Should a federal agency issue regulations that would impose up to $3.5 billion in costs next year and billions in the coming decade while essentially delivering no benefits?

This sounds crazy, right?

Well, a few weeks ago, the U.S. Department of Agriculture (USDA) proposed to pretty much do that.

The proposal is the by-product of the long-standing national debate over the necessity for labeled bioengineered foods, or genetically modified organisms (GMOs).

The USDA’s analysis of the costs and benefits deserves careful attention. And that’s true even if it raises some serious questions about its own proposal.

In the summer of 2016, Congress required the USDA to impose such labels.

Last month, the department responded by inviting public comments on the rule, called the proposed National Bioengineered Food Disclosure Standard.

And the department was candid about the high costs of its proposal…

In the first year alone, companies would have to spend somewhere between $600 million and $3.5 billion in compliance costs. After the initial period of learning and adjustment, the annual costs would range from $132 million to $330 million.

Now, in the history of federal regulation, that might not qualify as monstrously expensive, but it would still be a lot.

And more importantly, what would the American people on either side of the argument get in return?

The department notes that there’s no evidence that bioengineered foods cause health risks.

So, for that reason, its disclosure standard “is not intended to convey safety or health information.” And it added that the rule “is not expected to have any benefits to human health or the environment.”

But that wasn’t the end of the story…

The USDA noted that many consumers have still indicated an interest in the information. And in some surveys, some have said they would pay to get their hands on it.

But the USDA doesn’t trust those studies and their findings. And that’s because people’s answers may overstate their actual levels of concern.

And people might only want to know whether or not their food is genetically modified because they falsely believe it’s unhealthy for them.

If so, regulators should correct their mistakes rather than cater to them.

At the same time, the USDA was aware that if the federal government did nothing, manufacturers might face a costly system of state-level labeling requirements.

In 2014, Vermont enacted a mandatory labeling legislation. In fact, that enactment provided the momentum for the federal legislation. This preempted state requirements. And it attracted the support from manufacturers that favored federal uniformity and less aggressive labeling standards.

The upshot of the USDA’s analysis is that if all manufacturers acted with Vermont’s approach as the de facto national standard, they would face higher costs than the federal proposal. And those costs would fall somewhere between $1.9 billion and $6.8 billion within the first year alone.

To that extent, the national standard would have benefits in the form of saving costs. The department also noted that without the federal standard, various states might mandate labels, and we’d be back at square one.

In short, the federal disclosure standard will benefit no one!

For sure, the USDA could have tried to quantify benefits by referring to studies that show consumers would be willing to pay for the labels.

But some analysts suggest that in the face of incompletely understood risks of catastrophe, it makes sense to take precaution. And some people who fear environmental risks believe that bioengineered foods fall into that category.

It might have been productive for the department to engage on those points.

But it’s clear that even if it had done so, it would have been reluctant to conclude that its proposal made much sense, even though it was mandated by law.

Skeptics might expect a federal agency in the Trump administration to highlight evidence against any new regulations. But the USDA’s analysis is consistent with the scientific consensus.

Despite everything, it’s clear that no government, neither federal nor state, should mandate labels for bioengineered foods.

That’s all for now.

Until next time,

John Peterson
Pro Trader Today