The International Consortium on Agricultural Biotechnology Research (ICABR)
Economic effects of GMO adoption in presence of a demand for identity-preserved non-GMO products
David S. Bullock
Department of Agricultural and Consumer Economics
University of Illinois,
Institut National de la Recherche Agronomique,
Economie et Sociologies Rurales,
In this paper, we propose a model by which to analyze the economic effects of genetically modified organisms (GMOs), in a country adopting first-generation genetically modified (GM) varieties for a given crop and facing a change in domestic and/or export demand for this crop. This change in demand arises either because national regulations deter imports of these GM varieties in some traditionally importing countries (which acts as a ban on these varieties), or because some consumers, either domestically or in importing countries, are opposed to GMOs and are able to distinguish non-GMO identity-preserved (IP) products from other products due to labeling regulations.
The change in demand, driven by national GMO import restrictions or by consumers' rejection of GMOs, affects all of the vertically-linked supply chain in the adopting country, with two distinct effects. Firstly, it creates an incentive to supply identity-preserved non-GMO grains to final consumers, with a necessary change at all stages of the vertically-linked supply chain, from the seed industry to the processing industry, to avoid co-mingling of non-GM crops with GM crops and to test and label under imperfect information. Secondly, it changes the incentive to adopt GMOs for farmers, and affects suppliers of the GMO innovation and of associated farm inputs.
In order to analyze these effects, we develop a model consisting of three vertically related markets for a given crop: the seed market, farm crop market, and handled crop market. Prices of other products, notably other farm inputs and alternative crops grown by farmers, are held constant. Non-GM seeds are supplied at a constant price while GM seeds are supplied with market power and the price of GM seeds is endogenous. Farm producers are differentiated by two attributes: weed/insect situations, which determine their incentive to adopt GMOs (restricted to herbicide-tolerant or insect-resistant varieties), and proximity to an elevator participating in the non-GMO IP channel, which determines their incentive to supply non-GM IP crops. Some handlers are able to achieve identity preservation more economically than others and participate first in the IP channel. Demand for handled soybeans is split up between a portion of consumers willing to buy only non-GM IP products and a portion of consumers indifferent between GM and non-GM products.
We start from a world without GMOs, and we then consider three successive steps: introduction of the GM technology; decrease in final demand due to GMO rejection, in the absence of market segregation of IP crops; and IP technological change, by which it becomes possible to segregate non-GM IP crops. We show the effects of changes at each step in terms of prices, quantities and revenues of different groups. We then discuss the insights given by this model to understand current developments in corn and soybeans exports from the United States to the European Union (EU) and Japan, and to anticipate the potential effects of large-scale adoption of GM crops in the EU if a significant part of consumers remains opposed to GMOs.