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Global Responses to GM Food Technology: Implications for Australia by Kym Anderson and Lee Ann Jackson
February 2005
RIRDC Publication No 05/016 RIRDC Project No UA-57A
Despite these potential benefits, some consumer and community groups are concerned about their potentially adverse impacts on food safety (e.g., ‘Will they cause cancer?’) and the environment (e.g., ‘Will they lead to pesticide-resistant superweeds?). Numerous governments are responding to those concerns, typically in very conservative, command-and-control ways such as banning the production and/or use of GMOs or mandating strict GMO labelling laws. Countries exporting food products fear that food-importing countries will discount or deny access to their products if even a subset of their farmers adopt GM technology. Indeed the European Union has a moratorium – in place since October 1998 – on the approval of GM products for domestic production or importation.
As a result, the US share of the EU’s maize imports has fallen to virtually zero (from around twothirds in the mid-1990s), as has Canada’s share of EU canola imports (from 54 per cent in the mid- 1990s). The GM-adopting countries have lost market share to GM-free suppliers (particularly Brazil for maize and soybean and Australia and Central Europe in the case of canola).
Food-exporting countries such as Australia need to weigh the potential economic benefits from biotechnology development against any net negative environmental risks associated with producing GM crops, any additional costs of segregation and identity preservation through the supply chain, any discounting and/or loss of market access abroad for conventional counterparts to those specific crops which may contain GMOs, and any discounting and/or loss of market access abroad for other farm products because of what GM adoption does for Australia’s generic reputation as a ‘clean, green, safe food’ producer. In addition, Australia has to decide whether to participate in the current and possible future WTO dispute settlement cases on GMOs, bearing in mind the risks this issue brings to the rules-based global trading system in general and the WTO’s farm trade reform agenda in particular.
All of Australia’s crop and livestock producers, as well as consumers of these products, have a direct economic interest in this issue. The adoption of GM technology has been most widespread in the production of maize, soybean and canola (key livestock feed ingredients globally), as well as cotton.
As of 2002, GM varieties accounted for one-quarter of the area planted to those crops globally (and 4.3 per cent of all arable land), having been close to zero prior to 1996. But most of it is grown in Argentina, Canada and the United States, where that GM share is more than 60 per cent. Production costs in those countries have been lowered by more than 5 per cent, thereby lowering livestock feedgrain costs and hence weakening the comparative advantage of Australia’s competing grass-fed livestock industries (since products from animals fed GM feedstuffs are not considered to contain GMOs). GM rice and wheat are also possibilities in the near future.
Neither the magnitude nor the signs of the economic effects of GM adoption by some countries and boycotts by others can be determined without empirical data and a model of the affected markets.
This research uses the GTAP model of the global economy to estimate the production, trade, national economic welfare and real farm household income effects in Australia and other countries of GM adoption. These GTAP modelling results improve on earlier results in two respects: by distinguishing between GM-free and GM-inclusive products, and by generating real farm household income effects of technology adoption and of consumer and government responses under various scenarios. The latter results allow speculation as to the motivation of governments in the US, EU and East Asia in adopting different GM policies.
As mentioned above, maize, soybean and canola have enjoyed the highest rate of adoption of GM food varieties globally. The potential global benefits of GM adoption in maize, soybean and canola is estimated to be substantial (US$4.0 billion per year) if there were no adverse reactions elsewhere.
However, as an exporter Australia would gain, but only slightly, from adopting GM varieties of these crops because the gain from higher crop productivity would be almost fully offset by an adverse terms of trade change. The EU moratorium, which acts as an increase in farm protection there, causes the EU to be worse off by $3.1 billion per year (less whatever value EU consumers place on having avoided consuming GM products), and reduces by two-thirds the gain to the GM adopters. It improves welfare for food-importing regions of the rest of the world and Australia only very slightly.
If GM varieties of rice and wheat were also to be released, quite possibly China and India would then become GM adopters too. Since they account for 55 per cent of the world’s rice market and 30 per cent of the wheat market, the economic welfare effects of adding these two extra countries and commodities are dramatic. The conservatively estimated global economic welfare gain if there is no policy response is $ $4.3 billion if rice and wheat are added and China and India join the GMadopting group, almost double the current gains from GM crop adoption. In this case if Australia chooses not to adopt GM varieties, any gain in market access because of the EU’s GM moratorium is almost fully offset by the greater decline in international prices caused by the moratorium.
Australia’s crop production and exports are reduced more, not less, as a result of the EU moratorium.
On the other hand, if there were no EU moratorium and Australia adopted GM technologies, its crop production would expand instead of contracting. While domestic consumption of crop and livestock products also would increase because of lower domestic prices, those estimated increases are not enough to prevent crop export earnings from rising instead of falling. Hence net economic welfare for Australia would be US$28 million per year higher as a result of GM adoption, less any negative value domestic consumers place on not knowing if they may be consuming GM products.
With the EU moratorium, the net economic welfare benefit to Australian producers and consumers of GM adoption in this case is estimated to be US$15 million per year. While that is $13 million less than if there is no EU moratorium, it still represents a net gain from joining the adopters of GM varieties of these four crops even if the EU moratorium remains in place. However, the average Australian farm household income would decrease with GM adoption – even with rice and wheat included – if the EU moratorium remains.
What should Australia do? The consumer legislation on GMOs devised by the health ministers of the Australian and New Zealand governments is relatively strict by world standards in terms of tolerance of unintended GMO material in foods sold in Australia, but it is more tolerant with respect to products in which GMOs are no longer detectable. Controls on Australian production of GM crop varieties were already severe by North American and Argentinean standards, but they are now constrained even further by domestic consumer legislation. This has been well illustrated by the recent debates over whether to approve GM canola production in Australia: production is unlikely to be approved unless and until an effective segregation and identity preservation system is in place to allow co-existence of non-GM and GM varieties. Even then, several States of Australia have continued to delay approval because they perceive insufficient economic benefit from GM crops to warrant the cost of the necessary co-existence system (which will fall more on non-GM producers, the smaller the share of GM varieties in total output) and the expected loss that would result from a downgrading of their status as a ‘clean, green, safe food’ supplier domestically and abroad.
These cautious approaches
were understandable while only maize and soybean were ready for adoption.
The production ban is less defendable for canola now that GM varieties
for Australian conditions are available, and will be even less so if and
when suitable GM rice and wheat varieties are ready for release and the
concerns of consumers in Europe and elsewhere fade, making adoption of
these products more economically beneficial. In revising Australian consumer
and producer regulations for dealing with GMO issues as information and
views evolve, the following points might be kept in mind:
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