GMO trade in a world of fragmented consumer preferences and needs

14 October 2015

This article looks at how to keep genetically modified and conventional agricultural products separate from farm to market to ensure a wide array of trade opportunities, with a particular focus on developing countries.

The global cultivation of genetically modified (GM) crops has expanded dramatically over the last two decades from 4.2 million acres in 1996 to approximately 45 million acres today. Complementing the rapid uptake of GM technology in farming, the characteristics of agricultural biotechnology are changing. Non-food, field crops like maize, soybeans, canola, and cotton have historically been the focus of genetic engineering research programs, but while these commodities remain prominent, an increasing number of alternative GM plants and animals are undergoing development with transgenic traits. The array of modifications has also expanded from traditional producer-oriented improvements, such as herbicide tolerance and insect resistance, to include disease resistance and consumer-oriented improvements, including cosmetic and nutritional alterations.

Given the rapid increase in the production of genetically modified organisms (GMOs) and the ever-expanding capabilities of biotechnology applied to food production, it is surprising that only 29 countries currently produce GM products. In sub-Saharan Africa—the poorest region in the world with the lowest agricultural productivity—only three countries produce GMOs including South Africa, Burkina Faso, and Sudan. [Ref 1] In fact, many countries have instituted outright bans on imported food containing GM products. One of the most high profile examples was Zambia’s ban on GM food imports, including famine relief shipments in the face of millions suffering from starvation, in 2002. Countries across Africa and Asia cite the risk of future export losses as a rationale for rejecting GM technology because supermarket chains in major markets like the EU and Japan have instituted private standards to avoid GM ingredients in the products they sell. [Ref 2]

A comprehensive regulatory framework for coexistence

In this article we define “contamination” as the unwanted introduction of GM material in the non-GM supply with negative market consequences. The food, feed, and environmental safety issues associated with GM crops are not being questioned here. In truth, the threat of commercial risk associated with the production and sale of GM products may be greatly exaggerated. Coexistence mechanisms that allow for the simultaneous cultivation and sale of GM, organic, and conventional agricultural commodities exist in many countries. When these strategies are successfully employed, farmers can choose between realising the benefits of biotechnology or receiving the price premiums linked to non-GM and organic products. In instances where price premiums for organic and conventional products and the risks of contamination are high, many private companies have instituted voluntary standards, known as identity preservation (IP) systems, to preserve the purity of highly valued product traits. These systems create stringent handling processes that require strict separation to be maintained from germplasm or breeding stock to the processed product on the retail shelf. These “closed loop” channels reduce the need for additional testing and auditing and provide assurances to buyers in foreign markets.

However, maintaining effective coexistence is not always a simple task, even when IP systems are in place. The risks of mis-labelling and consumer fraud increase under IP systems because sellers know more about the final attributes of marketed products than buyers. Multiple market failures throughout the supply chain associated with coexistence highlight the need for government intervention. A country seeking to successfully segregate organic and conventional products from GMOs must establish the rules and protocols for coexistence. Some countries allow producers to voluntarily identify their products as GMO free even in the presence of “adventitious” material, as long as the “adventitious” material is less than some tolerance threshold. More controversially, some countries require producers to label their products as containing GMOs if the percentage GMO content exceeds a predefined threshold level. A comprehensive regulatory framework for coexistence begins with a pre-market food, feed, and environmental biosafety approval process, extends into and out of the farm gate, continues through downstream production, and stretches even beyond the end-consumer with the establishment of ex post civil laws, which assign liability in the event of commingling. In countries with poor legal systems the costs of implementing these schemes may exceed the benefits of adopting biotechnological innovations.

Key steps

Before a GMO event is approved for commercial production, it usually undergoes a biosafety assessment and various field trials, like those being conducted for bioengineered late-blight resistant potatoes in Bangladesh, India, and Indonesia. A biosafety regulatory framework typically includes laws and regulations to assess, manage, and communicate the biosafety profiles of GM technologies. The regulatory standards, however, to establish biosafety vary dramatically among countries. At one end of the spectrum, some countries prohibit the authorisation of GMO events until they are proven benign in virtually all respects. This approach weighs only the risks of introducing a GMO, and ignores the potential benefits. [Ref 3]  At the other end of the spectrum, countries that approve GMO events as long as they are sufficiently similar to existing products ignore the potential market effects for producers of organic and conventional agricultural products. Although countries have the sovereignty to weigh the potential benefits and risks of GM technology, inconsistent standards may also conflict in the international trade policy arena. In 2006, for example, the WTO ruled that the EU’s application of the precautionary principle constituted a de facto ban on over 20 GM products from the US, Canada, and Argentina. Potential changes to the 28-nation EU’s GM food regulatory approval process continue to attract attention and cause trade tensions.

Cross-fertilisation due to pollen flow between neighbouring fields of organic or conventional crops by GMOs is a threat to successful coexistence. Policymakers have proposed three alternative mechanisms by which to manage this risk: zoning restrictions, isolation distances, and pollen barriers. Zoning restrictions, which are the least efficient of the proposed policies, permit the production of GMOs in only some regions. Isolation distances, on the other hand, allow farmers to grow GMOs in any region, but require that GMO crops be planted at a minimum distance from non-GM crops. Pollen barriers are similar to isolation distances with the exception that, rather than mandating a minimum distance, they require a buffer crop to be planted between GM and non-GM fields. The pollen barrier reduces the extent of cross-fertilisation much more effectively than an isolation perimeter of bare ground of the same width. [Ref 4]

Some risks do persist. In 2007 organic alfalfa producers in the US were concerned that the introduction of GM alfalfa would lead to the contamination of organic and conventional alfalfa grown in nearby fields and result in decreased access to domestic and foreign markets for non-adopters. The Supreme Court in Monsanto Co. v. Geertson Seed Farms (2010) granted the Department of Agriculture (USDA) the authority to institute conditional deregulations with coexistence measures, like isolation distances and pollen barriers, to prevent this type of cross-fertilisation. Ultimately, however, the USDA chose to unconditionally deregulate GM alfalfa. China, which has not approved GM alfalfa, responded in 2014 by testing US hay imports and rejecting all shipments containing GM material, resulting in a drop in US hay prices. The threat of contamination does not end on the farm. In the absence of effective stewardship, GM and non-GM crops may become commingled downstream during loading and unloading, storage, and transportation. [Ref 5]  Regulatory bodies and private companies have designed segregation mechanisms to try and ensure that GM and non-GM crops are kept separate beyond the farm gate and that the products can be traced at all stages of the supply chain. These systems allow regulators to manage liabilities that arise through the production and processing of commodities and, if necessary, to identify the source of any contaminations and withdraw non-conforming products from the market.

Infamous commingling incidents in the US

The stewardship of coexisting GM and non-GM crops has been far from flawless even in countries with advanced regulatory systems such as the US. Instances of approved and unapproved GM grains commingled with other products have occurred for multiple commodities and throughout the value chain. For example, field trials for GM Liberty Link long-grain rice were conducted by Louisiana State University from 1999 to 2001, but this rice variety never completed USDA deregulation before the illegal rice was found throughout the supply chain. Five years after these fields trials, in August 2006, Liberty Link rice was detected in a cargo of rice shipped to the EU. In response, the EU implemented emergency measures, which remained in place until May 2010 and greatly reduced imports from the US. In total, this contamination cost US rice farmers at least US$1.2 billion, and American rice farmers have failed to regain the EU market some nine years after the Liberty Link rice incident. [Ref 6]

Another incident of commingling in the US arose from ineffective segregation of an approved GM maize variety. In 1998, the US Environmental Protection Agency (EPA) approved StarLink Corn for commercial production of animal feed, but not for human consumption. In late 2000, StarLink material was found in products intended for human consumption across the US, Japan, South Korea, and Canada. In total, this commingling event resulted in a loss of roughly US$500 million to non-StarLink US corn growers. The recent commingling of Syngenta’s Agrisure Viptera corn seed in shipments bound for China resulted in a reported loss of at least US$1 billion for US farmers and exporters. Additionally, the USDA authorised the cultivation and commercialisation of Agrisure Viptera corn in 2010, but Syngenta did not obtain import approval from China. China subsequently banned imports of maize from the US from November 2013 after finding Agrisure Viptera traits in corn shipments. Syngenta is currently facing a consolidated lawsuit brought by Cargill, Archer Daniels Midland, and thousands of US farmers in a US District Court for the episode. [Ref 7]

Towards coexistence and effective stewardship in the developing world

Incidents of accidental co-mingling in countries with well-functioning legal and regulatory systems like the US should not be viewed as omens that coexistence strategies in the developing world are destined for failure. These events instead lower future implementation costs for developing countries by demonstrating system weaknesses. Many developing countries already employ successful coexistence strategies. China and India both successfully produce and export both GM and non-GM cotton. [Ref 8]  South Africa has produced GM crops for more than 10 years and also has a functional biosafety system to manage the risk related to the use of GM products. South Africa successfully trades both GM and non-GM crops using an IP system despite sharing borders with several countries that have banned GM products. [Ref 9]  

The two greatest hurdles to coexistence in developing countries will likely be governance efforts to prevent and discourage fraud against consumers willing to pay a premium for organic or conventional products and the legal capacity to address liability issues. Any system that allows producers to market a credence good of lower perceived quality alongside a higher quality product that is sold at a premium creates the incentive for low quality producers to falsely claim they are selling the high quality good. Effectively discouraging the marketing of products that contain GM ingredients as non-GM will not be easy. Similar fraud is already rampant throughout the food system in many developing countries. In 2013, for example, many Chinese retailers were punished for mislabelling rat and fox meat as beef and lamb. These and other food safety issues have led to a substantial increase in the demand for products labelled as organic in China in recent years. The Chinese organic industry is now, however, subjected to controversy for widespread mislabelling. In South Africa, products containing five percent or more of GMOs must be labelled. [Ref 10]  The country also allows voluntary labelling based on private standards, but many products with non-GM claims have been found to contain GM ingredients. [Ref 11]

Ex post liability schemes for commingling events and consumer fraud require clear rules defining a priori the duty of care for all actors in the supply chain, the conduct that constitutes breach, and a rubric for calculating damages. Some scholars have proposed additional provisions that require the purchase of insurance instruments, require the return of property to its pre-damage state, or mandate liability adjudication by specific quasi-governmental bodies. Alternatively, Common Law countries like the US, Canada, New Zealand, and the UK hold that GM crops do not represent any unique or special risk and traditional tort concepts like negligence and product liability are sufficient to govern the issue. [Ref 12] Regardless of the standards chosen, a country must have the capacity to enforce any and all judgements to ensure compliance, though this risk is also not unique to GMOs.

The final challenge for coexistence may have little to do with legal and regulatory capacity. Political factors, including the influence of anti-GMO groups in the policymaking arena, explain much of the relatively low uptake in agricultural biotechnology in the developing world. The 2010 de-commercialisation of Bt eggplant in India is one of the most indicative examples of this phenomenon. [Ref 13]  The coexistence of GM and non-GM crops is critical to the future of global agriculture despite the political and regulatory barriers to implementation. In light of current UN predictions about population growth and climate change, we must expand our food production amidst increasingly extreme weather conditions and alternative demands on our natural resources, land, and water. We cannot hope to achieve international food security without biotechnology. Moreover, as incomes in the developing world rise, consumer demand for specialised agricultural products, like organics, will undoubtedly grow. Agriculture markets may be unable to meet this demand unless we can effectively manage conventional agricultural products alongside GMOs.

Colin A. Carter, Professor in Agricultural and Resource Economics, University of California, Davis

K. Aleks Schaefer, PhD Candidate, University of California, Davis

[Ref 1] Data provided in the introductory paragraphs are drawn from Network, Canadian Biotechnology Action, Ann Slater, and Cathy Holtslander. "Where in the world are GM crops and foods?" (2015).

[Ref 2] Gruère, Guillaume and Debdatta Sengupta. (2009). “GM-free private standards and their effects on biosafety decision-making in developing countries.” Food Policy 34 (2009) 399–406.

[Ref 3] Carter, Colin A., and Guillaume P. Gruère. (2012). "New and existing GM crops: in search of effective stewardship and coexistence." NEULJ 4: 169.

[Ref 4] Material from this paragraph is drawn from Demont, Matty and Yann Devos. (2008). “Regulating coexistence of GM and non-GM crops without jeopardising economic incentives.” Trends in Biotechnology 26:7.

[Ref 5] Zepeda, José Falck. "Coexistence, genetically modified biotechnologies and biosafety: Implications for developing countries." American Journal of Agricultural Economics 88.5 (2006): 1200-1208.

[Ref 6] Carter and Gruère (2012).

[Ref 7] Material in this paragraph is also drawn from Carter and Gruère (2012).

[Ref 8] Gruère, Guillame, Simon Mevel, and Antoine Bouet. (2009). “Balancing productivity and trade objectives in a competing environment: should India commercialize GM rice with or without China?” Agricultural Economics 40 (2009) 459–475.

[Ref 9] Gruère, Guillame and Debdatta Sengupta. (2010). “Reviewing South Africa's marketing and trade policies for genetically modified products.” Development Southern Africa 27:3, 333-352.

[Ref 10] Esterhuizen, Dirk. (2013). “Biotechnology in South Africa.” Agricultural Biotechnology Annual. Global Action Information Network. United Stated Department of Agriculture Foreign Agricultural Service.

[Ref 11] Gruère and Sengupta (2010).

[Ref 12] Material from this paragraph is drawn from Zepeda (2006).

[Ref 13] Choudhary, B. and Gaur, K. 2009. The Development and Regulation of Bt Brinjal in India (Eggplant/ Aubergine). ISAAA Brief No.38. ISAAA: Ithaca, NY.

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