Volume 2, Issue 2 - Controversies Over the Adoption of Genetically Modified Organisms

Many of the controversial issues surrounding the adoption of genetically modified organisms (GMOs) are addressed in this special issue of JAFIO. There is concern that due to institutional constraints the biotechnology gene revolution will not live up to its potential. The potential for GM crops in less-developed countries appears to be less than for developed nations. In the United States the adoption rate of GM products varies by crop, thus it is difficult to generalize about the economic returns received from GM-crop adoption. Contamination issues such as the StarLink™ event, coupled with segregation costs have made GM crops less attractive than would otherwise be the case. In the European Union resistance to GM crops will likely remain high for the next several years due to both consumer resistance and from those producers who lose from the adoption of GM crops. Consumer acceptability of GM crops varies by country and is influenced by public information, which often is biased in favor of special interest groups. International clubs, which trade in GM products, may be formed in the future.

There are two mechanisms by which modern genetically modified organism (GMO) products can affect productivity in developing countries. The first is the ‘Genes for Rent’ mechanism where a recipient country agrees with a GMO company to incorporate a GMO product (e.g., a Bt gene in cotton varieties) and pay a technology fee. The second is the ‘Transgenic Breeding’ mechanism in which National Agricultural Research System (NARS) breeders use modern biotech methods marker-aided breeding, genetic maps, and genomics research to produce GMO traits of economic value in crop varieties. The first mechanism requires little skill on the part of the recipient country (the GMO supplier will incorporate the gene into a number of varieties). But these GMO products are of little value in “traditional” crop varieties. Few countries have the Intellectual Property Rights or regulatory regimes at present to support this mechanism. The second mechanism is very demanding of skills by NARS breeders. Only a few NARS programs (notably China, India, Brazil, Argentina, and a few other countries) are investing in these skills. The promise of GMO-based productivity gains in developing countries is thus constrained. Only a few countries are positioned to pursue both mechanisms.

This paper argues that current forms of agricultural biotechnology have significant potential for developing countries; the challenge is to realize this potential. We develop a conceptual model that explains why the yield effects of GMVs (genetically modified varieties) tend to be significant and reduce chemical use, contributing to human welfare, and present results from empirical studies that support these findings. We demonstrate that the adoption of GMVs might not necessarily lead to elimination of many varieties. Instead, crop biodiversity may be enhanced. Finally, we discuss how IPR constraints can be addressed, and new institutions that are already emerging may be used to allow developing countries more access to IPRs.

In July 2003, the European Parliament voted on amendments to the European Union’s (EU) system of regulation for agricultural biotechnology, most notably the rules for mandatory labeling of food products that contain traces of genetically modified (GM) ingredients. The expectation is that approval of these changes in EU regulations will result in the moratorium on approval of new GM crops, formalized by the Council of the European Union in 1999, being lifted. Despite the approval of these amendments, in August, the US, along with Canada and Argentina, requested the formation of a WTO dispute panel to make a ruling on the EU’s failure to approve marketing of a number of GM crops.This paper addresses the issue of whether there is any legitimacy in the EU’s precautionary approach to biotechnology regulation, or whether their regulatory approach is trade distorting, and, hence, likely to be found in violation of WTO agreements. First, the background to the debate in the EU and US over biotechnology is reviewed, paying particular attention to recent public discussion in the UK where the government has undertaken an extensive public consultation process over regulation of GM crops. Second, the EU’s approach to biotechnology regulation is outlined and compared to that in the US, and the analytical foundations of the precautionary principle are reviewed. Third, how GM regulations fit into the rules of the WTO is outlined, along with a discussion of the nature of the US’s WTO filing.

GMOs have brought new concerns into an already challenged world trading system. This paper considers the jointly enodogenous formation of GMO-related standards and sub-global trading agreements. Standards are understood as tolerance levels for GMOs. Sub-global trading agreements may be either formal agreements between countries sanctioned by the WTO, or they may be implicit agreements, e.g. a developing country accepting the U.S. standards.We develop a theoretical model of standard formation and agreement formation. In autarky, national standards reflect the preferences of domestic consumers. The possibility of gains from trade encourages countries to modify their standards to facilitate trade with other countries having similar standards. Whether or not a country engages in trade depends on the magnitude and nature of the gains from trade--e.g. economies of scale, greater variety for consumers, etc.--and the degree of standard modification required for trade. If the gains from trade are sufficient, countries will compromise or harmonize standards to achieve these gains. In the case of countries of similar size (bargaining power), compromise may be feasible. In the case of countries of different size, harmonization of the smaller country's standard to that of the larger country may be more likely. The case of the European Union's de facto prohibition on trade in GMOs is represented as a case in which the gains from trade are insufficient to catalyze a compromise position. Analogously, the North American refusal to restrict or prohibit GMOs indicates that the gains from trade with Europe are insufficient to compensate for this change in standard. In the absence of a common global standard, countries with similar preferences cluster into smaller clubs to capture at least some gains from trade.

This study estimates the impact of reduced demand for U.S. corn during the 2000/01 marketing year caused by the StarLink-contamination event in the year 2000. A partial equilibrium model is constructed that separates both the domestic and foreign demand functions for corn into food and non-food demand curves. The complexities arising from the Loan Deficiency Payment (LDP) Program are also incorporated. The empirical results indicate that the reduction in Japanese corn demand alone would have reduced the average price received by U.S. corn producers in 2000/01 by between U.S. 4.17¢ to U.S. 5.18¢ per bushel if LDP payments did not partially offset the market impact. However, after adjusting for LDP payments, the average price received by U.S. corn producers dropped by only between U.S. $0.50¢ and U.S. 0.83¢ per bushel over the 2000/01 marketing year. This translates into a loss in revenue of between U.S. $48 and U.S. $78 million.

Genetically modified crops have met some consumer opposition domestically and abroad. This opposition has resulted in variety market and policy reactions with a large potential to disrupt trade and to become a focus of international negotiations. In this paper we consider the spillover from adopters to the non-adopters and non-consumers of GM technology. In the absence of any (organizational) transaction costs the assignment of property right to use the name corn will result in Pareto improving decisions with respect to the introduction of GM technology. However, in the presence of transaction costs the ability to use generic crop names such as corn, the adopters of GM technology have the implicit right and will impose costs on participants in the non-GM marketing channel, by creating a lemons problem. This assignment of property rights can result in the commercial introduction of GM despite potential losses in overall social welfare. If the property rights are reassigned such that the innovators are forced to segregate their GM products through labeling laws, this preempts welfare decreasing technology introduction. The relative efficiency of either allocation of property rights depends on the cost savings, rate of adoption, segregation costs, and consumers’ preference for the GM crop in question. This suggests that assignment of property rights may be more effective if done on a case-by-case basis rather than a one size fits all policy.

Genetically modified (GM) foods have been engulfed in considerable controversy, and the early optimism has been dampened. Information issues—labeling and asymmetric information—are central to the GM-food debate. Furthermore, it is important to understand the reaction in developed countries to GM-foods because they set the tone of the world market in grains, oilseeds, and animal products. New results are reported from a statistical analysis of the market characteristics that push consumers in a high-income country to resist GM foods, with an emphasis on negative information from environmental groups and third-party, verifiable information, which could neutralize private information distributed by interested parties. A unique sample of adult consumers participated in laboratory auctions of three food products with randomized labeling and information treatments. A key finding is that GM information supplied by environmental groups increases the probability that consumers are out of the market for GM-foods. Third-party verifiable information, however, dissipates most of the negative effect of the environmental group perspective. Selective adoption of GM crops seems likely to raise world welfare but Western Europe’s banning of GM imports and technology will largely affect them negatively.

There has been growing public opposition against genetically modified (GM) foods. Using a dichotomous choice contingent valuation methodology, we analyze the factors that affect the willingness to pay for GM-corn-fed beef by consumers in Spokane, Washington. The mean discount required to choose the GM-fed beef is small at 8% compared to other studies in Europe and Japan. Further, half the sample was provided information about biotechnology, and the effect of this information is analyzed.