Should the Labeling of Genetically Modified Foods be Harmonized? A Focus on Transgenic Wheat G. Gruère & C. Carter University of California, Davis INEA seminar, Roma, June 20, 2003

In 6 years, growth in biotech crop acres has been double-digit & now over 150 m. ac. > 20% of global soybeans, corn, cotton & canola acres are biotech. US, Argentina, Canada & China are leading growers of biotech crops. Mostly herbicide tolerant (75%) & insect resistant (17%) crops. Transgenics: Fast Growing Adoption

> 50% of China's cotton now biotech. Bollworm resistance to pesticides was a big problem in China before Bt. Cotton fields were sprayed up to 40 times. With Bt cotton, China’s farmers have saved 20% in production costs. China’s pesticide use has fallen sharply with Bt cotton (C. Pray). Bt cotton has potential to eliminate the need for 40% of global pesticide use (Clive James, ISAAA). Importance in Developing Countries: e.g., China

“Hovis to stop N. America imports if GM wheat planted.” (World-Grain.com, June 5, 2003). “E.U., U.S. millers warn against GM wheat at meeting.” (World-Grain.com, August 12, 2002) “GM wheat 'devastating' for farmers, CWB warns” The Star Phoenix (Saskatoon), May 28, CWB is now threatening a lawsuit against Monsanto. GM Wheat: Rich Country Reaction

EU opposition has caught attention of US and other trading nations. Wheat is a food grain, whereas corn, and soybeans are mainly used for feed. Soybean, corn, & canola oil largely exempt from labeling regulations in the EU & elsewhere. Plenty of GM food now eaten in EU, Japan, & China. Is Transgenic Wheat Different from other GMOs?

In WTO case, US alleges violation of Sanitary & Phytosanitary (SPS) Agreement. Since Oct. ’98 no new GMOs have been authorized in the EU. EU response to WTO case: “lack of consumer demand accounts for low sales of GMOs in the EU” (EU trade directorate). EU is finalizing rules on labeling & traceability. EU trade directorate says the EU system is “science based” & not driven by economic considerations. EU versus GM Technology

Labeling at 0.9% tolerance. EU influences other countries (Isaac; Paarlberg) e.g.: Zambia, Zimbabwe, Russia & China Lowering of adventious presence to 0.5% from 0.9%? Including soy & corn oil (whether or not detectable). Zero tolerance level for non-authorized GMOs. EU Parliament will consider these changes in July. EU’s Parliament Environ. Committee

International Rules UN food code (Codex Alimentarius) unable to reach an agreement on GM labeling. Cartagena Biosafety Protocol: uses a "precautionary approach“& allows importers to block GM imports if they are not satisfied with information supplied by exporters. Protocol promotes idea of letting each country decide on its own labeling policy. US has opposed the Protocol.

Labeling Mandatory labeling encourages food processors to switch away from GM ingredients & avoid labels, especially for highly processed products. In the EU, Tolerant consumers suffer economic loss due to lack of choice at the retail level.

Decision to Process GM vs Non-GM Food: Mandatory vs Voluntary Labeling Expected GM Market Share Non-GM to GM Profit Isoprofit GM Non-GM EU US X Y Z V

Harmonization of Labeling Policies Kirchoff & Zago (2001) & Jackson (2002) find that harmonization is not a good idea for the US & EU. Labeling policies may not have a large effect on soybeans & corn (Gruère & Carter); animal feed & soy oil is (currently) exempt from labeling. Transgenic food crops (wheat & rice) is a different story & labeling will have significant economic effect.

Source of EU Maize Imports ( ) Source: EU Trade Directorate Argentina US '000 mt

US Exports of Corn By-Products to EU Source: USDA, FATUS '000 mt

Source of EU Soybean Imports ( ) Source: EU Trade Directorate '000 mt US Argentina Brazil

Foster (ABARE, 2001)  AGLINK model; 10% yield boost; 1% cost increase; 10% IP cost; 60% adoption in US; world price falls by 0.4%; world consumer benefits of $2.1 B. Furtan, Gray & Holzman (UofS / USDA,’02)  Segretation infeasible; GM acceptance in US/Canada only; TUA $5/$6; if both countries license prices fall by over 75¢/bu; US farmers lose $345M & Canadians farmers lose $314M annually  Including consumers & biotech firms, net gain in US $271M but loss of $47M in Canada. Wheat Studies

Taylor, deVuyst, Koo (NDSU, 2003)  Model HRS, CWRS & HRW; TUA $4/ac; 10% yield boost; 2% cost saving; IP costs 6¢/bu; Adoption in US & Canada; EU, Japan & S. Korea buy non- GM; Canadian farmers gain $75M/yr; US farmers lose $7M (due to winter wheat losses). Wisner (Iowa State U, 2003)  US will lose 30-50% of HRS market & larger share of durum.  With dual marketing, foreign buyers would go elsewhere to avoid paying non-GM premium & alternative supplies would be readily available. Segregation costs ~45 ¢/bu. Wheat Studies

Simulation World Wheat Model 1.3 Regions (A& B are rich & C is poor). 2.Precautionary consumers: 20%(A); 90% (B); 5%(C). 3.Segregation costs 10%. 4.Regions linked by trade. 5.Model calibrated to current Supply & Demand. 6.Produce 75% GM in region A & 50% in region C. 7.Does Harmonization make sense?

Relative change in prices with introduction of GM wheat. PricesCurrent Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling PgPg -3.3%-2.56%-0.3% PnPn +2.7%+4.2%+6.5% Price premium 6.25%6.97%6.81%

Relative change in prices with introduction of GM wheat. PricesCurrent Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling PgPg -3.3%-2.56%-0.3% PnPn +2.7%+4.2%+6.5% Price premium 6.25%6.97%6.81%

Relative change in prices with introduction of GM wheat. PricesCurrent Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling PgPg -3.3%-2.56%-0.3% PnPn +2.7%+4.2%+6.5% Price premium 6.25%6.97%6.81%

Change in producer surplus (billion $) with introduction of GM wheat ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling

Change in producer surplus (billion $) with introduction of GM wheat ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling

Change in producer surplus (billion $) with introduction of GM wheat ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling

Change in producer surplus (billion $) with introduction of GM wheat ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling

ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling Change in consumer surplus (billion $) with introduction of GM wheat.

ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling Change in consumer surplus (billion $) with introduction of GM wheat.

ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling Change in consumer surplus (billion $) with introduction of GM wheat.

ABCTotal Current Regulations Harmonized Mandatory Labeling Harmonized Voluntary Labeling Change in consumer surplus (billion $) with introduction of GM wheat.

Total Producer & Consumer Effects $Billion

In the case of corn or soybeans, harmonization of labeling policies may not be so important. However, in the case of food crops, large country labeling policies have significant market impacts. Current labeling regulations are not a first- best policy & there are benefits from harmonization. Large gains in developing countries. Conclusions