similar
consumer reactions across all markets, derived from the
‘average’ reaction calculated from the survey responses.
Consumer preferences and concerns are likely however, to
vary over markets. Furthermore, the modelling assumes that
consumers are able to choose between a range of suppliers -
distinguished by their GM status - of the products (and
holidays) they wish to purchase. The model experiments
therefore should be interpreted within the context of the
diversity of the markets in which New Zealand exporters are
active.
The agricultural trade model is ideally suited to
investigating the impacts on the New Zealand agriculture
sector in response to changes in productivity, commodity
demand and supply and the consequential changes in world
prices and producer returns.
The economy-wide model is
better suited to investigating the impacts on the wider New
Zealand economy. It captures the influences of relationships
between sectors as well as the impacts when resources shift
from one sector to another.
Scenario impact on New
Zealand economy ten years hence
The numerous
experiments performed using the two economic models signal a
range of outcomes in terms of economic impact.
The
agricultural trade model indicates that change in GM status
has significantly large effects on New Zealand agriculture
industry. In particular, the results find the world market
reactions (export demand responses) significantly larger
than the impact originating from the supply reaction (ie
productivity increases or cost reductions).
New
Zealand releases GMOs
From the agricultural model, the
release of a GMO that resulted in 2.5%pa higher productivity
for 10 years with no demand response leads to only a 5.1%
increase in New Zealand agriculture producer returns.
However, a demand change reflecting a 20% discount on all
New Zealand exports of dairy, meat and fruit with no
productivity changes leads to a 43% reduction in producer
returns.
From the economy-wide model, the impacts of
productivity changes are relatively greater, as increased
productivity in one industry makes more resources available
to other industries. This effect is captured by this model.
The effect of a more price-sensitive foreign consumer is
also included in this model so that the impact on export
returns is more muted.
As a result of the assumed negative
demand reaction to the release of a GMO in New Zealand (as
indicated by the consumer intentions from the surveys), and
assuming that the GMO release provided no productivity
increase, the economy-wide model finds that GDP ten years
hence is 2.4% lower than it otherwise would have been. In
this experiment dairy and meat export returns were 8.2%
lower than the base case.
On the other hand, a GMO release
which generated an assumed 2.5%pa higher productivity in
pastoral agriculture, and assuming this release caused no
demand reaction, resulted in GDP being 2.5% higher ten years
hence. In this case, dairy and meat export returns were 8.9%
higher.
Clearly in any particular case one could expect a
GMO release to cause both some reduction in demand for some
products in some markets, and also some increase in
productivity. The effects on GDP in 10 years time would
therefore be expected to be between these two limits of GDP
2.4% lower and 2.5% higher than would otherwise be the case,
and the various scenarios modelled gave such results.
In
particular, the experiment combining both the productivity
and demand responses resulted in GDP ten years hence being
lower by 0.1%. The sensitivity of this outcome to the
magnitude of the demand response was also tested. The
experiment with a 50% large export demand reaction resulted
in GDP being lower by -1.3%, but if the export demand
reaction was 50% smaller the outcome for GDP ten years hence
was 1.2% higher.
New Zealand refrains from GMO
release
Where New Zealand refrains from releasing
GMOs, the trade model finds that other countries increasing
productivity with GMOs has little impact on producer
returns. In contrast, a demand effect resulting in a 20%
preference for non-GM products increases New Zealand
producer returns by 33% above the base case.
The
economy-wide impact of a New Zealand refraining from release
of GMOs was also modelled. This experiment showed a shift in
preference to New Zealand-labelled dairy and meat, as well
as a shift to all New Zealand fruit and holidays, which
together led to 7.5% higher GDP ten years hence. In this
case, dairy and meat export returns were 14.5% higher.
However, if other competitor countries adopted GMOs which
led to their enjoying greater productivity improvements, New
Zealand GDP would then be 6.4% lower than in the base case.
Dairy and meat export returns were over 40% lower.
Conclusions on economic outcomes
The general
conclusions on the economic outcomes are that while the
impact of single influences (either world market demand
effects or New Zealand production opportunities) are
potentially large, together many of the influences counter
each other.
Because of the counter-balancing influences,
the actual effect on New Zealand’s annual GDP ten years
hence is thus not very great under any of the scenarios.
Impacts at the level of the individual industry - especially
the agriculture industry - remain significantly large. In
particular, demand shifts tend to have relatively larger
impacts on agricultural returns that do supply shifts.
The
results of the Lincoln agricultural trade model suggest that
a supply-side strategy focussing on raising New Zealand’s
productivity would be less effective at increasing producer
returns than would be a demand-side strategy raising demand
for New Zealand products. However this model does not take
account of the resources released to the other industries in
the economy when resource productivity in agriculture is
increased. These effects are specifically embodied in the
economy-wide model.
Numerous experiments using the
economy-wide model, combining aspects of both influences
found economic outcomes, in terms of the level of GDP in 10
years hence, ranged from 3% higher GDP to 3% lower GDP.
In
other words, the impact of releasing a GMO in New Zealand or
not using GMOs in production can result in both negative or
positive overall economic outcomes.
Critical factors
determining economic outcome of GM status
Assessments of
the detailed results of the economic experiments has enabled
us to isolate four critical elements that determine the
economic outcome:
(1) The magnitude of the change in
demand for New Zealand goods and services.
This factor
describes the extent to which the purchase decisions of
foreign consumers for New Zealand goods and services is
dominated by their desire to buy from a country where there
are no GMOs released. If the survey responses are reflected
by actual purchase behaviour, such behaviour has significant
and substantial negative consequences for New Zealand’s
conventional export commodities and, consequently, the wider
New Zealand economy. There is uncertainty attached to actual
behaviour justifying the close monitoring of consumer
attitudes and purchasing. International research indicates
that when faced with actual purchase decisions at
point-of-sale, consumers’ reactions will be different from
what they say they would do in “willingness to pay”
surveys.
The price-quality characteristics of the product
displayed, relative to those from other countries can assume
a powerful if not predominant influence in the product
choice for many consumers. It is also unlikely that
consumers would know, or bring-to-mind at point-of-sale, the
GM attributes of New Zealand in other contexts, and yet in
the survey context, of necessity this has been brought
specifically to their attention.
The origin country of
products are not necessarily identified on supermarket
shelves. It is likely that the labelling of products as GM
or non-GM could influence consumer behaviour rather than the
country of origin.
(2) The response of foreign consumer
demand to price changes.
This factor describes the
extent to which the purchase decisions of foreign consumers
for New Zealand goods is influenced by price differentials
between commodities from other countries. This price
responsiveness can allow New Zealand to counteract loss of
sales to CGI-sensitive market segments by reducing prices
and thus increasing sales in other market segments.
(3)
The access of New Zealand goods to global
markets.
Associated with the consumer reactions to the
release of GMOs in New Zealand, described by the first two
factors, is the institutional, regulatory, commercial aspect
of access for New Zealand products to particular world
markets. In many markets the actions of regulators and
gatekeepers - for example, retailers, wholesalers, traders,
buyers for supermarket chains and others - can either
mirror, amplify or in some ways modify the effective
consumer demand.
(4) The opportunities for productivity
enhancements.
This factor describes the extent to
which GMO releases can improve productivity or open new
opportunities in New Zealand industry. If these productivity
improvements, leading to cost reductions, occur at
historically comparable rates, significant gains to the New
Zealand economy can be recorded. In this case though, the
achievability of such gains are contingent on New Zealand
overcoming quota, regulation and other market-access
barriers to expanding New Zealand commodity sales in key
markets. On this production side there are potential
benefits from a portfolio of GMOs with a range of effects on
productivity, product quality and the environment.
The
degree of uncertainty surrounding all four elements is
considerable. As such, it remains important for New Zealand
to manage GMO related activities for the benefit of all New
Zealanders. Progressively reducing the degree of this
uncertainty over time will be a prerequisite to reaching a
conclusive statement on the economic outcome of either a GMO
release or a policy foregoing GMO release.
The results of
the economic experiments confirm that establishing actual
(as opposed to surveyed) purchase response to GMO release is
pivotal to determining its impact on the New Zealand
economy. Similarly, greater information aimed at confirming
the actual (as opposed to asserted) productivity gains from
GMO release is the other critical element that is a
pre-requisite for a conclusive determination of the economic
impact.
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