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How GMO Foods and California's Prop 37 Could Affect Your Portfolio's Health

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If companies are required to add new labels to grocery products, someone will have to pay for the change. Health advocates say the requirement is worth it.

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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 (NYSE:KO), PepsiCo (NYSE:PEP), NestleCo (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.

Twitter: @WellnessOnLess
No positions in stocks mentioned.
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