Global Public Goods in the Food System: Implications for Rapidly Modernizing Food Markets Laurian J. Unnevehr Professor, University of Illinois Presentation at the CCAP 10 th Anniversary Forum China's Agriculture and Food Economy in the 21st Century

CCAP 10 th Anniversary Forum Global Context for Agricultural Markets Globalization of the 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 Risks and benefits share similarities across developed and modernizing food systems Challenges us to carry out policy analysis on familiar issues in new ways

Globalization In the Food System

CCAP 10 th Anniversary Forum Agricultural Trade has Grown Faster than Production Trade 3.8% Production 2.0% Average Annual Percentage Change 1990 to 2002 Source: WTO

CCAP 10 th Anniversary Forum Income Growth and Urbanization Drive Food Demand Changes More meat, fish, fruits and vegetables More processed, branded products Higher, uniform quality More services

CCAP 10 th Anniversary Forum Source: Senauer and Goetz, 2003 Poor Rich An Example from Lima, Peru in 2000 As Incomes Grow, Demand for Meat, Produce, and Food Service Increases Monthly Food Expenditures in US $

CCAP 10 th Anniversary Forum Demand Shapes Globalization Trends Market growth and integration faster for high- value products Increasing specialization of production to meet growing demand for high value perishables Growth in food service, retailing leads to more uniform quality standards

CCAP 10 th Anniversary Forum High Valued Products Bulk Commodities High Valued Products Lead Growth in World Agricultural Trade Source: FAOSTAT

CCAP 10 th Anniversary Forum Specialization in Agricultural Production and Trade ProductHigh Income Countries Developing Countries Labor- intensive Fish9,857-7,044 Fruit & Veg33,195-43,198 Land- intensive Meat-3,0311,591 Cereals-119,197113,151 Net imports million MT, 2000 Source: FAOSTAT

CCAP 10 th Anniversary Forum Supermarkets Increase Food Retail Share in Growing Economies

CCAP 10 th Anniversary Forum The New Realities of Consumer Demand and Globalization High-Valued Products Enter World Markets For Standardized Retail Outlets

CCAP 10 th Anniversary Forum 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

CCAP 10 th Anniversary Forum 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

Consumer Demand Meets Globalization: Food Safety

CCAP 10 th Anniversary Forum Food Produced in One Country Must Meet Standards in Another Country Fish Market in India Fish in U.S. Supermarket

CCAP 10 th Anniversary Forum Changes in Animal and Fish Production Towards Larger Units Increased scale of production can introduce new hazards or speed the spread of existing ones.

CCAP 10 th Anniversary Forum 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 food from different sources increases the potential to spread microbial contamination. Controls Linked Throughout the Supply Chain

CCAP 10 th Anniversary Forum 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 Especially in rapidly urbanizing food markets Deli Salads in a Supermarket

CCAP 10 th Anniversary Forum Food Safety Controls Shared Responsibility Shared public and private responsibility Shared international responsibility across regions and international borders Shared by all participants in supply chain Who bears costs and risks?

CCAP 10 th Anniversary Forum Mad Cows and Sick Birds Managing mad cow (BSE) disease: –Strong consumer reaction –High costs for producers –Imperfect scientific understanding of the risk –Trade patterns make management a regional and global public good Is Avian influenza (HPAI) another similar emerging risk?

CCAP 10 th Anniversary Forum Global Institutions for Managing Food Safety 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.

CCAP 10 th Anniversary Forum Food Safety – Challenges for Agricultural Economists When would coordinated risk management reduce the costs of control? How to compensate increased costs in one country that provide risk reduction in another country? How to balance costs and benefits in rapidly modernizing food systems?

Consumer Demand Meets Globalization: Genetically Modified Foods Reading Livestock DNA sequence Genetic Modification Of Castor Beans

CCAP 10 th Anniversary Forum GM Crops 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

CCAP 10 th Anniversary Forum But Consumers Want to Know How Their Food is Produced Farmers in Iowa, New South Wales, and Brazil under scrutiny from consumers in Europe and Japan Labeling rules for GM foods in most major markets Productivity gains are not only criteria for technology choice

CCAP 10 th Anniversary Forum GM Crop 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 low income agriculture?

CCAP 10 th Anniversary Forum Global Institutions to Manage Biosafety of GM Foods Extending Global Recognition of IP Rights –Eg., Trade Related Aspects of IP Rights (TRIPS) under WTO 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

CCAP 10 th Anniversary Forum 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

CCAP 10 th Anniversary Forum Genetically Modified Foods– Challenges for Agricultural Economists How can labeling regimes be designed to be most useful to consumers and least disruptive to markets? How can we measure the value of risk avoidance versus the value of new technologies? What do emerging regulations mean for incentives to develop and adopt new technologies in modernizing food systems?

CCAP 10 th Anniversary Forum Chinas Rapidly Modernizing Food System Meat Processing Local Markets Public Health Supermarkets

CCAP 10 th Anniversary Forum Chinas Rapidly Modernizing Food Markets Urban consumers increasingly demand high value products and services Intensifying livestock production means new demand for food safety and disease control Exports of seafood, fruits and vegetables important and growing Development and adoption of GM crops and livestock well underway

CCAP 10 th Anniversary Forum Questions for Chinas Rapidly Modernizing Food Markets How to facilitate participation by small farmers in increasingly coordinated marketing chains? How to facilitate private sector response to demand for safety, quality, information? How to respond to export markets and to participate in international rule setting? How and at what point in development to protect domestic consumers?

CCAP 10 th Anniversary Forum Closing Comments-- Implications for Our Research Goods and Bads from modernizing food systems are increasingly global in nature Shared risks, benefits will shape future food system and food policy Challenge for countries now modernizing to exploit benefits of these trends and to minimize costs