Mad Cows and Bt Potatoes: Global Public Goods in the Food System Laurian Unnevehr Department of Agricultural and Consumer Economics NCFAR Seminar for Congressional Staff October 18, 2005

Mad Cows and Bt Potatoes on the Hill From Sacred Cows & Hot Potatoes of Farm Policy…. Bloom County, 1988

Mad Cows and Bt Potatoes on the Hill …To the Mad Cows and Bt Potatoes of Food Policy Toles, 2004

Mad Cows and Bt Potatoes on the Hill Bulk Commodities Produced For Domestic Markets Or Overseas The Traditional U.S. Agricultural Economics World

Mad Cows and Bt Potatoes on the Hill The New Realities of Consumer Demand and Globalization High-Valued Products Enter World Markets For Standardized Retail Outlets

Mad Cows and Bt Potatoes on the Hill Global Context for Our Policy Research Globalization of food system and changes in demand bring deep integration of markets Risks and benefits now cross borders more often, creating demand for global public goods Challenges us to carry out policy analysis on familiar issues in new ways

Mad Cows and Bt Potatoes on the Hill Agricultural Economics Research Meets This Challenge with Federal Support Regional Research Committees provide powerful synergies for addressing new economics questions –NE 165: Private Strategies, Public Policies, and Food System Performance –NC1003: Impact Analysis and Decision Strategies for Agricultural Research –Each include about 25 states, federal agencies, private companies, plus international Competitive grants programs fund specific projects (NRI, IFAFS)

Globalization In the Food System

Mad Cows and Bt Potatoes on the Hill Agricultural Trade has Grown Faster than Production Trade 3.8% Production 2.0% Average Annual Percentage Change 1990 to 2002 Source: WTO

Mad Cows and Bt Potatoes on the Hill Food Demand Changes Shape Globalization Demand changes with higher income, urbanization: –More meat, fish, fruits and vegetables –More processed, branded products –Higher, uniform quality –More services World markets reflect these demand changes: –Market growth and integration faster for high-value products –Growth in food service, retailing –More uniform quality standards

Mad Cows and Bt Potatoes on the Hill High Valued Products Bulk Commodities High Valued Products Lead Growth in World Agricultural Trade Source: FAOSTAT

Mad Cows and Bt Potatoes on the Hill Trade Increasing as Percent of World Production for High Income Elasticity Foods Source: FAOSTAT

Mad Cows and Bt Potatoes on the Hill Source: Restaurant Business, 2001 U.S. Fast-Food Chains Have More Outlets Outside U.S

Mad Cows and Bt Potatoes on the Hill Supermarkets Increase Food Retail Share in Growing Economies

Mad Cows and Bt Potatoes on the Hill Global Adoption of Meta-Standards for Quality and Product Information Need to ensure uniform quality and to provide product information Adoption of internationally recognized systems of quality control for certification Increased use of tracking and testing technologies Result is increasing deep integration of methods of production

Mad Cows and Bt Potatoes on the Hill Integration and Fragmentation in Global Food Markets INTEGRATION More trade & specialization Shared benefits, risks –animal & plant health, food safety –new technologies FRAGMENTATION Continued market protection Non-tariff market barriers –Risk standards –Intellectual property rights –Labeling policy

Global Public Goods: Food Safety

Mad Cows and Bt Potatoes on the Hill Exports from Poor Countries Must Meet Standards of High Income Consumers Fish Market in India Fish in U.S. Supermarket

Mad Cows and Bt Potatoes on the Hill Changes in Animal and Fish Production Towards Larger Units Increased scale of production can introduce new hazards or speed the spread of existing ones.

Mad Cows and Bt Potatoes on the Hill Some foodborne hazards can enter the food supply chain at many points and can multiply once present. Controls must address the entire system from farm to table. Mixing animals from different sources increases the potential to spread microbial contamination. Controls Linked Throughout the Supply Chain

Mad Cows and Bt Potatoes on the Hill As More Food is Purchased Away from Home… Consumers have less control over food preparation Industry takes greater responsibility for final safety of food when consumed Deli Salads in a Supermarket

Mad Cows and Bt Potatoes on the Hill Managing Food Safety as a GPG: Global Institutions Sanitary and Phytosanitary (SPS) agreement under the WTO sets these principles for standards –Transparency –Science-based –Equivalence –National sovereignty –Harmonization These principles have worked to reduce trade barriers, but many challenges remain.

Mad Cows and Bt Potatoes on the Hill Mad Cows

Mad Cows and Bt Potatoes on the Hill The Global Spread of BSE Israel 2002 Japan 2001 Canada USA 2003 Source: Hueston, 2004

Mad Cows and Bt Potatoes on the Hill BSE news in 1988, 1996, and 2000 Led to Swift Declines in Beef Demand in EU Source: USDA/ERS

Mad Cows and Bt Potatoes on the Hill The U.S. Cow is a Global Animal U.S. COW Meat & Bone Meal Meat Milk Embryos Semen Hides Bones Spinal Cord Blood Pet Food Bile Fat Tallow

Mad Cows and Bt Potatoes on the Hill BSE Risk Reduction as a Regional Public Good: NAFTA Cattle and Beef Markets in 2002 Cattle in million head Beef in billion lbs 1.5M 0.16B 0.82M 0.24B 1.1B 0.68B

Mad Cows and Bt Potatoes on the Hill Managing BSE as a Global Public Good To re-establish trade requires agreement –Among NAFTA partners –Between Japan and U.S. re Equivalent measures in U.S. and Japan Measures in U.S. re Canadian imports SPS agreement recognizes World Organization for Animal Health guidelines for: –country risk level determination –reducing meat import risk

Mad Cows and Bt Potatoes on the Hill Food Safety as a GPG - Unresolved Issues What are the limits to private efforts for food safety control? When would coordinated risk management reduce the costs of control? How to compensate increased costs in one part of the supply chain that provide risk reduction in another part or country?

Global Public Goods: Innovation Reading Livestock DNA sequence Genetic Modification Of Castor Beans

Mad Cows and Bt Potatoes on the Hill Global Sources of Innovation are Changing Importance of private research investment growing Private investment exceeds public in U.S. for past two decades Private ownership of IP concentrated among major firms Global Agricultural Research Expenditures by Source, 1995 Source: Pardey and Beintema, 2003 $33 Billion total Private 35% Public 65%

Mad Cows and Bt Potatoes on the Hill U.S. Private Research Expenditures Exceed Public and Grow More Rapidly Source: USDA/ERS Private Funding Public Funding 2000 Dollars in Billions

Mad Cows and Bt Potatoes on the Hill Concentration in Supply of New Technology Ownership of Ag Biotech Patents Source: Graff et al, 2003 Small Firms 33% 5 Top Multi- national Firms 41% Other 2% Public Sector 24%

Mad Cows and Bt Potatoes on the Hill Innovation is a Mixed Public-Private Good Incentives for private investment –Changes in intellectual property law –Advent of modern biotechnology Public research has become more private –Collaboration with firms –Patenting within public sector

Mad Cows and Bt Potatoes on the Hill Private Innovation with Global Impact: Bt Cotton Bt cotton in: Yield Effect United States0 – 15% China10% South Africa20% – 40% India60% – 80 % Chemical use reduced in every country. Source: Zilberman et al., 2004

Mad Cows and Bt Potatoes on the Hill Private Innovation Going Nowhere: Bt Potatoes Bt potatoes to repel major pest marketed by Monsanto Only adopted on 15% of US acreage In 2000, McDonalds decides no GM in fries Monsanto withdraws from market Lost potential for future innovation?

Mad Cows and Bt Potatoes on the Hill Will Private Investment Meet Demand for Innovation? Does lack of agreement on risks inhibit investment? Do current intellectual property laws –Create hold-ups? –Divert research from public goals?

Mad Cows and Bt Potatoes on the Hill Demand for Innovation Not Met by Private Investment Yield increases in poorest countries Orphan or minor crops or animals Traits that promote public health or environmental quality Cassava Pearl Millet

Mad Cows and Bt Potatoes on the Hill Managing Innovation as a GPG: Intellectual Property Rights Extending Global Recognition of IP Rights –Eg., Trade Related Aspects of IP Rights (TRIPS) under WTO Creating New Institutions to Reward IP –Clearinghouses for sharing property Eg., Public IP Resource for Ag (PIPRA) patent sharing group –New incentives mechanisms Eg. Prize for African ag innovation

Mad Cows and Bt Potatoes on the Hill Managing Innovation as a GPG: Regulation Health Risks –Labeling and traceability requirements for GM foods differ in EU, Japan, and Australia Environmental risks –Cartegena Protocol sets standards for sharing information in trade Clear differences remain in regulatory approaches

Mad Cows and Bt Potatoes on the Hill Different Mandatory Labeling Requirements Have Different Cost Implications EUJapanAustralia/ NZ Only if novel protein in final product? NOYES Tolerance level? 0.5%5%1% Traceability/ IP required? YES Only for negative claim Green = least costly Red = most costly

Mad Cows and Bt Potatoes on the Hill Innovation as GPG – Unresolved Issues How can incentives be provided for new technologies with limited private benefit and large public benefit? Can public research investment be more strategic in complementing private investment? How can U.S. suppliers position themselves to meet demand for information?

Implications for Agricultural Economics in Federally Funded Research, Education, and Extension

Mad Cows and Bt Potatoes on the Hill Agriculture Has Expanded Meaning Agricultural research will support agriculture as a positive economic, social, and environmental force and will help the sector to fulfill ever- evolving demands. These include further gains in food production and such other benefits as enhanced public health, environmental services, rural amenities, and community well-being. Vision statement from Frontiers in Agricultural Research: Food, Health, Environment, and Communities, National Academies Press, 2003.

Mad Cows and Bt Potatoes on the Hill More from the Frontiers report…. US agricultural research should be conducted with an increased understanding and awareness of how problems and solutions are interconnected globally… US agricultural leaders are changing their primary emphasis from production efficiency to meeting consumer demands… Agricultural research will engage relevant biophysical and socioeconomic disciplines in a systems approach to address new priorities…

Mad Cows and Bt Potatoes on the Hill Global Public Goods and Bads in the Food System Invasive species Mad cow disease Biotechnology regulation Agricultural trade liberalization Bioterrorism Carbon sequestration Obesity epidemic Ocean fish stock collapse

Mad Cows and Bt Potatoes on the Hill Implications for Our Research, Education & Engagement Shared risks, benefits will shape future food system and food policy All of our stakeholders interested in GPGs –Producers and Agribusiness –Consumers –Policy makers Agricultural Economics research will continue to support expanding goals of the agricultural research system

Thank you for your attention!