Monsanto

Market theories provide the foundation for assessing the effect of GMOs and supply and demand. The conditions of supply and demand are intertwined with the type of market in which a company competes. The concept of perfect competition is important to understanding the forces that drive supply and demand in a free market economy. The term perfect competition can be conceived as an ideal market that possesses the following attributes: 1) suppliers who produce identical products, 2) consumers in demand of the same product, 3) a free exchange between buyers and sellers, 4) no existing entrance barriers preventing new suppliers from entering the market (Asmundson, 2010). The perfectly competitive market requires a free exchange between buyers and sellers. Thus, it is also a condition that buyers have full disclosure over any information that effects their decision to purchase a product (Asmundson, 2010).

The concept of perfect competition is critical because it enables an undistorted understanding of supply and demand. In the

perfectly competitive market, equilibrium is reached when supply in terms of quantity of goods offered is equivalent to demand in terms of price of goods sold (Asdmundson, 2010). The concept of perfect competition provides a simplified explanation of supply and demand. Barring changes in technology, adverse economic conditions, or other external factors that would influence the market, demand for products will increase as the price of a product decreases (Asdmundson, 2010). The concept of perfect competition states that firms that can utilize technology and production strategies to reduce consumer prices will be rewarded by increased demand from consumers.

The concept of elasticity is important for understanding the factors that might distort demand. Elasticity is a term that references the relationship that exists between the supply of a good and the demand for that good (Asdmunson, 2010). Not all goods are susceptible to changes in demand. Goods, such as energy, are considered to be inelastic, indicating that demand remains the same regardless of fluctuations in price (Asdmunson, 2010). Alternative market makeups, such as the monopoly, can also distort demand. Monopolistic markets are characterized by dominance by one producer of a good for which there are no substitutes (Asdmunson, 2010). The lack of alternative goods reduced elasticity because consumers have elsewhere to go when they are purchasing a product. Monopolists generally expend their energies on erecting entrance barriers to markets that prevent competition, enabling them to set prices that are higher than the market equilibrium (Asdmunson, 2010). The concepts of perfect competition, supply and demand, elasticity, and the monopoly are essential to evaluating the effect that demand for GMO products would have on the marketplace.

Supply and Demand for Non-GMOs

There are two ways that consumer demand for non-GMOs can affect demand for GMO products: 1) it can increase or decrease demand for non-GMOs, also increasing or decreasing consumer demand for GMOs, and 2) it can motivate government regulations that increase costs, which would in turn decrease supply and demand. Literature suggests that opposition has been successful in increasing demand for non-GMO products. Retail sales figures for non-GMO cereals, salad dressing, and food products increased by 15 percent or $9.6 billion in 2014, which makes non-GMOs a leader among segments of the U.S. food market (Bunge, 2015). However, this growth is dwarfed by the current size of the GMO market. In 2014, an estimated 94 percent of acreage used in soybean production used GMO seeds, increasing by 50 percent since 2000 (Bunge, 2015). Further, GMO seeds utilized in corn production increased from 90 percent in 2013 to 93 percent in 2014 (Bunge, 2015). As this data indicates, the increase in non-GMO demand has not come at the expense of GMO demand.

The biotech industry is dominated by four companies that captured over 50 percent of the market share in 2014 (Phillips, 2014).

Lead GMO seed producer Monsanto Company is reflected among the top four companies in the industry. The actions taken by Monsanto generally benefit producers and suppliers that distribute the company’s GMO products. The introduction of Monsanto GMO seeds has resulted in a price decrease for major agricultural goods (Phillips, 2014). Further, the company has taken action to increase entrance barriers in the agricultural and GMO markets. These actions included suing farmers for infringing upon seed patents when the seeds from a GM plant contaminate the lands of nearby farmers and adopting a competitive pricing strategy that undercuts the prices of non-GMO producers (Phillips, 2014). The barriers developed by Monsanto and biotech firms reduce the opportunity for market entrants to successfully effect supply and

demand.

The characteristics of the agricultural and food services markets also indicate the inability of non-GMO products to affect the supply and demand for GMO products. Though food is an essential item, the demand for agricultural products can be characterized as being highly elastic. Namely, price is a factor that influences demand in this industry. The United States agricultural industry relies upon subsidization to compete against international competitors who offer their products at lower prices (McCallion, 2009). The price sensitivity of consumers undermines the long-term success of non-GMO competitors. However, research indicates that quality rather than price effect the satisfaction that customers experience from a restaurant (Marta & Guillen, 2004). The effect that quality has on consumer demand for a restaurant train holds the potential of undermining demand for chains that offer GMO products in their menus.

The restaurant industry utilizes GMO products in its menu items, and thus non-GMO demand holds the potential to affect supply and demand in this industry as well. The restaurant industry is unique to food suppliers because considerations rather than price are more likely to influence demand. For example, the location of a restaurant, price point, expectations of guests and even the chefs all influence what produce is purchased.

To date, GMO producers enjoy a favorable regulatory climate that protects them from the pressures of perfect competition. While many state laws feature disclosure requirements for products that could pose a safety concern, GMO producers have bypassed these regulations (Goldbas, 2014). As a result, consumers are not required by law in many localities to be informed when they are consuming a product containing GMOs. Further, companies producing GMOs possess the ability to obscure the nutritional benefits of their products. For example, Monsato produces a soy plant that is nutritionally inferior in content to non-GMO alternatives (Goldbas, 2014). However, the United States currently lacks a regulatory framework that requires manufacturers to disclose this information routinely. The lack of reliable information on the presence of GMOs in a food product, the health risks associated with GMOs, and the nutritional benefits of GMOs presents an information asymmetry that distorts supply and demand in the GMO market to the favor of GMO suppliers and affiliated food industry businesses.

Conclusion

The contention among many is that the recent demand for non-GMO products will have a significant effect on demand for food products containing GMO products or restaurants serving food containing GMOs. However, an assessment through the frameworks presented by economic theories on market structure indicates that this is unlikely to be the case. The literature review confirms the hypothesis that increased demand for non-GMO products will not have a significant effect on the demand for GMO foods or restaurant serving foods that use GMOs. The first reason this is confirmed is because the agricultural industry is not perfectly competitive. Agricultural producers are subject to significant entrance barriers in the form of regulations and high entry costs. Further, the biotech companies that supply genetically modified seeds operate in a highly regulated environment. The agricultural industry and biotech industries developing seeds feature the attributes of monopolistic competition, with a small number of firms producing the majority of the country’s products. Without regulations, a broad range of consumers would be unable to make the rational choice not to purchase GMO products that could adversely affect their health.

The second reason this hypothesis is confirmed is because non-GMO products can currently be considered a luxury good. In addition to skewing the agricultural and food industries from perfect competition towards monopolistic competition, GMO producers have enabled agricultural producers and restaurant operations to offer foods to consumers at lower prices. Because a high percentage of the market is saturated with GMO food products, GMOs can be considered a normal good. In contrast, non-GMOs currently hold the status of being a luxury good because they are higher in price and non-essential to many consumers. Because elasticity is generally high for agricultural products, it is unlikely that non-GMO products can compete with GMO products without engaging in a price competition strategy. The relative inelasticity in demand for GMOs and elasticity in demand for non-GMOs mitigates the threat that non-GMOs can cause to GMO products.