The International Consortium on Agricultural Biotechnology Research (ICABR)


Biotechnology and International Trade:
Implications for Producer and Consumer Welfare

Sergio Lence,
Dermot Hayes
Iowa State University

The biotechnological products that have been commercialized to date are difficult to distinguish from their non-biotech alternatives. To date the primary benefit of these technologies is to reduce production costs and consumer prices. Many consumers are indifferent between biotech and non-biotech grains, but some consumers have indicated a willingness to pay premiums for non-biotech grains. The purpose of our paper is to examine the overall welfare implications of these developments. We will compare the welfare gains made by consumers who obtain less expensive foods with the welfare loss of those consumers who must pay a premium to maintain the identity of a non-biotech source. We will also compare the benefit to those producers who can access a low cost production method with the welfare losses caused by the resulting reductions in market prices. Our model will describe the conditions under which total welfare increases and decreases. Particular attention will be paid to costs associated with maintaining the identity of the product.

Some countries have proposed the use of voluntary or mandatory labeling or even outright bans on the importation of biotechnological products, and these proposals will be discussed in the next round of the World Trade Association. Our paper will show the conditions under which these policies increase and reduce welfare in both importing and exporting countries.

Our empirical results will be specific to the particular biotechnological products that have been commercialized to date. However our theoretical results will have applications to some of the biotechnological products in the development pipeline, as well as to other certification programs (child labor, environmental, and animal welfare), that have been proposed.

Our preliminary results suggest that in most cases the introduction of biotechnology increases total welfare, however there are cases where welfare falls. This latter situation occurs when the new cost saving technology is strongly opposed by some consumers, where identity preservation is expensive and where production cost savings are relatively small. The particular circumstances under which welfare falls are unlikely to occur in markets where biotechnology is an issue, but they are likely to occur in markets where the issue relates to child labor standards. Hence it might be possible to justify a WTO ban on the importation of some processes and products but to justify an opposition to such a ban on other products and processes. The key contribution of our work will be to describe the conditions under which these trade policies should and should not be used.

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