The impact that national elections have on current and future economic conditions is inherent, but ballot issues at the state level can have a major role in your portfolio’s performance, too. This year, that issue is California’s Proposition 37, a state statute whose fate will be determined on November 6. Regardless of where you stand on the issue of genetically engineered or modified organisms -- GMOs -- from a health perspective, regulations surrounding their future could affect your investments. Here’s why.
What is it?
Proposition 37 essentially calls for food manufacturer transparency regarding foods that contain GMOs, which have gone otherwise undisclosed in the United States to date. If you have no idea what GMOs are, you’ve most certainly consumed foods that include them. According to the US Food and Drug Administration
, the first genetically modified tomato was sold in the United States in 1994, allowing consumers to buy on-the-vine tomatoes in the grocery store (which would have rotted in transport, pre-GMO days). Since that time, GMOs have seeped into the food supply; they’re they primary component of many processed foods like cookies, crackers, salad dressings, and bread, which are made with genetically modified soybean and cottonseed oils, and corn syrup. GMOs are found in plenty of non-organic “fresh foods,” too, including sweet corn, sweet potatoes, squash, and beets. The FDA’s stance is that GMOs are harmless, and beneficial: They ward off crop pests, and tolerate herbicides used to maintain farming health. Some supporters of GMOs credit the processes with keeping food commodity prices down globally, and in allowing scientists to genetically alter plants to potentially deliver antibodies that ward off a host of human diseases. Those against GMOs cite studies
(many of which are still disputed) as evidence of why they believe GMO foods are not only responsible for an increase in the amount of childhood allergies and autism, but also in the increased prevalence of adult onset diseases, including certain types of cancer.
According to Prop 37’s specifications, raw or processed foods that are “intentionally and knowingly” genetically modified must be labeled as such. Additionally, Prop 37 would prohibit the labeling or advertising of foods with genetically modified components, as being “natural.” But, Prop 37 also exempts several industries that use GMOs, including dairy, meat, and alcohol. Foods served in an “immediate consumption” setting (like a restaurant) aren’t held to the standard under Prop 37, nor are processed foods that contain genetically modified ingredients which account for “one-half of one percent of the total weight of such processed food.”
While the issue has become a heated statewide health and economic debate, the future of Proposition 37 could have a significant financial implication to investors, and the bioscience, agricultural, and foods industry. In fact, it’s already cost millions of dollars. Who’s for it?
As of early October, Illinois-based author, alternative medicine advocate, and osteopath Dr. Joseph Mercola was the top financial supporter of Proposition 37, putting forth more than $1 million to fund the bill’s efforts to a “Yes” vote. The second top supporter is the Organic Consumers Fund (which donated $770,000), followed by Nature’s Path, a family-owned brand that is sold on the shelves of major retailers like Kroger
(NYSE:KR) and Whole Foods
(NASDAQ:WFM). Simply put, supporters of Proposition 37 believe that consumers deserve to know what’s in the food they buy. It’s worth noting that the idea isn’t breaking new ground in most other parts of the world. More than 50 countries have such labeling standards, including many parts of Europe, Japan, China, and India.
Who is against it?
Even if you’ve never heard of Prop 37, the issue may have already impacted your investments. Top Proposition 37 opposition donor and agriculture biotechnology giant Monsanto
(NYSE:MON) has sunk more than $7 million into preventing the effort, as of early October; E.I. Dupont De Nemours & Co.
(NYSE:DD) has invested $4.9 million against the effort. Bayer CropScience
(NSE:BAYERCROP) and BASF Plant Science have each donated $2 million in the hopes of generating a “no” in November. Other familiar names putting money toward thwarting Prop 37 include Coca-Cola
(PINK:NSRGY), General Mills
(NYSE:GIS) and Kellogg
(NYSE:K). Most Prop 37 opponents say their stance isn’t about not wanting to label genetically modified foods, but rather, concern with the ambiguity around regulations and enforcement, and lack of industry balance that the detail behind Proposition 37 includes. For example, some Prop 37 opponents maintain mandatory GMO labels will decrease demand for GMOs, and subsequently increase the cost of products that include genetically modified ingredients, thereby actually limiting consumer choice -- not creating more transparency. Ultimately, Prop 37 opponents say labeling will raise costs throughout the food supply, and that those costs will trickle down to consumers. Further, because organic foods are excluded from Proposition 37, opponents argue that cross-contamination would be a non-issue to those farmers and producers, but could be gravely expensive to manufacturers using GMOs. As mentioned, GMO labeling has been a common practice in several other countries for more than a decade. According to a study published in The Journal of Agrobiotechnology Management & Economics
, the impact of GMO labeling in those areas has not been more consumer awareness, but rather, less supply. Referencing Japan and other European countries, the study says that "it is difficult (if not impossible) to find retail food products labeled as containing GM ingredients." It goes on to say that "mandatory labeling also exists in Australia and New Zealand, where there is not much choice at the retail level."
Costs to California and consumers.
According to documents prepared by the California Legislative Analyst's Office, the state of California could see an increase in costs ranging anywhere from a few hundred thousand dollars to over a million, to regulate the labeling process and invest in any possible litigation from manufacturers failing to comply with the new regulation. Opponents also say that consumers will ultimately foot the bill for the new labeling standards if the bill does pass. One recent “vote no” Prop 37 marketing piece estimated that consumers could stand to pay $400 more in groceries a year with the bill’s passing, as food manufacturers, farmers, and grocers will ultimately pass the costs of labeling regulations onto consumers. According to The Organic & Non-GMO
report, however, those calculations were flawed. It cites results by William Jaeger, professor of agricultural and resource economics at Oregon State University, who analyzed a similar study conducted by the National Economic Research Associates (NERA) in the United Kingdom. Those results also indicated that consumer costs would be impacted by government-mandated GMO labels, too—but by $4 a year, not $400. Further, much of the cost impact of GMOs rests in what and who you believe when it comes to the role GMOs really do play in our national health epidemics and in disease treatment.
Whether it passes or fails, Proposition 37 is likely a sign of major changes on the horizon, and the profitability of the mega industries it impacts.
No positions in stocks mentioned.
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