GMOs, Trade Policy, and Welfarein Rich and Poor Countries

University of Copenhagen, andDanish Institute of Agricultural and Fisheries Economics

Chantal Nielsen Kym Anderson

CEPR, and School of Economics, and Centre for International Economic StudiesUniversity of Adelaide

Genetically modified organisms (GMOs) in agriculture

Proponents argue that GMOs can offer:

Increased ag productivity & higher farm profits Less use of chemicals Better use of natural resources More nutritious foods

Opponents are concerned about:

The environment Food safety Market power Ethics

Genetically modified organisms (GMOs) in agriculture

Rich countries can afford to be critical

Developing countries face a different trade-off between potential risks and the need for productivity increases in food production and lower food prices

Developing countries also need to consider how GMO policy actions may affect:

- market access

- world market prices

- global food demand

Three types of technical barrier to trade:

1) Import bans

2) Technical standards

3) Information remedies

Standards concerning GMOs have not yet been established … but there is a possibility of import bans and a demand for labels, which is leading to:

National GMO regulations

International trade agreements

National GMO regulations:

European Union:

De facto moratorium since June 1999 Labelling required on all GMO-inclusive foods

United States:

Flexible permit procedure Labelling of GMOs is generally not required

Others are also beginning to regulate GMOs, with some (e.g. Sri Lanka) already banning their importation

International trade agreements:

(i) The Cartagena Protocol on Biosafety

Objective: Ensure safe transboundary movement of GMOs

Allows govt’s to decide whether or not to accept GMO imports and under what conditions

Lack of scientific evidence shall not prevent a country in taking action

“May contain GMOs” label on primary products

International trade agreements:

(ii) The WTO The WTO also acknowledges the rights of a country to protect its environment and to ensure food safety and information for consumers.

But there are rules on how such trade-relatedmeasures may be used to achieve these goals.

International trade agreements:

Potential conflict between Protocol and WTO rules,particularly concerning:

WTO’s SPS agreement requires scientific evidence

The product/process distinction: ‘like products’

Empirical analysis

Two regulatory response scenarios1. Western Europe imposes a ban on GM

imports as permitted in the Biosafety Protocol

2. The WTO rules against the import ban, but allows the labels as defined in the Protocol

Quantify the effects of GMO adoption by some producers, and regulations on production, trade and welfare in other countries

Modelling framework

Standard global economy-wide CGE model

Vertical and horizontal linkages, bilateral trade

GTAP database: 17 sectors and 16 regions

Representation of GMO technology:

+5 % TFP shock for maize and soybean in North America, Mexico, Southern Cone of LA, India, China, Rest of East Asia and South Africa

All other regions do not adopt GM crops

1. WEU import ban scenario

Imports of maize and soybeans banned from GM-regions

Protocol label enables identification of GMOs Labelling costs are assumed to be negligible

2. Protocol label scenario “May contain GMOs” label is perceived as

uninformative Partial shift in WEU preferences away from

imports and in favour of domestic products WEU producers signal non-GMO status

through “country of origin” labels

Selected results of WEU ban and Protocol label scenariosPercentage change from base with no GMO regulations

Adopters Non-adopters North

America China India Western

Europe Sub-

Saharan Africa

Ban Ban Ban Ban Ban Production Cereal grains -1.2 -0.2 0.0 10.3 0.1 Oilseeds -13.3 -2.6 -0.3 87.4 5.8 Livestock 0.4 0.1 0.0 -0.6 0.1 Meat & dairy 0.3 0.1 0.1 -0.4 0.1 Veg.oils,fats 1.3 0.2 0.1 -2.5 1.2 Other foods 0.1 0.1 0.1 -0.4 -0.1 Exports* Cereal grains -7.6 -10.1 -10.1 31.0 8.6 Oilseeds -34.4 -24.6 -24.9 236.1 178.9 Livestock 4.4 2.0 2.9 -2.7 -0.3 Meat & dairy 2.6 1.0 1.2 -0.9 0.5 Veg.oils,fats 8.1 1.3 5.3 -10.6 11.7 Other foods 1.3 0.4 0.4 -0.8 -0.7

* Includes intra-regional trade

Adopters Non-adopters North

America China India Western

Europe Sub-

Saharan Africa

Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Production Cereal grains -1.2 -0.3 -0.2 0.0 0.0 0.0 10.3 2.6 0.1 -0.3 Oilseeds -13.3 -2.5 -2.6 -0.7 -0.3 -0.1 87.4 22.4 5.8 -0.3 Livestock 0.4 0.1 0.1 0.1 0.0 0.0 -0.6 -0.2 0.1 0.0 Meat & dairy 0.3 0.1 0.1 0.0 0.1 0.0 -0.4 -0.1 0.1 0.1 Veg.oils,fats 1.3 0.1 0.2 0.0 0.1 0.0 -2.5 -0.2 1.2 0.0 Other foods 0.1 0.0 0.1 0.0 0.1 0.0 -0.4 -0.1 -0.1 0.1 Exports* Cereal grains -7.6 -1.8 -10.1 -2.5 -10.1 -2.3 31.0 -20.6 8.6 -5.1 Oilseeds -34.4 -6.5 -24.6 -5.6 -24.9 -6.1 236.1 -26.4 178.9 -8.0 Livestock 4.4 0.8 2.0 0.3 2.9 0.5 -2.7 -0.7 -0.3 0.3 Meat & dairy 2.6 0.5 1.0 0.1 1.2 0.2 -0.9 -0.2 0.5 0.3 Veg.oils,fats 8.1 0.9 1.3 -0.1 5.3 -0.2 -10.6 -0.9 11.7 0.4 Other foods 1.3 0.2 0.4 0.1 0.4 0.0 -0.8 -0.1 -0.7 0.0

* Includes intra-regional trade

Selected results of WEU ban and Protocol label scenariosPercentage change from base with no GMO regulations

Selected results of WEU ban and Protocol label scenarios

Welfare changes and their decomposition (per year)

Adopters Non-adoptersNorth

AmericaChina India Western

EuropeSub-Saharan

AfricaBan Ban Ban Ban Ban

Welfare Million USD 2299 804 1277 -4334 42 - of whichAllocativeefficiency 27 74 109 -4601 5Terms of trade -1372 70 -3 257 38Technicalchange 3641 669 1092 0 0Othereffects 3 -9 79 10 -1

Adopters Non-adopters North

America China India Western

Europe Sub-Saharan

Africa Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Welfare Million USD 2299 2554 804 834 1277 1267 -4334 715 42 -5 - of which Allocative efficiency 27 -100 74 106 109 184 -4601 393 5 0 Terms of trade -1372 -1092 70 69 -3 -9 257 319 38 -7 Technical change 3641 3726 669 672 1092 1093 0 0 0 0 Other effects 3 20 -9 -13 79 -1 10 3 -1 2

Selected results of WEU ban and Protocol label scenarios

Welfare changes and their decomposition (per year)

Adopters Non-adopters North

America China India Western

Europe Sub-Saharan

Africa Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Welfare Million USD 2299 2554 804 834 1277 1267 -4334 715 42 -5 - of which Allocative efficiency 27 -100 74 106 109 184 -4601 393 5 0 Terms of trade -1372 -1092 70 69 -3 -9 257 319 38 -7 Technical change 3641 3726 669 672 1092 1093 0 0 0 0 Other effects 3 20 -9 -13 79 -1 10 3 -1 2

Selected results of WEU ban and Protocol label scenarios

Welfare changes and their decomposition (per year)

Global welfare changes:Base with no GMO regulations: 9.9 billion USDWEU import ban scenario: 3.4 billion USDProtocol label scenario: 8.5 billion USD

Selected results of WEU ban and Protocol label scenarios

Welfare changes and their decomposition (per year)

What do these results indicate about the effect of GMO regulations on production, trade & welfare

1. Almost all countries gain from selected countries adopting GMO technology if there

are no GMO trade regulations But this is so for different reasons, depending on

- whether or not GMO crops are produced nationally

- nation’s net-exporter status in the particular crop

- initial price distortionary policies

3. A market-based solution is far better for both adopters and WEU

- but other non-adopting regions lose in terms of a relative productivity decline

and increased competition on international markets

2. WEU import ban is very costly for WEU itself - and production in adopting countries might fall in spite of positive TFP shock, depending on importance to them of WEU and other export markets

- non-adopters gain market shares in WEU

Future analytical work on the economics of GMOs

1. Need to fine-tune empirical evidence of productivity impact of GM technology

2. Consumer reactions to regulations, or lack thereof, depend on how well the regulations meet national policy objectives

3. Split the model’s national production and marketing systems into GMO and non-GMO products