Abstract
AbstractThe chapter examines the scope and significance of the National Organic Program (NOP) recently introduced in the United States and systematically analyzes the effects of the new national organic standards on the markets for organic, conventional and genetically modified food products (GMPs). The effect of the NOP on consumer purchasing decisions and welfare is examined under the current no labeling of GMPs regime. A model of vertical product differentiation is developed to capture heterogeneous consumer preferences regarding interventions in the production process. Analytical results show that, as long as the NOP does not impose significant costs in the organic food supply chain, the introduction of the new organic standards can increase the market share of the organic sector and can enhance aggregate consumer welfare. Overall, the market and welfare effects of the NOP depend on the distribution of consumer preferences and the level of aversion to interventions in the production process, the production share of GMPs, the effect of the NOP on the price of the organic product and the relative costs of producing organic, conventional and GM products.
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