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Date:

July 26, 2000

Subject:

Economic Impacts of Genetically Modified Crops on the Agri-Food Sector

 

AgBioView - http://www.agbioworld.org, http://agbioview.listbot.com

Date: Wed, 26 Jul 2000 18:17:30 +0200
From: Klaus Ammann
Subject: Debate 2000'0726 a: Economic Impacts of Genetically Modified Crops on
the Agri-Food Sector, closing date for documentation: March 31,
2000 European Union: Directorate-General for Agriculture The first
Genetically Modified (GM) crops were introduced onto the market in the
mid-nineties. Since then, quick but uneven developments have occurred from
one continent or group of countries to another. This report analysis the
extent of and the main reasons for these fast and uneven developments,
with special emphasis on underlying economic issues which are of direct
interest for the agri-food sector. A review of the available literature helped
to answer three main questions: How fast and to what extent have sowings of
GM crops developed? Which crops are concerned? Which economic reasons
explain the rapid adoption of GM crops by farmers? Which are the consequences
of citizen/consumer reactions and food suppliers' initiatives? The analysis
follows the path of the food chain, from the supply side up to final demand
(see figure). This approach takes into account the chronology of developments
regarding agri-biotechnology, but it also allows for analysing driving forces
and interactions between the main stakeholders all along the food chain.

=======
Dear Friends,

this is a very useful document from the EU, thanks to Oliver Rautenberg
(orautenberg@biolinx.de) for communicating this source.

Klaus

For the full text go to:

http://europa.eu.int/comm/dg06/publi/gmo/cover.htm

see there some useful images, click with right mouse button and safe single
images in .gif and .ipg formats.
+++++++++++++++++++++++++++++++++++++++++++++

ECONOMIC IMPACTS OF GENETICALLY MODIFIED CROPS
ON THE AGRI-FOOD SECTOR

The first Genetically Modified (GM) crops were introduced onto the market in
the mid-nineties. Since then, quick but uneven developments have occurred
from one continent or group of countries to another. This report analysis
the extent of and the main reasons for these fast and uneven developments,
with special emphasis on underlying economic issues which are of direct
interest for the agri-food sector. A review of the available literature
helped to answer three main questions:

How fast and to what extent have sowings of GM crops developed? Which crops
are concerned? Which economic reasons explain the rapid adoption of
GM crops by farmers?
Which are the consequences of citizen/consumer reactions and food suppliers'
initiatives?

The analysis follows the path of the food chain, from the supply side up to
final demand (see figure). This approach takes into account the chronology
of developments regarding agri-biotechnology, but it also allows for
analysing driving forces and interactions between the main stakeholders all
along the food chain.

The supply-oriented approach of both biotech companies and farmers has been
quickly confronted with reactions stemming from the downstream side of the
food chain. Citizen and consumer concerns on biotechnology have been echoed
and amplified by NGOs and retailers, in particular in Europe. Their
reactions provoked a cascading effect back to the upstream side of the food
chain. Several initiatives to segregate GM and non-GM crops and to introduce
Identity Preservation all along the food chain developed.

The first chapter provides a global picture of areas sown to GM crops
throughout the world. The first significant commercial sowings of GM crops
(2.6 Mio ha) took place in 1996, almost exclusively in the US. Since 1996,
the areas have rapidly expanded to reach 41.5 Mio hectares in 1999. GM crops
are mainly grown on the American continent: the USA accounts for 70% of
worldwide sowings of GM crops, Argentina for 14% and Canada for 9%. Of the
41.5 Mio ha sown in 1999, 53% were soybeans, 27% corn, 9% cotton, 8%
rapeseed and 0.1% potatoes. These crops have been genetically modified to be
more resistant to pests or/and tolerant to herbicides.

Starting from the upstream side of agriculture, chapter 2 considers the the
"life sciences industries", which are active in human, animal and plant
health. Their experience in pharmaceutical biotechnology and their crop
protection activities allowed them to implement and to amplify biotechnology
for agricultural purposes. The life science sector is undergoing a rapid
consolidation process. In this context, the development of biotechnology has
increased concentration on the upstream side of agriculture. Biotech
companies are not only leaders in crop protection, but most of them also
hold key positions on the seed market. Farmers adopting biotechnology are
confronted with a certain number of constraints: GM seeds are sold and grown
under contract, they are more expensive than conventional ones, seed-saving
is forbidden. As a result of increased concentration and constraints,
farmers depend more and more on a limited number of input suppliers for crop
production.

Farmers in Northern America and in Argentina have quickly and massively
adopted GM crops. Does this mean that farm-level benefits of biotechnology
outweigh the above-mentioned constraints? Chapter 3 analyses the economic
reasons for the rapid and vast uptake of GM crops by US farmers. They had
strong profitability expectations. However, the studies reviewed do not
provide conclusive evidence on the farm-level profitability of GM crops.
Other factors have played a significant role. In practice, the most
immediate and tangible ground for satisfaction appears to be the combined
effect of performance and convenience of GM crops, in particular for
herbicide tolerant varieties. These crops allow for a greater flexibility in
growing practices and in given cases, for reduced or more flexible labour
requirements. This convenience effect should translate into increased labour
productivity and savings in crop-specific labour costs. However, this effect
is not always properly assessed in profitability studies. It rather
translates in terms of attractiveness of GM crops for efficiency purposes.
For insect resistant crops like Bt corn, yield losses are more limited than
for conventional corn, however the cost-efficiency of Bt corn depends on a
number of factors, in particular growing conditions.

Profitability of GM crops should be analysed within a long-term timeframe.
First, there are important yearly fluctuations in yields and prices, and it
is difficult to isolate the possible effects of biotechnology. Second,
developments on the supply and on the demand side of the food chain have to
be considered together. While more and more farmers were adopting biotech
crops in the US, in Argentina and in Canada, concerns about GM food were
intensifying on the demand side, in particular in countries which are
importing GM crops.

Chapter 4 provides an overview of differences in citizen concerns and
consumer preferences between the EU and Northern America. These differences
had direct consequences on the strategy of retailers. European retailers
have moved first to meet and further shape the demand for non-GM food, in
contrast with the "wait-and-see" approach adopted by the bulk of North
American retailers. The restrictive stance of EU consumers and retailers has
cascading effects back to the upstream side of the food chain, both on
domestic and on foreign markets.

In the EU, a prominent strategy of food processors is currently to avoid or
to restrict GM food. In the US and in Canada, some grain traders and
processors have started segregating GM and non-GM crops in order to meet the
differentiated export -or even domestic- demand. Identity Preservation (IP)
and traceability are concepts, which go beyond segregation and allow for
keeping track of the origin and the nature of crops. The economic
implications of Identity Preservation and of GM labelling are analysed in
Chapter 5. In general, losses in economic welfare have to be expected
because the potential for trade and specialisation will remain partially
unused. Following EU legislation three different approaches to IP have been
identified in the GMO context: voluntary IP of specific GM traits, voluntary
IP of GMO-free products and compulsory IP for GM products (traceability).

Identity Preservation is a move away from commodity trade and it implies
additional cost at all stages of the food chain. According to the literature
available they range between 5 and 25 */t, depending on the product and the
IP system, which represents 6 - 17% of the farmgate price of the different
crops. A critical factor to determine the cost - among others - will be the
tolerance level for contamination. The distribution of these additional
costs along the food chain depends on a number of factors, in particular the
price responsiveness, the availability of substitutes and the market
structure. The short-term development of prices on differentiated markets
for GM and non-GM products will depend on the size of supply and demand,
opportunities for substitution are more limited for non-GM products than for
GM-products. Currently farmers may receive a premium for non-GMO soybeans
and corn.

Soybeans and corn are widely traded commodities. Countries where GM
varieties are grown are leading exporters. Conversely, main importers of
soybeans, corn and associated products have adopted a restrictive stance on
GM food. If a restrictive stance is also adopted for feed uses of GM
soybeans and corn, the market implications can be significant.

While being limited to economic issues which are of direct interest for the
agri-food sector, this report does not address other important issues. The
reasons explaining the uneven developments of plant biotechnology throughout
the world are not only of an economic nature and the implications of this
new technology go well beyond the agri-food sector.