Hurley, 2001

What to Know Before Planting GMO

Terry Hurley

Telephone: 612-625-0216

E-Mail: thurley@dept.agecon.umn.edu

Hurley, 2001

Overview

• How Much GMO is Out There?

• Production– Profitability

– Risk

• Marketing– Markets

– Market Access

– Market Premiums

– What’s the Consumer Thinking?

• Regulation

• What’s Next

Hurley, 2001

Bt Corn and Herbicide Tolerant (HT) Soybean Plantings

1.47.6

19.125.0

18.0 16.0

7.4

17.0

44.2

57.0 54.0

63.0

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001

Year

Per

cent

of A

cres

Bt CornHT Soybeans

Notes: Source = USDA/NASS. 2001 estimates represent planting intentions.

Hurley, 2001

% Bt Corn0 - 9%10 - 19%20 - 29%30 - 39%40 - 49%>50%

U.S. Distribution of Bt Corn*

* Represents the percentage of total corn acreage planted to Bt corn hybrids in counties in which > 50,000 total acres of corn were planted. (Source: Bt corn industry sales data as compiled by FSI, Inc., 1999)

Hurley, 2001

Production Decisions For GMOs

• Step 1: Evaluate the Tangibles– Increased Revenues/Decreased Costs

– Decreased Revenues/Increased Costs

– Partial Budget Analysis

• Step 2: Evaluate the Intangibles– Increased Flexibility

– Risk Management Benefits

– Safer Handling

– Environmental Safety

– Product Quality

Hurley, 2001

Example of Partial Budget AnalysisAre Roundup Ready soybeans more profitable?

ConventionalRoundup

Ready ChangeRevenue

Yield (Bu./Acre) 51 49 49 – 51 = - 2Expected Price ($/Bu.) 5.00

Change ($/Acre) -2 5.00 = -10.00

CostSeed ($/Acre) 18.89 26.42 26.42 - 18.89 = 7.53

Tillage and Planting ($/Acre) 13.06 11.59 11.59 - 13.06 = -1.47Chemical and Application ($/Acre) 33.65 24.91 24.91 - 33.65 = -8.74

Change ($/Acre) 7.53 + (-1.47) + (-8.74) =-2.68

Change in Net Returns ($/Acre) Subtract Change in CostFrom Change in Revenue

-10.00 – (-2.68) =-7.32

Hurley, 2001

Example of Partial Budget AnalysisIs Bt corn more profitable?

Conventional Bt ChangeRevenue

Yield (Bu./Acre) 135 145 145 – 135 = 10Expected Price ($/Bu.) 2.00

Change ($/Acre) 10 2.00 = 20.00

CostScouting Cost ($/Acre) 3.00 0.00 0.00 – 3.00 = -3.00

Technology Fee ($/Acre) 0.00 10.00 10.00 – 0.00 = 10.00Chemical and Application 14.00 (1/5) =

2.800.00 0.00 – 2.80 = -2.80

Change ($/Acre) (-3.00) + 10.00 + (-2.80) =4.20

Change in Net Returns ($/Acre) Subtract Change in CostFrom Change in Revenue

20.00 – 4.20 =15.80

Premium required for theconventional corn to be more

profitable than the Bt ($/Acre).

Divide Change in Net Returns byConventional Yield

15.80 / 135 =0.12

Note: Chemical and Application Costs assume scouting would find economically significantEuropean Corn borer infestation in one out of every five years.

Hurley, 2001

Conclusions of Partial Budget Analysis

• HT Soybeans– Change in net returns are less than 0, so the conventional soybeans

are more profitable under the assumptions of the analysis.

– What factors may be missing in this analysis?

• Bt Corn– Change in net returns are greater than 0, so Bt is more profitable

under the assumptions of the analysis.

– Conventional corn could be more profitable with market premiums in excess of $0.12 a bushel.

– What factors may be missing in this analysis?

Hurley, 2001

Should growers ever adopt GMOs when conventional varieties are equally or more

profitable per acre?• Some Intangibles May Increase Profitability Indirectly

– Increased flexibility

– Product Quality

• Others Do Not– Risk Management

– Environmental Safety

• Emphasizing Intangibles That Do Not Affect Profitability Can Reduce Competitiveness

Hurley, 2001

Recent Estimates of Yield Loss From European Corn Borer

Coefficient of Variation0.6 0.8 1.0 1.2

Percent Yield Loss0.5 4.7 4.5 4.4 4.2

(2.8) (2.8) (2.9) (3.0)1.0 6.1 5.9 5.7 5.5

(2.8) (2.9) (3.0) (3.1)1.5 7.0 6.8 6.5 6.3

(2.7) (2.9) (3.0) (3.1)2.0 7.6 7.3 7.1 6.9

AverageNumber of

SecondGeneration

EuropeanCorn Borer

Per Plant(2.6) (2.8) (2.9) (3.0)

Notes: Standard deviation of the estimate is in parentheses. Estimate calculated using data provided by MarlinRice, Extension Entomologists, Iowa State University. The coefficient of variation is equal to the standarddeviation divided by the average.

Hurley, 2001

Markets

• Foreign Opposition Segments Markets

• Market Premiums Are Possible

• What Growers Plant Determines Market Access

• Greater Market Access Does Not Guarantee Premiums

Hurley, 2001

GMExportMarket

GMDomesticMarket

Non-GMMarket

PlantUnapprovedfor ExportGM-Seed

PlantApprovedfor ExportGM-Seed

PlantNon-GM

Seed

GMExportMarket

GMDomesticMarket

Non-GMMarket

GMExportMarket

GMDomesticMarket

Non-GMMarket

Market Access

Hurley, 2001

Market Approval and Access

• Market approval and access is based on Events.

• Events are defined by how the plant is different.– Proteins

– Promoters

• All hybrids are based on an Event.

• Determining approval status of a hybrid requires knowing the approval status of the Event on which the hybrid is based.

• Elevators Accepting Non-EU Approved Hybrids– http://asta.farmprogress.com/

Hurley, 2001

Approval Status of Transgenic Corn EventsProduct Registrant Approval

Event Characteristic Trade Name U.S. Japan EUBt176 Cry1Ab ECB resistance Syngenta Knockout/ Mycogen

NatureGardYes Yes Yes

Bt11 Cry1Ab ECB resistance Syngenta YieldGard/Liberty Link

Yes Yes Yes

Mon810 Cry1Ab ECB resistance Monsanto YieldGard Yes Yes YesT25 Glufosinate tolerance Aventis LibertyLink Yes Yes Yes

MonGA21 Glyphosate tolerance Monsanto Roundup Ready Yes Yes NoMon810+GA21

Cry1Ab ECB resistance/Glyphosate tolerance

Monsanto YieldGard/Roundup Ready

Yes Yes No

Source: National Corn Growers Association updated 1/10/2001, reviewed May 3, 2001<http://www.ncga.com/11biotechnology/know_where/know_grow_approved.htm>

Hurley, 2001

Status of Current and New Approvals

• US EPA approvals for Bt corn Events are conditional.– Original Expiration: January and April of 2001

– Extensions to September 30, 2001

– October Scientific Advisory Panel

– Bt176 Registration Will Not Be Renewed

• Japanese Approvals Being Reviewed Under New Regulations

• Moratorium Continues in the EU

Hurley, 2001

Market Premiums For Non-GM

• Market Premiums Arise From Excess Demand– If there is enough supply to meet demands, market premiums unlikely.

• Non-GM premiums are out there, but not widely available.

• Tokyo Grain Exchange Offer Non-GM Futures– Good barometer of market conditions for Non-GM soybean.

• No Consistent Source of Market Premiums for Non-GM Corn

Hurley, 2001

U.S. Soybean Use

0

10

20

30

40

50

60

Year

Per

cent

of S

uppl

y

ExportDomestic Feed Etc.Domestic Food

Hurley, 2001

U.S. Corn Use

0

10

20

30

40

50

60

70

Year

Per

cent

of S

uppl

y

ExportDomestic Feed Etc.Domestic Food

Hurley, 2001

http://www.tge.or.jp/index.html

Tokyo Grain Exchange Prices (1-22-01)

ContractNon-GM

Soybean Price($/Bushel)

US SoybeanPrice

($/Bushel)Premium($/Bushel)

Premium asPercent of USSoybean Price

February-2001 5.90 5.85 0.04 0.7April-2001 5.48 5.07 0.41 8.0June-2001 5.52 5.20 0.31 6.0

August-2001 5.59 5.29 0.30 5.7October-2001 5.75 5.36 0.40 7.4

December-2001 5.87 5.42 0.45 8.4Delivery: Tokyo, Kanagawa, Chiba, and Saitama.

Hurley, 2001

http://www.tge.or.jp/index.html

Tokyo Grain Exchange Prices (5-14-01)

ContractNon-GM

Soybean Price($/Bushel)

US SoybeanPrice

($/Bushel)Premium($/Bushel)

Premium asPercent of USSoybean Price

June-01 6.18 6.17 0.02 0.3August-01 5.84 5.64 0.20 3.5

October-01 5.76 5.31 0.45 8.5December-01 5.65 5.41 0.24 4.4February-02 5.65 5.41 0.24 4.5

April-02 5.66 5.34 0.32 6.0Delivery: Tokyo, Kanagawa, Chiba, and Saitama.

Hurley, 2001

Customer Attitudes

• Most US Consumers Seem to Support Biotechnology– Support Fell in Fall 1999

– Little/No Rebound Since

– Affect of StarLink Not Clear

• Exports Have Not Changed Dramatically As Percentage of US Supply– Some Evidence Growth May Have Declined

– USDA Reports StarLink Contamination Hurt Exports

• Many EU Supermarkets Going Non-GM Livestock

Hurley, 2001

Do you feel confident of not confident that the food at most grocery stores is safe to eat?September 1999 April 2000

PercentageConfident 80 80

Not Confident 19 18No Opinion 1 2

Telephone survey conducted by the Gallup Organization(Sample Size1,000).http://www.gallup.com/poll/indicators/indhealth.asp

Hurley, 2001

As you may know, some food products and medicines are being developed using newscientific techniques. The general area is called “biotechnology” and includes tools suchas genetic engineering and genetic modification of food. Overall would you say youstrongly support, moderately support, moderately oppose, or strongly oppose the use ofbiotechnology in agriculture and food production?

September 1999 April 2000Percentage

Strong/Moderate Support 51 48Strong/Moderate Oppose 41 41

No Opinion 8 11Telephone survey conducted by the Gallup Organization(Sample Size1,000).http://www.gallup.com/poll/indicators/indhealth.asp

Hurley, 2001

As you may know, some food products and medicines are being developed using newscientific techniques. The general area is called “biotechnology” and includes tools suchas genetic engineering and genetic modification of food. From what you know or haveheard, do you believe that foods that have been produced using biotechnology pose aserious health hazard to consumers, or not?

September 1999 April 2000Percentage

No 53 51Yes 27 30

No Opinion 20 19Telephone survey conducted by the Gallup Organization(Sample Size1,000).http://www.gallup.com/poll/indicators/indhealth.asp

Hurley, 2001

All things being equal, how likely would you be to buy a variety of produce, liketomatoes or potatoes, if it had been modified by biotechnology to be protected frominsect damage and required fewer pesticide applications?

March1997

February1999

October1999

May2000

January2001

PercentageVery/Somewhat Likely 77 77 67 69 70

Not too/at all Likely 23 21 27 28 27Don’t Know/Refuse 1 2 6 3 3

Telephone survey conducted by Wirthlin Group Quorum Surveys for International Food Information Council Foundation(Sample Size1,000).http://www.ificinfo.health.org/foodbiotech/survey.htm

Hurley, 2001

Do you feel biotechnology will provide benefits for you and your family within the nextfive years?

March1997

February1999

October1999

May2000

January2001

PercentageYes 78 75 63 59 64No 14 15 21 25 22

Don’t Know/Refuse 8 10 16 16 14Telephone survey conducted by Wirthlin Group Quorum Surveys for International Food Information Council Foundation(Sample Size1,000).http://www.ificinfo.health.org/foodbiotech/survey.htm

Hurley, 2001

Export Trends

0

10

20

30

40

50

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

Per

cent

of U

.S. S

uppl

y E

xpor

ted

Corn

Soybean

Hurley, 2001

March 1, 2001 U.S. Exports and Outstanding Export Sales

• Japan -17%

• South Korea -43%

• Taiwan +1%

• Africa -4%

• Western Hemisphere +5%

• Total -10%

• Pre-StarLink Projections +13 to 17%

Source: Robert Wisner, Extension Economist, Iowa State University

Hurley, 2001

Regulation

• United States Department of Agriculture– Animal and Plant Health Inspection Service (APHIS)

• Department of Health and Human Services– Food and Drug Administration (FDA)

• Environmental Protection Agency (EPA)

• GMO Labeling Around the World

Hurley, 2001

Animal and Plant Health Inspection Service

• Protects American Agriculture Against Pests and Disease

• Regulates Movement, Importation, and Testing of GM

• Approves Petitions for Non-regulated Status– Required for Commercialization

Hurley, 2001

Food and Drug Administration

• Governs the Safety and Labeling of Drugs, Food, and Feed

• Can Remove Products From Market

• Voluntary/Mandatory Consultations

• Labeling– Allergens-Yes

– Substantial Equivalents-No

Hurley, 2001

Environmental Protection Agency

• Governs Pesticide and Herbicide Use

• Regulates Plant-Pesticides (Bt Crops)

• Treats Plant-Pesticides Different From Other Pesticides

• Planning New Guidelines

• Currently, Case by Case

Hurley, 2001

Insect Resistance Management Requirements for Bt Corn in Minnesota

• At Least 20% Conventional Corn Refuge

• Spraying for European Corn Borer, and/or Corn Earworm Based on Economic Thresholds Is Permitted on Refuge

• Refuge Can Be in External Blocks, on the Edges or Headlands of Fields, or in Strips in a Field of Greater Than 6 Rows

• Refuge Must Be Planted Within 1/2 Mile of the Bt Field – 1/4 Mile is Preferable If Refuge May Be Sprayed

Source:http://www.epa.gov/pesticides/biopesticides/otherdocs/bt_corn_ltr.htm

Hurley, 2001

GMO Labeling Around the World

• Labeling Scheduled to Be in Place For 2001 Harvest:– European Union (1% Tolerance)

– Japan (5% Tolerance)

– South Korea (3% Tolerance)

• Labeling Pending:– Philippines

– Australia (1% Tolerance)

– New Zealand (1% Tolerance)

– Thailand

– Malaysia

– Hong Kong (5% Tolerance)

• Labeling Encouraged by Global Biosafety Protocol TreatySource: Robert Wisner, Extension Economist, Iowa State University and Rodney Williamson, Iowa Corn Growers Association

Hurley, 2001

Final Notes

• Bt Corn and HT Soybeans May Be Profitable, But No Guarantee-Growers Must Work the Numbers For Their Operation

– Primary Value of Bt Corn is Yield Protection-Sensitive to Commodity Prices and Highly Variable Pest Infestations

– Primary Value of HT Soybeans is Cost Savings and Flexibility-Insensitive to Commodity Prices and Weeds Are More Consistent Problem

• Growers Need to Know– Hybrid Event– Market Options– Planting Restrictions

• Growers Need to Watch– Consumer Attitudes– What Neighbors Grow

Hurley, 2001

What’s Next?

• Corn Rootworm Control

• Corn Rootworm and European Corn Borer Control

• Multiple Toxin European Corn Borer Control

• Time Line is Still Uncertain– StarLink Has Slowed Things Down

– Monsanto Has Product Ready to Go

– Pioneer Has Product that is Close

Hurley, 2001

Thank you for your time!