The International Consortium on Agricultural Biotechnology Research (ICABR)

 

ICABR Contributed Paper Proposal:
Price Premiums for Nonbiotech Corn and Soybeans: Implications for
the Costs of Segregation

William Lin,
ERS-USDA

Concerns raised by consumers in the EU, part of Asia, and other countries about safety and health effects of biotech foods or simply the right to choose between biotech and nonbiotech foods have triggered more labeling requirements and government regulations in these countries. In the case of biotech labeling requirements, suppliers’ decision on whether to segregate grain into biotech and nonbiotech commodities depends crucially on the extent of price premiums to which buyers are willing to pay for nonbiotech commodities that can cover the costs of segregation.

Despite their importance, little is understood about price premiums that buyers are willing to pay for non-genetically modified (non-GM) grain in both the U.S. domestic and international markets. The availability of both non-GM soybean futures prices and U.S. undifferentiated soybean futures at Tokyo Grain Exchange offers a rich data source for deriving price premiums for non-GM soybeans. In addition, price premiums can be obtained from surveying Japanese grain trading houses, especially those located at the Pacific Northwest region (PNW). These price premiums will capture the bulk of segregated, non-GM corn and soybean shipments from U.S. export ports because segregation is primarily done for the Japanese export market. Also, these price premiums eventually would be translated into price premiums that first grain handlers (local elevators) are willing to pay U.S. producers for non-GM corn and soybeans. If the U.S. grain marketing system is efficient, knowledge about the differences in price premiums that buyers are willing to pay in the international and U.S. domestic markets can arrive at estimates of the costs of segregation.

Accordingly, the purposes of this paper are two-fold: 1) to estimate price premiums that buyers in both the U.S. domestic and international markets are willing to pay for non-GM corn and soybeans; and 2) to draw implications for the costs of segregation for non-GM corn and soybeans. Price premiums for non-GM soybeans will be estimated by comparing non-GM soybean futures and U.S. soybean futures at Tokyo Grain Exchange. Interviews with Japanese grain trading houses, primarily at PNW, will provide a crosscheck of the above estimate and a source for arriving at price premiums for non-GM corn. Price premiums that local elevators paid to producers will be arrived at by reviewing the literature as well as popular news media reports.

Preliminary analysis suggests that, over the last year, Japanese buyers were willing to pay average price premiums of 40-50 cents/bu. for non-GM corn from the United States and 55-65 cents/bu. for non-GM soybeans. In the meantime, U.S. producers commonly received premiums of 5-10 cents/bu. for non-GM corn and 10-15 cents/bu. for non-GM soybeans. The differences in these price premiums suggest that the costs of segregation—from country elevators to subterminals, export ports, and to foreign destination—range 35-40 cents/bu. for non-GM corn and 45-50 cents/bu. for non-GM soybeans. These price premium differentials further suggest the costs of segregation—from local elevators to subterminals and export elevators—to range 22-27 cents/bu. for non-GM corn and 32-37 cents/bu. for non-GM soybeans—after deducting 13 cents/bu. additional ocean freight expenses due to segregation, which is required for typical small-volume shipments of non-GM corn and soybeans to Japan. It is of interest to note that the latter costs of segregation are comparable with those reported earlier by Lin (ICABR 2000 contributed paper)—22 cents/bu. for non-GM corn and 18-54 cents/bu. for non-GM soybeans, depending on whether the segregation follows the handling practice for high oil corn or STS (Synchrony Treated Soybeans--a herbicide-tolerant but nonbiotech variety). An average of the 18 and 54 cents/bu. (in the absence of detailed information about the composition of non-GM soybeans shipped to Japan) yields costs of segregation at 36 cents/bu for non-GM soybeans, compared with the 32-37 cents/bu. derived from the price premium differentials.


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