Department of Agricultural and Environmental Economics, K.U.Leuven

Department of Agricultural and Environmental Economics, K.U.LeuvenDepartment of Agricultural and Environmental Economics, K.U.Leuven

GMO’s in Food: Economic Impact on Various Stakeholders in the EU and in

the World

This presentation can be downloaded at http://www.biw.kuleuven.be/aee/clo/wp/euwab.htm

Email: [email protected]

Research Financed by VIB (Flanders Interuniversity Institute for Biotechnology), EU 6th Framework SIGMEA Project and

Monsanto

Matty DemontErik MathijsEric Tollens

Course ‘Social and Ethical Aspects of Biotechnology’, ULB, Brussels, 23 November 2006.

IntroductionIntroduction

GM experience gap US vs. EU EU has chosen the option to wait through the

1998 moratorium and current coexistence regulation process, postponing release

This option has a value and a cost, i.e. potential welfare effects forgone

The trade-off of both needs to be assessed – in order to know the ex post implications of

our decision in the past, i.e. 1998– in order to know the ex ante implications of

future decisions to be taken


Global Case StudiesGlobal Case Studies

EU Case StudiesEU Case Studies

MethodologyMethodology

DataData

ResultsResults

DiscussionDiscussion

IntroductionIntroductionSystemic Approach is Needed:Systemic Approach is Needed:





DataData

ResultsResults


GOVERNMENTGOVERNMENT

FARMERSFARMERS

MARKETING SYSTEMMARKETING SYSTEM

CONSUMERSCONSUMERS

Research Expenditures Regulatory ApprovalIPR Legislation

Labelling Policy Trade Regulation

ENVIRONMENTENVIRONMENT

ACTIVISTS, LOBBY GROUPS, MEDIA


INPUT SUPPLIERSINPUT SUPPLIERS

biotechnology seeds, pesticides, ...

technology fee, contract

GMO crops or GMO fed livestock productscontract

marketing GM products

environmental benefits and risks

Downstream

Upstream


Most of the recent agbiotech innovations have been developed by private sector (upstream)

Therefore, the central focus of societal interest is not on the ROR of R&D, but on distribution of benefits among stakeholders in the technology diffusion chain

But what are the « benefits » and « costs »?





DataData

ResultsResults


IntroductionIntroduction4 Quadrants of Research in B/C Analyses:4 Quadrants of Research in B/C Analyses:

Scope

Reversibility

Private

Social

Reversible

Quadrant 1

Private Reversible Benefits (PRB) Private Reversible Costs (PRC)

Net Private Reversible Benefits (W): W = PRB-PRC

EUWABSIM (Demont and Tollens, 2003)

Quadrant 2

Social Reversible Benefits (SRB)

Social Reversible Costs (SRC)

Irreversible

Quadrant 3

Private Irreversible Benefits (PIB)

Private Irreversible Costs (PIC)

Quadrant 4

Social Irreversible Benefits (R)

Social Irreversible Costs (I)

• gene flow, outcrossing and weediness

• development of resistance (insects, weeds)

• decline biodiversity (less varieties)

• impacts on non-target species (lepidopteran, birds,

wildlife, …)

• health benefits (Bt

crops)• fixed cost

engendered by e.g. identity preservation

system on the farm

• ethical cons, perception of

non-sustainable and non

environment-friendly

agriculture

• decline of

environmental

externalities due to

less pesticide

use

• ethical pros, perception of

sustainable and environment-friendly

agriculture• less damage on honey bees due to less pesticide use

• increase biodiversity in field (herbicide tolerant

beet)

• yield increase• pest control cost decline

• labour savings• non-pecuniary benefits like management savings

and ease of use• market effects like price

declines and consumer surplus

• technology fee• other variable costs associated

with the introduction of

GM crops (irrigation)

• market effects like price declines


EUWAB-project (European Union Welfare effects of Agricultural Biotechnology): 1999-2005

Pre-coexistence What have we learned so far from ex post and ex

ante agbiotech impact assessments in the EU?





DataData

ResultsResults







DataData

ResultsResults


Table 1: Global welfare distribution of the first generation of transgenic crops Country Crop Year Adoption Welfare Welfare distribution

(%) (m$) Domestic farmers

Innovators Domestic consumers

Net ROW

USA Bt cotton 1996 14% 134 43% 47% 6% 4% USA Bt cotton 1996 14% 240 59% 26% 9% 6% USA Bt cotton 1997 20% 190 43% 44% 7% 6% USA Bt cotton 1998 27% 213 46% 43% 7% 4% USAa Bt cotton 1996-98 20% 151 22% 46% 14% 18% USAb Bt cotton 1997 20% 213 29% 35% 14% 22% USAc Bt cotton 1997 20% 301 39% 25% 17% 19% USA HT cotton 1997 11% 232 4% 6% 57% 33% USAd HT soyb. 1997 17% 1,062 76% 10% 4% 9% USAe HT soyb. 1997 17% 437 29% 25% 17% 28% USA HT soyb. 1999 56% 804 19% 45% 10% 26% USA HT soyb. 1997 17% 308 20% 68% 5% 6% Canadaf HT canola 2000 54% 209 19% 67% 14% . Argentina HT soyb. 2001 90% 1,230 25% 34% 0.3% 41% Argentina Bt cotton 2001 5% 0.4 21% 79% . . China Bt cotton 1999 11% 95 83% 17% 0%g . India Bt cotton 2002 7% 6.2 67% 33% 0%g . Mexico Bt cotton 1998 15% 2.8 84% 16% . . South Africah Bt cotton 2000 75% 0.1 58% 42% . . South Africai Bt cotton 2001 80% 1.2 67% 33% 0%g 0%


Farmers capture sizeable gains Size and distribution of welfare effects of the

first generation of GE crops are function of:1. Adoption rate2. Crop3. Biotech trait4. Geographical region5. Year6. National policies and IPR protection7. Assumptions and underlying dataset

On average, domestic farmers and consumers extract 2/3 of the benefits while 1/3 is captured by the seed industry





DataData

ResultsResults


Table 1: Global welfare distribution of the first generation of transgenic crops Country Crop Year Adoption Welfare Welfare distribution

(%) (m$) Domestic farmers

Innovators Domestic consumers

Net ROW

USA Bt cotton 1996 14% 134 43% 47% 6% 4% USA Bt cotton 1996 14% 240 59% 26% 9% 6% USA Bt cotton 1997 20% 190 43% 44% 7% 6% USA Bt cotton 1998 27% 213 46% 43% 7% 4% USAa Bt cotton 1996-98 20% 151 22% 46% 14% 18% USAb Bt cotton 1997 20% 213 29% 35% 14% 22% USAc Bt cotton 1997 20% 301 39% 25% 17% 19% USA HT cotton 1997 11% 232 4% 6% 57% 33% USAd HT soyb. 1997 17% 1,062 76% 10% 4% 9% USAe HT soyb. 1997 17% 437 29% 25% 17% 28% USA HT soyb. 1999 56% 804 19% 45% 10% 26% USA HT soyb. 1997 17% 308 20% 68% 5% 6% Canadaf HT canola 2000 54% 209 19% 67% 14% . Argentina HT soyb. 2001 90% 1,230 25% 34% 0.3% 41% Argentina Bt cotton 2001 5% 0.4 21% 79% . . China Bt cotton 1999 11% 95 83% 17% 0%g . India Bt cotton 2002 7% 6.2 67% 33% 0%g . Mexico Bt cotton 1998 15% 2.8 84% 16% . . South Africah Bt cotton 2000 75% 0.1 58% 42% . . South Africai Bt cotton 2001 80% 1.2 67% 33% 0%g 0%

Upstream

Average = 37%


Hence, benefit sharing seems to follow a general rule of thumb:1/3 upstream vs. 2/3 downstream





DataData

ResultsResults


GOVERNMENTGOVERNMENT

FARMERSFARMERS

MARKETING SYSTEMMARKETING SYSTEM

CONSUMERSCONSUMERS

Research Expenditures Regulatory ApprovalIPR Legislation

Labelling Policy Trade Regulation

ENVIRONMENTENVIRONMENT



INPUT SUPPLIERSINPUT SUPPLIERS

biotechnology seeds, pesticides, ...

technology fee, contract

GMO crops or GMO fed livestock productscontract

marketing GM products

environmental benefits and risks

Downstream

Upstream


This 2:1 rule of thumb seems to be valid for both industrial and developing countries

Typical for large exporting countries: international trade of both the innovation (multinationals) and the commodity international spillover effects possibility of immiserising growth (Bhagwati, 1958)





DataData

ResultsResults



De facto moratorium on GM crops: October 1998 – May 2004 (Syngenta Bt 11 maize)

1998-2002: Adoption stagnated at 25,000 ha Bt maize in Spain, doubled afterwards

2006: 5 Bt maize growing EU Member States: Spain, Portugal, France, Czech Republic, Germany

De facto moratorium implies a cost to society = deadweight cost or benefits foregone of GM crops

But we need a representative EU case study to show this!





DataData

ResultsResults



Preferable conditions of a good EU case study:1. Crop representative for EU agriculture 2. Crop problem representative for EU agriculture3. Important EU export commodity (spillover)4. Acceptance of GM variety realistic5. GM variety near commercialization6. Some impact data available, e.g. field trials

Unlike the US, there is no EU case study which fulfills all of the 6 criteria.

But we have ex post impact evidence from Spain: 20,000 ha (1998) 70,000 ha (2005)(AGPME)





DataData

ResultsResults







DataData

ResultsResults


Table 1: Accordance of selected EU case studies on the impact of GE crops with criteria Crop

Criterion HT sugar beet Bt maize

1. Representativeness of the crop +++ grown in all EU regions

+ grain maize more important in southerly

regions 2. Representativeness of the pest +++

weed control is crucial to profitability

+ corn borers more important in southerly

regions 3. Representativeness of trade +++

EU provides 20% of global trade

– EU-15 and EU-25 are net importers of

maize, only internal EU trade 4. Availability of genetic resources +++

presence of wild relatives, e.g. sea beet

– no wild relatives in Europe,

primary centre of origin is Mexico 5. Realistic acceptance –

main impediments are manufacturers

+++ widely accepted in Spain, entirely used for animal feed, no labelling required

6. Realistic commercialisation ++ registrations are

pending

+++ already commercialised in Spain, France, Germany, Portugal and the Czech Republic

7. Availability of impact data + research capacity has declined since 2001

+ very little data publicly available






DataData

ResultsResults

DiscussionDiscussion 0

10

20

30

40

50

60

70

80

90

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Maize Sugar beet

Figure 1: Evolution of the number of field trials of maize and sugar beet in the EU-25 Source: SNIF database (European Commission, 2006a)


1. Bt maize resistant against European corn borer (ECB) [Ostrinia nubilalis (Hübner)] and Mediterranean corn borer (MCB) [Sesamia nonagrioides (Lefebvre)] in Spain (Demont and Tollens, 2004b)

2. Herbicide tolerant (HT) sugar beet in the former EU-15 (Demont and Tollens, 2004a)

3. Bt maize resistant against ECB in Hungary (Demont et al., 2005)

4. Bt maize resistant against Western corn rootworm (WCR) [Diabrotica virgifera virgifera LeConte] in Hungary

5. Herbicide tolerant maize in Hungary6. Herbicide tolerant sugar beet in Hungary7. Herbicide tolerant oilseed rape in Hungary





DataData

ResultsResults


BtBt Maize in Spain Maize in Spain





DataData

ResultsResults



2 corn borers important losses in Spanish maize production: 9% on average

Syngenta 2 Bt maize varieties: Compa CB & Jordi CB

Today: only MON810 varieties Government 20.000 ha limit

= 5,2% adoption Analyze 1998-2003





DataData

ResultsResults



1. Farm level analysis: - standard damage abatement function- damage = stochastic (lognormal)- calibrated on real corn borer damage data

2. Aggregation to national level- Alston, Norton & Pardey (1995) (ANP)- small, open economy- Oehmke & Crawford (2002) & Qaim (2003) (OCQ)





DataData

ResultsResults



HT Sugar BeetsHT Sugar Beets

BtBt Maize Maize

EnvironmentEnvironment

ConclusionConclusion


Table 1: Economic impact of Bt maize on Spanish agriculture and the seed industry, 1998-2003 Year

1998

1999

2000

2001

2002

2003 Average

1998-2003 Aggregated value 2004

Adoption (%) 4.8% 7.6% 4.6% 5.0% 5.4% 6.8% 5.7% 5.7% Bt maize adopters (€/ha) 50.5 50.6 47.9 46.8 45.1 45.7 47.8 415.5 Agriculture (m€) 1.1 1.5 1.0 1.2 1.1 1.5 1.2 10.5 Seed industry (m€) 0.5 0.7 0.5 0.6 0.6 0.8 0.6 5.2 Total impact (m€) 1.6 2.2 1.4 1.8 1.7 2.2 1.8 15.8 Agriculture share (%) 67.9% 67.9% 66.7% 66.2% 65.3% 65.6% 66.6% 66.8% Seed industry share (%) 32.1% 32.1% 33.3% 33.8% 34.7% 34.4% 33.4% 33.2%

Herbicide Tolerant Sugar BeetsHerbicide Tolerant Sugar Beets

Effective weed control = crucial Yield losses up to 100% due to weed

competition Glyphosate and Glufosinate-

ammonium = broad-spectrum post-emergence herbicides, low toxicity

Introduction of genes from soil bacteria in beet genome Roundup Ready ™ (Monsanto)

Broad-spectrum weed control Less applications Less volume active ingredient More flexibility in timing





DataData

ResultsResults


Herbicide Tolerant Sugar BeetsHerbicide Tolerant Sugar Beets

1. Farm level analysis: - assume standard HT replacement programs - compare costs with observed programs- assume technology pricing (see data)

2. Aggregation to the global level through standard methodologies

Data: ex ante- No adoption of the new technology- No farm level impact data, only field trials- Assumptions: 1. Yield impact

2. Technology pricing- Sources: expert opinions, literature, economic theory, national surveys, Eurostat- Stochastic simulation





DataData

ResultsResults






DataData

ResultsResults


Table 1: Price and welfare effects (in million euros) of the adoption of herbicide tolerant sugar beet in the EU and the rest of the world

Year Price effects

1996/97 Benchm.

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 Aggr.

Average LSR

World price (%) 100% 99.87% 99.87% 99.79% 99.73% 99.69% . . A beet price (%) 100% 99.99% 99.99% 99.99% 99.99% 99.99% . . B beet price (%) 100% 99.94% 99.95% 99.94% 99.95% 99.85% .

. Welfare effects Belgium 0 1.3 1.8 2.8 3.5 4.7 18.0 -0.34% Denmark 0 0.7 1.0 1.3 1.7 2.3 9.0 -0.34% Germany 0 5.6 8.1 10.5 14.0 19.5 74.2 0.07% Greece 0 0.6 0.9 0.9 1.4 2.1 7.6 -0.35% Spain 0 2.0 2.9 3.9 5.2 7.0 26.8 -0.33% France 0 3.7 5.6 6.5 8.5 12.7 47.7 0.09% Ireland 0 0.3 0.5 0.7 1.0 1.3 4.8 -0.34% Italy 0 2.6 3.7 5.2 6.9 9.0 35.2 -0.34% The Netherlands 0 1.0 1.5 2.2 2.8 3.7 14.5 -0.34% Austria 0 0.7 1.0 1.3 1.7 2.3 9.2 0.17% Portugal 0 0.0 0.2 0.3 0.4 0.5 1.9 -0.39% Finland 0 0.6 0.7 1.2 1.4 1.9 7.4 -0.35% Sweden 0 0.6 0.8 1.1 1.4 2.0 7.6 -0.34% United Kingdom 0 1.3 1.9 2.3 3.0 4.4 16.7 0.10% EU-15 producers 0 21.0 30.5 40.3 53.1 73.5 280.5 -0.10% EU-15 consumers 0 0.0 0.0 0.0 0.0 0.0 0.0 . ROW cane 0 -32.5 -30.9 -36.2 -41.2 -71.4 -277.6 -0.06% ROW beet 0 38.0 52.4 68.0 91.2 116.7 472.8 -0.33% Net ROW producers 0 5.5 21.5 31.8 50.0 45.3 195.2 -0.11% ROW consumers 0 41.5 39.4 44.7 50.8 88.2 346.9 . Net ROW 0 47.0 60.9 76.5 100.8 133.5 542.2 . Input suppliers 0 20.3 27.2 37.2 50.3 61.3 253.3 . Total 0 88.3 118.6 154.0 204.3 268.2 1,076.0 -0.11%

Welfare distribution EU-15 producers (%) . 23.8% 25.8% 26.2% 26.0% 27.4% 26.1% . EU-15 consumers (%) . 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% . Net ROW (%) . 53.2% 51.3% 49.6% 49.3% 49.7% 50.3% . Input suppliers (%) . 23.0% 23.0% 24.2% 24.7% 22.9% 23.6% . Total (%) . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% . LSR: land supply response





DataData

ResultsResults



Year Price effects

1996/97 Benchm.

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 Aggr.

Average LSR




99.50%

99.55%

99.60%

99.65%

99.70%

99.75%

99.80%

99.85%

99.90%

99.95%

100.00%

Benchmark 1996/97 1997/98 1998/99 1999/00 2000/01

World sugar price (%) A sugar price (%) B sugar price (%)





DataData

ResultsResults



Year Price effects

1996/97 Benchm.

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 Aggr.

Average LSR




BtBt Maize in Hungary Maize in HungaryEuropean Corn Borer (European Corn Borer (Ostrinia nubilalisOstrinia nubilalis Hübner) Hübner)





DataData

ResultsResults


BtBt Maize in Hungary Maize in HungaryWestern Corn Rootworm (Western Corn Rootworm (Diabrotica virgifera virgiferaDiabrotica virgifera virgifera

LeConte)LeConte)





DataData

ResultsResults







DataData

ResultsResults


Micro-economic level: Develop bio-economic pest damage abatement models Calibrate on real field data (surveys, expert opinions,

literature) Pre-coexistence Incorporate uncertainty

Macro-economic level: Model GM crop adoption through partial equilibrium

displacement model (EDM) Incorporate market structure and response Incorporate trade policies Incorporate uncertainty

DataData





DataData

ResultsResults


Ex ante: no adoption data available Data mining, combine different data sources:

– National and international statistics– National and regional farmer surveys– Field trials– Expert opinions– Literature– Assumptions– Economic theory

Importance of modelling data uncertainty and conducting sensitivity and scenario analyses

ResultsResults

Table: Average annual economic impact of transgenic crops in Europe (€/ha)

Case study Bt maize HT sugar beet Bt maize (ECB) Bt maize (WCR) HT maize HT sugar beet HT oilseed r Region Spain EU-15 Hungary Hungary Hungary Hungary Hungary Year 1998-2003 1996-2000 2003 2003 2003 2003 2003 Perspective Ex post Ex ante Ex ante Ex ante Ex ante Ex ante Ex ante Farmers 47 (63%) 188a (30%) 17 (74%) 46 (65%) 22 (73%) 81 (50%) 20 (61%) Input suppliers 28 (37%) 31b (17%) 6 (26%) 25 (35%) 8 (27%) 81c (50%) 12 (39%) Consumers 0 0 0 0 0 0 0 Cane farmers -74 Beet farmers 137 Net beet + cane 63 Consumers 76 Net ROW 139 (53%) Total (€/ha) 74 184d 24 71 30 163 32

Total (million €) 16 1,200 3 16 14 3 0.8

Source: Demont and Tollens (2004a, 2004b); Demont, Tollens and Fogarasi (2005) a assumes a price decline of 20% in the herbicide market b assumes fixed price premium of 20% of the seed price c based on competitive pricing, i.e. price premium reflects average conventional weeding cost d since we present the data on a per hectare basis, total has to be interpreted as a weighted average rather than a sum






DataData

ResultsResults


Total benefits per hectare are fairly robust measure of value or “size” of the innovation

This value is distributed among input industry and farmers (who share it with consumers)

Market power of input industry is constrained by 5 factors:1. Farmer heterogeneity (e.g. Bt maize)2. Uncertainty and irreversibility3. Competition from chemical industry4. Competition within biotechnology industry5. Coexistence regulation (EU)

Immiserising growth unlikely due to:1. Smaller scale & heterogeneous innovation pattern2. Common Agricultural Policy (CAP) protecting farmers against

eroding world prices

(a) (b)

qs-1 qs-1

d d

qmin

qr

d*

Lr

d*d1 d1

Lg

q*

qgqgqr

(a) (b)

qs-1 qs-1

d d

qmin

qr

d*

Lr

d*d1 d1

Lg

q*

qgqgqr





DataData

ResultsResults


Non-Pecuniary Benefits of HT Crops:

Management Flexibility and Convenience







DataData

ResultsResults


Coexistence, the last hurdle to GM crops?European Commission (2003):

“Coexistence refers to the ability of farmers to make a practical choice between conventional, organic and GM [genetically modified] crop production, in compliance with the legal obligations for labelling and/or purity standards. The adventitious presence of GMOs [genetically modified organisms] above the tolerance threshold set out in Community legislation triggers the need for a crop that was intended to be a non-GMO crop, to be labelled as containing GMOs. This could cause a loss of income, due to a lower market price of the crop or difficulties in selling it. Moreover, additional costs might incur to farmers if they have to adopt monitoring systems and measures to minimise the admixture of GM and non-GM crops. Coexistence is, therefore, concerned with the potential economic impact of the admixture of GM and non-GM crops, the identification of workable management measures to minimise admixture and the cost of these measures.”






DataData

ResultsResults


What is coexistence? A cost or an incentive? The right to choose (farmers & consumers) Gene flow, pollen drift, contamination,

commingling Coexistence is only relevant

– if there is a significant long-term domestic or international (export) consumer demand for non-GM crops (e.g. not cotton)

– if this demand translates into market signals (e.g. price premiums for non-GM crops)

– if there is a significant farmer demand for cost-reducing transgenic crops (e.g. not ECB-resistant Bt maize in Belgium)






DataData

ResultsResults


adoption

co-e

xis

ten

ce

costs

rupture point

Coexistence costs borne by 2 incentives:1. Farmer profits of GM crops (“GM rent”)2. Price premium of identity preserved (IP)

crops (“IP rent”)

Phase I Phase II Phase III

clustering, reallocation of land

IP rentseekingGM rents

ConclusionConclusion

System approach needed Case by case Producers capture an important part of

the benefits of transgenic crops: most often between 2/3 and 3/4

Government’s trade policy can influence the impact of biotechnology (e.g. sugar sector)

Coexistence only relevant when 2 incentives are both present at the same time: GM rent & IP rent





DataData

ResultsResults


The EndThe End





DataData

ResultsResults


http://www.biw.kuleuven.be/aee/clo/euwab.htm

Email: [email protected]

Department of Agricultural and Environmental Economics, K.U.Leuven

Documents

Transcript of Department of Agricultural and Environmental Economics, K.U.Leuven