The International Consortium on Agricultural Biotechnology Research (ICABR)

 

Estimating the Costs of Segregation for Non-Genetically Modified Corn and Soybeans

 

William W. Lin, ERS-USDA, Washington DC

 

 

Abstract

 

The rapid adoption of genetically modified (GM) crops by U.S. farmers in recent years is intersecting with great uncertainties regarding market demand. Labeling foods that contain or are made with GM ingredients will soon go beyond the EU to include Japan and other Asian countries. The EU is currently reviewing its feed labeling regulations as well. Consumer concerns are forcing some food manufacturers to purchase only non-GM grains. As a result, the U.S. grain handling industry plans to increase segregation of GM- from non-GM crops. A most recent survey of 1,200 U.S. elevators by Farm Progress Companies showed that 24 percent of grain elevators plan to segregate corn, and 20 percent to segregate soybeans this coming fall, up from about 10 percent last fall.

A couple of key questions related to grain segregation are: (1) "how much additional costs the U.S. grain handling industry would incur in the segregation for non-GM grains and oilseeds?"; And (2) "who are to bear the costs of segregation?" Answers to these questions have important implications for grain marketing and trade.

Segregation for non-GM grains and oilseeds essentially is an extension of the same process for specialty grains and oilseeds, which is a long-term trend. Many of value-enhanced crops, such as high oil corn and food-grade soybeans, are handled through segregation or identity preservation (IP)--a more rigorous and very strict segregation, often reserved for marketing of food corn and food soybeans that are usually grown under contract and involves container shipments.

 

This study estimates the costs of segregation for non-GM corn and soybeans based on the survey results for specialty corn and soybeans from a recent University of Illinois study Alternative Market Channels for Specialty Corn and Soybeans (AE-4726, Feb. 1999) by Karen Bender and others. However, each of the cost item in that report is examined at each point of the marketing chain to determine if adjustments are needed, especially with regard to "handling/segregation," "analysis/testing," and "purchasing premium." The costs of segregation are modeled after the cost estimates reported by Bender, et al for high oil corn (HOC) and STS soybeans, while the costs of IP are modeled after food corn and food soybeans.

The costs of segregation or IP are estimated for a typical marketing channel that moves corn or soybeans from farms to country elevators, to subterminals, and then to export elevators. Adjustments to the costs of segregation reported by Bender et al are made along the marketing chain. First, at the country elevator, a two-tier segregation—first to segregate between GM and non-GM varieties and then for GM varieties, EU-approved and EU unapproved varieties--is needed for corn because most country elevators do not have complete knowledge about the destination of corn shipments. Second, adjustments were made to the cost associated with "analysis/testing" to reflect the cost of testing GM content at each point of the marketing channel, considering the costs of testing using protein-based ELISA (enzyme-linked immunosorbent assay) test kit or DNA-based PCR (polymerase chain reaction) technique. Finally, purchasing premiums are also adjusted to reflect the common range currently offered by elevators to producers—5-10 cents/bu. for non-GM corn and 10-15 cents/bu. for non-GM soybeans.

The costs of segregation for non-GM corn and soybeans vary among elevators. For the U.S. grain handling sector, preliminary analysis indicates that segregation would add about $0.29/bu. on average for corn (about 16% of corn farm price) to total marketing costs from farm gate to export elevator. Similarly, segregation would add about $0.69/bu. for soybeans (about 14% of soybean farm price). The cost of segregation through IP would become very expensive by adding $1.45/bu. to total marketing costs (81% of the corn price). Similarly, the cost of IP would add about $1.98/bu. for soybeans (41% of the soybean price).

Who are to bear the costs of segregation? This paper addresses the effects of a number of factors on the distribution of incidence. These factors include: (1) demand and supply elasticities, (2) substitutability of the product, (3) the competitive structure of the food industry, (4) the proportion of ingredient in the final product value, and (5) alternative sourcing of supply by buyers.

 


 

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