The International Consortium on Agricultural Biotechnology Research (ICABR)


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Evaluating Consumer Welfare Implications of Agricultural Standard Harmonization
Lee Ann Jackson

Recent biotechnological developments in agriculture have introduced several new crop varieties, with many more in the research pipeline. The potential proliferation of these new agricultural products, known generally as Genetically Modified Organisms (GMOs), has lead to public debate surrounding the consumer welfare impacts associated with their use and new government regulations concerning their production, use, and ownership. Differences among countries’ regulations and standards concerning GMOs have already been a source of trade tension between the U.S., European Union (EU) and developing countries such as Brazil. Such standards are likely to affect the traded levels of these products as well as the distribution of costs and benefits associated with their use. This article will describe a public goods model of standards harmonization in which developed and less developed nations negotiate levels of standards based on the relative magnitude of producer and consumer interests, and the expected willingness of other nations to conform to a particular level of harmonization. The resulting levels of standards will be used to examine the different consumer welfare impacts associated with divergent and harmonized standards for biotechnology products.

The model is composed of two sub-models, a political economy model which describes national standardization policy choice and an international trade negotiation model which highlights national strategies for choosing standards and the subsequent trade impacts of these standards. In the political economic component consumers and producers lobby national governments in an attempt to maximize their own welfare. This sub-model uses data on consumer preferences and industry level production to describe national level policy choice on biotechnology product standardization.

The model assumes that consumers in both countries prefer low price and high diversity of agricultural products. However, the result of these preferences on consumer lobbying behavior is ambiguous since costs will likely increase as producers increase the differentiation of traditional agricultural product from GMOs. In the model the developed country is a net exporter of agricultural product and the developing country is a net importer. With increased levels of product differentiation, producers in the developed country support lower standards since they would initially lose surplus due to increased costs associated with product differentiation, while developing country producers prefer higher levels of standards as a form of protectionism. Thus within each country consumers and producers may have similar or divergent views on the optimal level of national standards.

Faced with these internal dynamics countries then enter into international trade negotiations concerning levels of standards around which they will harmonize. Since developed countries have a greater ability to erect and maintain standards the results of negotiation is likely to be closer to their national interests. This difference in ability to enforce standards will introduce a bias in negotiation outcomes, trade flows and, ultimately, consumer welfare. Finally, consumer welfare under harmonized standards will be compared to the situation in which countries do not negotiate harmonized standards but rather set their standards individually. In these cases it is expected that divergent standards will inhibit market access, thus leading to lower levels of consumer welfare.