The International Consortium on Agricultural Biotechnology Research (ICABR)



A Dynamic Model of Social and Private Costs of Agricultural Biotechnology Regulation


Anthony Artuso, Rutgers University of New Jersey





Regulatory agencies in the U.S. have not perceived the public health risks of transgenic crops and food products as qualitatively different from traditional crop varieties. Consequently, regulation of foods made from transgenic organisms has been based upon a largely voluntary risk assessment by industry. Industry and government regulatory agencies have also been in agreement in rejecting, as unnecessary, any labeling requirements for foods containing transgenic agricultural products. There has been somewhat more stringent control placed upon field trials of transgenic varieties by the USDA and EPA but the recent controversy over the ecological effects of Bt corn indicates that a comprehensive risk assessment and benefit cost analysis has not been the norm even in this phase of the regulatory process.

In the European Union, increasing public concern over both ecological and public health risks has led to what is now effectively a moratorium on the introduction of new of transgenic crops and food products. Several major food producers and agricultural commodity companies in the U.S., Europe and Japan have indicated that they will no longer purchase transgenic agricultural products or will require segregation and pay lower prices for transgenic varieties. This is in turn has led to some hesitation by farmers over whether to plant transgenic seed. The unsettled market outlook has already had repercussions on the major agricultural biotechnology companies. Pharmacia and Upjohn which is purchasing Monsanto has announced its intention to spin-off Monsanto's agricultural units. Novartis and Astra-Zeneca have announced plans to divest and merge their agricultural operations.

Industry is generally conceived as concerned with only private costs and benefits of regulation. For products such as transgenic varieties that have potential externalities this can create a divergence between public and private sector interests. Yet, as public perceptions of risk increase, industry may benefit from more stringent regulation if this is expected to increase public confidence in agricultural biotechnology products. Industry's expected benefits will depend on the marginal cost of regulatory compliance as well as the timing and magnitude of any increase in public acceptance as a result of stronger regulatory controls.

In theory, public sector managers should set agricultural biotechnology regulations to identify whether new transgenic varieties have expected social benefits in excess of expected social costs. Although regulators have often been reluctant to respond to what are perceived as uninformed and rather fluid public perceptions of risk. Yet a broader conception of the benefits of the regulatory process as protecting both public safety and ensuring a continued supply of innovative products may justify some adjustment of the regulatory system in response to public concerns. A recognition that the regulatory system may affect public acceptance of agricultural biotechnology products requires a more dynamic evaluation of benefits and costs. It may also create an economic basis for a weak version of the precautionary principle.

This paper will develop a simple model of agricultural biotechnology regulation to explore how public perceptions of risk, the credibility of the regulatory system and the cost of regulation affect industry and public sector decisions regarding optimal regulatory policy. Existing and proposed regulatory controls in the U.S. and Europe will be critically evaluated in relation to insights derived from the model.



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