Estimating the Market Effect of a Food Scare: The Case of Genetically Modified StarLink Corn

Abstract

-Genetic modification of crops has revolutionized food production, but it remains controversial due to food safety and environmental concerns. A recent food safety scare provides a natural experiment on the corn market's willingness to accept unapproved genetically modified organisms. In 2000, a genetically modified corn variety called StarLink was discovered in the food-corn supply, even though it was not approved for human consumption. To estimate the price impact of this event, we develop the relative price of a substitute method, which applies not only to the StarLink event but also to rare events in other markets. We apply this method to measure the price impact of the StarLink contamination on the U.S. corn market. We find that the contamination led to a 7 percent suppression of corn prices that lasted for at least a year.JEL Codes: Q11, Q18, C22 2

Trade, GMOs and Environmental Risk: Are Current Policies Likely to Improve Welfare?

“…Still, consumers are very sensitive to negative information related to GMOs. The StarLink case, where the American Environmental Protection Agency only approved a type of GM corn for animal feed that later was discovered in human food, led to several law suits and a one year 7% price reduction in US corn export, is a recent dramatic example, see Carter and Smith (2007). The persistent and even increasing resistance to GM food among Europeans, paired with our results indicates that the current mandatory labeling within EU may be welfare improving.…”

Impact of the Chinese embargo against MIR162 corn on Canadian corn producers

“…As pointed out by Carter and Smith (2007), the first method performs well as long as the event timing is known and there are no other shocks around the time of the event. As pointed out by Carter and Smith (2007), the first method performs well as long as the event timing is known and there are no other shocks around the time of the event.…”

“…It is not used to estimate the direct effect on the price of a commodity (Carter & Smith, 2007). However, this approach is more appropriate when attempting to analyze the impact of an event on stock prices of the companies involved.…”

“…The fourth method utilizes the procedure developed and estimated by Carter and Smith (2007), in which they employed the RPS method to analyze the time series behavior of the relative U.S. price of corn with respect to the price of sorghum. Carter and Smith obtained econometric estimates of a cointegrating relationship between corn and sorghum prices over the decade immediately prior to the StarLink event and then tested for a structural break and stability.…”

Reconstructing market reactions to consumption harms

“…Market responses to attributes (latent or nonlatent) influencing longer or shorter term human health or food safety harms are particularly important to characterize (Carter and Smith, 2007), as understanding consumer reactions plays an important role in mitigating cost of outbreaks and forming long-term government and industry plans. In a span of less than 20 years, the beef industry has faced significant health (e.g.…”