IP GRAINS - GROWING, HANDLING, STORAGE &

MARKETING

George FlaskerudNDSU Extension Economist

Sept. 22, 2005http://www.ag.ndsu.nodak.edu/aginfo/cropmkt/cropmkt.htm

NDSUEXTENSIONSERVICE

(BioTechConf.ppt)

OrganizationOverviewProductionSegregationTraceabilityTolerancesTestingCountry Elevators

–Situation–Modification–Volume Implications–Labor Costs

Source of InformationBenjamin Henry Thesis

NDSU, July 2005"Marketing Mechanisms to

Facilitate Co-Existence of GM and Non-GM Crops"

Overview: Identity PreservationIP, segregation, traceability, tolerances & testing are all interrelated

IP applicable to specialty crops, GM crops & organic production

IP is an alternative system of procurement, management & trade–Involves identifying crop features to preserve–Facilitates commercialization of GM products–Increases costs to cover segregation, testing, ...–Tradeoff between costs & risks–Premiums must be generated to cover costs–Affects growing, handling, storage & marketing

Overview: GM ProductionGrowing importance of biotechnologies in Ag and agribusiness

Crops: corn, soybeans, cotton, canolaIssues

–Benefits: costs & yields–Consumer acceptance–International trade

Nations divided–Pro: US, Arg, Canada, China, Brazil–Con: Europe, Japan, ...

IP conducive to commercialization

ProductionDetailed records

–Seed identity, planting date, field location & size, inputs used, harvest date, yield, bin #, and delivery person, date & vehicles used

–Samples kept at the farm & throughout marketing chain until final buyer is fully satisfied

Added costs–Record keeping & sample storage–Cleaning equipment & bins–Build new structures for proper storage–Costs incease as tolerance levels tighten

Vertical integration/coordination a possibility

SegregationIsolation of like products with particular attributes

New organizational structure emphasizedProblems

–Adventitious commingling–Loss of conventional elevator efficiency–Storage & handling constraints–High costs as number of grains received increases

TraceabilityTransmission of specified information concerning the identity of a product to the next agent

One step back & one step forward systemBreadth, depth & precision impactsKey points

–From seed to consumer–Vertical coordination–Information flow–Additional costs & premiums

Tolerances and TestingMost important area in co-existence of GM & non-GM–Tolerance: improve quality & mitigate risk–Testing: verify that tolerance levels not violated

Precautionary principle: test loads "thought to be" non-GM

Tests for GM material–Strip-test: 95% confidence level, $7.50/test–PCR: 99% confidence level, $120/test

Cost-risk tradeoff depends on # tests, # testing locations and tolerance levels

Country ElevatorsSurvey conducted (Benjamin Henry study)

–Physical characteristics: # bins, # pits, capacities, certifications

–Current segregation, testing & other IP practices–GM crops currently handled–Variety declaration

–Analysis based on survey results –Engineering-economic model by Hurburgh–Model combined with @RISK software to analyze modification costs, volume implications and labor costs

Survey Results

Response Rate of 5%

43 respondents but only 40 usable surveys

RegionTotal

Number of Elevators

Responding Elevators

(Number) (%)

North-Dakota 412 24 6

South-Dakota 89 7 8

Minnesota 222 10 5

Montana 66 2 3

Total 789 43 5

Survey Results: Crops & Varieties Handled

Wheat, Soybean, Corn

Most Largely Handled Crops .

Bt® corn, RR® corn & RR® soybeans

Most Largely Handled GM Varieties .

Wheat29%

Durum7%

Barley9%

Soybeans27%

Corn21%

Canola1%

Other6%

Survey Results: Physical Characteristics

Large Number of Bins

Large Number of Pits

Large Loading, Receiving, Load-out & Track Capacities

Survey Results: Policies on Quality

Handle IP grains 18%

Request proof 57%

Handle GM grains 89%

Sufficient capacity to segregate 100% of GM crop

23%

Request variety declaration 19%

Deliveries Tested Protein Moisture Test Weight Dockage 93%

Test for Falling Number & Vomitoxin 34%

20% of elevators Test for GM content or Variety

Mostly at Receipt

Elevator Certifications 20% Elevators Approved ISO or/and HACCP 10% Anticipate Getting Facility Approved

Survey Results: Certifications & Testing

Survey Results: Testing (cont.)

  Value Managers Time ($/hr)

Labor cost ($/hr)

Mean 37 11

St Dev 30 7

Min 0 1

Max 100 28

Bushels per test

Average Cost ofClassic Test

Mean 1,540 2.69

St Dev 1,474 6.45

Min 150 0

Max 5,000 25

Survey Results: Segregation Constraints

No Constraint Minor Constraint Major Constraint

Data transmission TimeCost of modification

Samples storageTesting equipment cost

# bins

Accounting and record keeping

Risk testing error IN  

 Risk testing error OUT

 

  Loading capabilities  

  Load-out capabilities  

Survey Results: Segregation (cont.)

 

% Vol. Segrega-

ted

Estimated Cost of Segregation

($/bu)Cost of

Modification ($)

Mean 36% 0.07 195,713

St Dev 35% 0.08 428,377

Min 0% 0.01 0

Max 100% 0.30 1.5M

Cost of Modification Major Constraint to Effective Segregation Smaller for Large Elevators

Estimated Cost of Segregation Smaller for Large Elevators 6 c/bu VS 12 c/bu

Survey Results: Segregation (cont.)

Cost of Segregation

90% Handling-Related . Importance of Cost of

Modification

95% Volume Based . Importance of Volume Tested or

Handled

Correlations Between Input Variables and Cost of Segregation

+ 0.76 Cost of Modification

- 0.48 % Grain Tested

- 0.11 Volume Grain Handled

Impact of Modification Costs on the Cost of Segregation

0102030405060708090

100

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Segregation Cost ($/bu)

Per

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f Ob

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Average Cost Less Modification Modification

65% of observations Less than 10 cents per bu

50% of observations Less than 8 cents per bu

75% of observations Less than 12.5 cents per bu

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0.15

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0.25

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0.35

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0 100000 200000 300000 400000 500000

Volume of Grain Handled (bu)

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($/b

u)

Cost of segregation Estimated value

Cost of Segregation Versus Changes inVolume of Grain Handled

50,000 bu <16c/bu 100,000 bu <13c/bu 250,000 bu <11c/bu

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0.1

0.2

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0.5

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0 100000 200000 300000 400000 500000

Volume of Grain Tested (bu)

Co

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of

Seg

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($/b

u)

Cost of segregation Estimated value

10,000 bu < 40c/bu 50,000 bu <16c/bu 100,000 bu <13c/bu

Cost of Segregation Versus Changes inVolume of Grain Tested

Impact of Different Labor Costs

0102030405060708090

100

0.050 0.100 0.150 0.200 0.250

Cost of Segregation Less Modification ($/bu)

Per

cen

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f Ob

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5 10 15 20 25

Increase of 5 $/hour Labor Cost Increase by 0.5 cents Cost of Segregation

Summary of Survey & Analysis

Success or Failure of Segregation System depends upon Ability of Elevators to Implement at Lowest Cost

Segregation Already Implemented by Most Elevators .

Implementation of New Segregation Practices not too Costly

Large Volume Handled & Tested Lower Segregation Cost .

Premiums for Quality should be High enough to Offset Extra Costs of Segregation

That's AllFolks

QUESTIONS?

NDSUEXTENSIONSERVICE