World Markets & GMO Grain7/10/02

• By Dr. Robert Wisner• University Professor of Economics• Iowa State University

GMO World Marketing Issues• Issue is not “Are GMO Crops Safe?”

• Real Issue: “What do our customers think of GMO food? Do they want it?”

• In most industries, the consumer determines what is produced

• GMO vs. Transgenic

Background of Foreign Consumer Food Concerns

• BSE in Europe & Japan• FMD in Europe, Japan, China,

Korea, Taiwan, other areas• Chemical contamination of feed• Mistrust of government regulatory

agencies + science as evolving• Movement to Iso9000 & food

traceability

New GMO Developments

• On 7/3/02: EU Parliament (1st. Reading) tightens GMO labeling standard to 0.5% (vs. current 1.0% tolerance)

• 7/1/02:Japan’s Ministry of Agriculture, Forestry, and Fisheries (MAFF) plans compulsory testing of GMO livestock feeds, effective 4/1/03. (Japan Agrinfo Newsletter, vol. 19. No. 11, July 2002

New GMO Developments, II• U. of Georgia study: GMO canola ----

neighboring fields (63 of them) up to 1.8 miles away

• Herbicide resistance spread to 63 % of fields• Percent of GMO in crop fields subject to drift:

0.2% to .03%• Conclusion: Not significant, no cause for

concern?

• 7/1/02:Japan’s Ministry of Agriculture, Forestry, and Fisheries (MAFF) plans compulsory testing of GMO livestock feeds, effective 4/1/03.

New GMO Developments, III

Australia study published in Science: • GMO canola cross pollinates up to

1.86 miles away • Amount of cross pollination did not

appear to diminish over this distance

• Max. distance for isolation not known (pharmaceuticals concern)

• Science, Vol. 296, p. 2386. American Academy for Adv. Of Sci.

New GMO Developments, III

• Senior VP., General Mills: • Food Mfgrs. receive no marketing

advantage from GMOs.

• Instead, food makers have had to deal with one controversy after another surrounding genetically engineered corn and soybeans.

• Des Moines Register, 6/30/02

Non Labeling

Areas of Foreign concern• U.S. regulatory procedures:

Industry, not govt.. develops the test data. Regulated/regulator relationship

• Lack of long-term health & environmental safety studies

• Insertion of foreign gene: create toxins or other unexpected results?

• Liability--if something goes wrong• StarLink® example

Areas of foreign concern• Herbicide-resistant weeds • Insect resistance to Bt crops • Impact on beneficial insects &

species that feed on them• Widely used antibiotic-resistant

marker gene• Highly concentrated global seed

industry• Concept of traceability in food

* Not enforced, but will be with EU assention* Not enforced, but will be with EU entry

Countries With GMO Labeling• U.K. Ireland France• Belgium Netherlands Luxembourg• Denmark Sweden Poland*• Germany Austria Italy• Greece Spain Czch Rep.• Portugal Finland Japan• Saudi Arabia. S. Korea Australia N.Zealand

*Not enforced, but will be with EU entry

6/20/02

Future GMO Labeling

• 13 future EU entrants

• Philippines

• New Zealand

• Thailand

• Malaysia (Jan. 1, 2003)• Taiwan (Jan. 1, 2003) Expected total 40

Potential New EU Entrants

• Poland Hungary Czech Republic Slovakia Cyprus Bulgaria Turkey Romania Latvia Lithuania Estonia Bulgaria

• Poland

All will be required to adopt EU laws

EU GMO Developments• De facto moratorium on new GMO

varieties• All member nations + EU govt.

must approve new GMOs • Reason: goods can be freely

shipped within EU• EU approval of new GMO crops

highly uncertain

EU GMO Developments• Major food chains label GMOs, use

non-GMO for store brands + other brands (Products directly from grain)

• Some offer non-GMO livestock products

• Tolerances: 1% on food, 0.5% on self-pollinating seed, 0.3% on cross pollinating seed

• Feed ingredient labeling proposed

EU Bans

Unapproved GMOs

U.S. Corn Exports To South Korea

0

50

100

150

200

250

300

350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Mil.

Bu

.

Processors go non-GMO

China GMO Developments• Two agencies involved. Ministry of

Health: processed grain products

• Ministry of Agriculture: raw grain

• Tolerance for GMO labeling: zero• China a competitor with non-GMO

corn. Is doing research on GMO food crops

• Halted imports of U.S. soybeans for approx.. 3 months

World Production of GMO Crops

• Current GMO Crops: corn, soybeans, cotton, potatoes, canola, tomatoes, Sugar Beets, tobacco

• Over 90% of World Production est. to be in: --U.S. -- Canada -- Argentina

GMO Crops, ContinuedCountries with restrictions on GMO

planting:–Brazil–EU–China--food crops (but may change)–Slovenia–Ukraine–Yugoslavia–Switzerland• Australia: currently GMO free• New Zealand: to Oct. 2003

International Biosafety Protocol Treaty, Sec. 2

4. Nothing in this Protocol shall be interpreted as restricting the right of a Party to take action that is more protective of the conservation and sustainable use of biological diversity than that called for in this Protocol, provided that such action is consistent with the objective and the provisions of this Protocol and is in accordance with its other obligations under international law..

Global Biosafety Protocol Treaty

• Requires permission from importing country before GMOs can be exported to it.

• Precautionary: Countries may ban GMO imports for safety & environmental reasons, without complete certainty of risk

Unanticipated GMO Consequences

• StarLinktm ---FDA Approved for feed but not food or export: Channeling approach failed

--Cross pollination problems

--Processing plants closed down

--12 or more lawsuits

--U.S. corn exports to Japan down, Sorghum up

• Swine Conception Problems ---source uncertain,

alleged GMO or StarLinktm corn

Unanticipated Consequences, Cont.

• Soybean gene fragment --- reported to be non-harmful

• Cancer resistance from GMO Tomato, at Purdue Univ..---A positive development

Recap of StarLink tm Developments

• StarLink tm or Cry9C: A stacked trait withherbicide & insect resistance

• Was grown in 1999 & 2000• Approved for domes. feed & non-food

industrial use only, by EPA• Has risk of possible allergenic

reactions• Carryover stocks are co-mingled• Taken off seed market for 2001

StarLinktm Developments, Cont.

• Discovered in Taco shells in lateSept. 2000

• Over 22 retail chains recalledtaco shells, several cereal, taco,and corn milling plants wereshut down (Large Cost)

• Japan: Illegal to use StarLink infood or feed, has jail penalties

• Seed supplies contaminated, recalled

Instructions to haveaccompanied sales of StarLink tm

• Max. population 40,000/A.

• Buffer distance 660 feet to protect against crosspollenation. Corn in buffer area not approved forfood or export

• Structured refuge of at least 20% of Starlinkacres of non-Bt corn required

• Instructions for seed disposal

• Original plan: targeting seed sales to livestockareas

StarLinktm--Crisis in the Corn Market? Jan. 2001

• U.S. Corn Exports and outstanding expt. Sales by country:–Japan -16%–South Korea -62%–Taiwan -4%–W. Hemisphere -0.4%–All destinations -12%–Pre-StarLink Proj. +12-17%

StarLinktm--Crisis in the Corn Market? 2000-01 Mkt. yr.

• U.S. Corn Exports and outstanding expt. Sales by country:–Japan -8.0%–South Korea +1.7%–Taiwan +0.001%–W. Hemisphere +12.9%–All destinations -2.1%–Pre-StarLink Proj. +12-17%

StarLinktm--Crisis in the CornMarket? 2001-02 Myr.• U.S. Corn Exports and outstanding

expt. Sales by country (6/23/02):–Japan -1.5% --Sorghum +41.2% (Non-GMO)

–South Korea -50.2%–Taiwan -8.7%–W. Hemisphere +6.7%–All destinations +1.5%

StarLinktm: Elevator Impacts• Added costs of testing, segregating• Lenders unwilling to finance full value of No. 2

inventory• Could not sell to food processors• Jan. 2001 example, N. Iowa if rejected @ ADM,

next market is feed exports– Non-StarLink bid to elevator$.36 under March–StarLink bid: $.50 under if open river can be found– Earlier, poultry mkt. in Arkansas was ok, but

became saturated–Local feed mill: best outlet if enough demand

– Source: Dr. Marty McVey , Agri -Industries, Des Moines, IA1/12/01

Corn Refiners Assoc . Release 10/9/00• Ethanol is produced by CRA members concurrent

with & in same facilities with food production

• Directing StarLink tm to their facilities violatesU.S. govt . registration for the product

• Also, gluten feed goes to export markets

• Limited no. of dry-milling plants may be able to useStarLink tm for ethanol, where by-products are usedonly for feed

• Expect similar policy for root-worm resist. corn

Starlink, Cont. II

• EPA Panel: Non-EPA scientists,veterinarians, Medical Drs., Ag. Engr.,Ag. Economist

• Panel recommended Starlink not beused for food

• Protein was found in blood stream ofNorway rats, with immunologic response

• Medical panelists believed some hadexperienced allergenic reactions

Industry/USDA Efforts to Deal Withthe Problem

• Work with producers, Aventis , elevators toisolate supplies

• Food export certification program

• Feed export certification program

• Sampling problem: Japan & Korea foundStarlink

• Contamination low on avg . : fraction of a %

• Three-year problem

Companies with Starlink seed in 2000• AgriBio Tech, Inc.• AgriPro Seeds, Inc.• Bo-Jac Seed Company• Cenex/Croplan Genetics• Curry Seed Co.• Fred Gutwein & Sons, Inc.• Garst• Hoegemeyer Hybrids, Inc.• Legend Seeds, Inc.• NC+ Hybrids• Sieben Hybrids• Source: National Corn Growers Association• 29 hybrids involved

Future Implications• EU-unapproved varieties: another

StarLink tm waiting to happen?• ADM and Staley caution farmers: plant

only varieties approved world/wide• 1/12/01 Illinois Dept. of Ag. requests seed

companies not to sell EU unapprovedvarieties in Ill.

• At stake: the EU gluten mkt . (About 60%of output)

• Some companies plan to target sales only toapproved mkts. (Similar strategy toStarLink )

Other GMO Developments• Pharmaceutical GMO corn

--Small amount grown in Iowa

--High risk if cross pollinated or co-mingled

• Root-worm resistant corn--some varieties are stacked--Japan & U.S. regulatory approval given

--EU not approved

--Requires “Channeling”

Channeling Conclusions• Some segregation is being done• Farmers will segregate more with price incentive• Process is major challenge for elevators at

harvest• Some elevators may require new investments• Volume is critical: low volume=high cost• Dependable markets are critical• Segregation will be done in the future, in E. Corn Belt-- but low tolerances make it difficult

Summary of Risks with GMO Hard Red Spring & Durum

Wheat

• Primary risk: export markets• About 80% of HRS export market & 2/3 for

Durum has or soon will have GMO labeling: reason = consumer concern

• Possible worst case?: loss of half of export market, cutting price of HRS to feed wheat price (currently about 1/3 lower price), Durum price down about 1/3

Summary of Risks with GMO Hard Red Spring Wheat

• Much uncertainty in foreign mkt. acceptance

• Japanese, Korean govt. approval likely– but doesn’t guarantee consumer approval

• EU approval doubtful

• EU, Far East consumer attitudes not seen quickly changing

• Chinese approval w/o labeling unlikely

Will other states & countries grow GMO wheat?

• Which is greater: Catch-up risk, or risk of consumer rejection & supply system contamination?

• Two Iowa State University reports indicate gains from input-trait GMOs are quickly passed on to seed suppliers (Through Tech fees)

Seed Industry Concentration & GMO Crops

• Greatly increased in last decade. • 6 major biotech firms• Fewer firms expected in future• Terminator gene

--Makes seed sterile, forcing purchases through the biotech companies

• Concern for developing-world farmers (& some in U.S.) who normally raise own seed.

Conclusions- Returns to herbicide tolerant soybeans

and non-tolerant are essentially equal;lower yields, higher seed costs but lowerherbicide and weed management costs

- Returns to Bt corn and non-Bt corn areessentially equal; higher yields but highercosts

- Primary beneficiaries of first generationbiotech crops are the seed companieswith some benefits to the chemicalcompanies

- Producer benefits come in ease ofproduction and ability to cover moreacres, not in increased profits per acre

Dr. Mike Duffy, ISU

Conclusions

• Foreign Wheat Market Risk is Substantial

• Which is Greater Risk: Risk of Market Loss or Risk of Delaying Farmer Gains From GMOs?

• How Big are the Gains?