1. IP GRAINS - GROWING, HANDLING, STORAGE & MARKETING George Flaskerud NDSU Extension Economist Sept. 22, 2005 http://www.ag.ndsu.nodak.edu/aginfo/cropmkt/cropmkt.htm NDSU EXTENSION SERVICE (BioTechConf.ppt)

2. Organization  Overview  Production  Segregation  Traceability  Tolerances  Testing  Country Elevators –Situation –Modification –Volume Implications –Labor Costs Source of Information Benjamin Henry Thesis NDSU, July 2005 "Marketing Mechanisms to Facilitate Co-Existence of GM and Non-GM Crops"

3. Overview: Identity Preservation  IP, segregation, traceability, tolerances & testing are all interrelated  IP applicable to specialty crops, GM crops & organic production  IP is an alternative system of procurement, management & trade –Involves identifying crop features to preserve –Facilitates commercialization of GM products –Increases costs to cover segregation, testing,... –Tradeoff between costs & risks –Premiums must be generated to cover costs –Affects growing, handling, storage & marketing

4. Overview: GM Production  Growing importance of biotechnologies in Ag and agribusiness  Crops: corn, soybeans, cotton, canola  Issues –Benefits: costs & yields –Consumer acceptance –International trade  Nations divided –Pro: US, Arg, Canada, China, Brazil –Con: Europe, Japan,...  IP conducive to commercialization

5. Production  Detailed records –Seed identity, planting date, field location & size, inputs used, harvest date, yield, bin #, and delivery person, date & vehicles used –Samples kept at the farm & throughout marketing chain until final buyer is fully satisfied  Added costs –Record keeping & sample storage –Cleaning equipment & bins –Build new structures for proper storage –Costs incease as tolerance levels tighten  Vertical integration/coordination a possibility

6. Segregation  Isolation of like products with particular attributes  New organizational structure emphasized  Problems –Adventitious commingling –Loss of conventional elevator efficiency –Storage & handling constraints –High costs as number of grains received increases

7. Traceability  Transmission of specified information concerning the identity of a product to the next agent  One step back & one step forward system  Breadth, depth & precision impacts  Key points –From seed to consumer –Vertical coordination –Information flow –Additional costs & premiums

8. Tolerances and Testing  Most important area in co-existence of GM & non-GM –Tolerance: improve quality & mitigate risk –Testing: verify that tolerance levels not violated  Precautionary principle: test loads "thought to be" non-GM  Tests for GM material –Strip-test: 95% confidence level, $7.50/test –PCR: 99% confidence level, $120/test  Cost-risk tradeoff depends on # tests, # testing locations and tolerance levels

9. Country Elevators  Survey conducted (Benjamin Henry study) –Physical characteristics: # bins, # pits, capacities, certifications –Current segregation, testing & other IP practices –GM crops currently handled –Variety declaration –Analysis based on survey results –Engineering-economic model by Hurburgh –Model combined with @RISK software to analyze modification costs, volume implications and labor costs

10. Survey Results Response Rate of 5%  43 respondents but only 40 usable surveys Region Total Number of Elevators Responding Elevators (Number)(%) North-Dakota412246 South-Dakota8978 Minnesota222105 Montana6623 Total789435

11. Survey Results: Crops & Varieties Handled Wheat, Soybean, Corn  Most Largely Handled Crops. Bt ® corn, RR ® corn & RR ® soybeans  Most Largely Handled GM Varieties.

12. Survey Results: Physical Characteristics Large Number of Bins  Large Number of Pits  Large Loading, Receiving, Load-out & Track Capacities

13. Survey Results: Policies on Quality Handle IP grains18% Request proof57% Handle GM grains89% Sufficient capacity to segregate 100% of GM crop 23% Request variety declaration19%

14. Deliveries Tested  Protein Moisture Test Weight Dockage  93%  Test for Falling Number & Vomitoxin  34% 20% of elevators  Test for GM content or Variety  Mostly at Receipt Elevator Certifications  20% Elevators Approved ISO or/and HACCP  10% Anticipate Getting Facility Approved Survey Results: Certifications & Testing

15. Survey Results: Testing (cont.) Value Managers Time ($/hr) Labor cost ($/hr) Mean3711 St Dev307 Min01 Max10028 Bushels per test Average Cost of Classic Test Mean1,5402.69 St Dev1,4746.45 Min1500 Max5,00025

16. Survey Results: Segregation Constraints No ConstraintMinor ConstraintMajor Constraint Data transmissionTime Cost of modification Samples storage Testing equipment cost # bins Accounting and record keeping Risk testing error IN Risk testing error OUT Loading capabilities Load-out capabilities

17. Survey Results: Segregation (cont.) % Vol. Segrega- ted Estimated Cost of Segregation ($/bu) Cost of Modification ($) Mean36%0.07195,713 St Dev35%0.08428,377 Min0%0.010 Max100%0.301.5M Cost of Modification  Major Constraint to Effective Segregation  Smaller for Large Elevators Estimated Cost of Segregation  Smaller for Large Elevators  6 c/bu VS 12 c/bu

18. Survey Results: Segregation (cont.) Cost of Segregation  90% Handling-Related.  Importance of Cost of Modification  95% Volume Based.  Importance of Volume Tested or Handled

19. Correlations Between Input Variables and Cost of Segregation + 0.76 Cost of Modification - 0.48% Grain Tested - 0.11Volume Grain Handled

20. Impact of Modification Costs on the Cost of Segregation  65% of observations  Less than 10 cents per bu  50% of observations  Less than 8 cents per bu  75% of observations  Less than 12.5 cents per bu

21. Cost of Segregation Versus Changes in Volume of Grain Handled 50,000 bu  <16c/bu100,000 bu  <13c/bu250,000 bu  <11c/bu

22. 10,000 bu  < 40c/bu50,000 bu  <16c/bu100,000 bu  <13c/bu Cost of Segregation Versus Changes in Volume of Grain Tested

23. Impact of Different Labor Costs Increase of 5 $/hour Labor Cost  Increase by 0.5 cents Cost of Segregation

24. Summary of Survey & Analysis Success or Failure of Segregation System depends upon Ability of Elevators to Implement at Lowest Cost Segregation Already Implemented by Most Elevators. Implementation of New Segregation Practices not too Costly Large Volume Handled & Tested  Lower Segregation Cost. Premiums for Quality should be High enough to OffsetExtra Costs of Segregation

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