Executive Summary continued -
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The market for GM
versus non GM crops
A distinct non GM market began to develop in the EU from 1998 (for
ingredients used in human food) and has since extended to the animal feed
sector. The main points of relevance about this market development for UK
farming profitability and take up of GM crops are:
a) Current non GM versus GM price differentials (in favour of non GM) are
low and on average within a range of 1% to 5%. The non GM market, in which
there is a price differential (in favour of non GM) mainly exists post
farm gate;
b) At the farm level in countries where GM crops are widely grown, there
has been and is currently very little development of a price differential.
In Brazil, the focus of non GM supplies of soybeans, there has, to date
been no evidence of a non GM price differential having developed. In the
US and Canada, the farm level price for non GM supplies has been within
the range of 1%-3% higher than GM supplies.
c) Assuming some GM crops (containing agronomic traits) are eventually
approved for use in EU agriculture, a key factor influencing whether UK
farmers grow these crops will be whether there is a market for the GM
crop(s). The evidence and analysis presented in this report (section 3 and
appendix 3) suggests that this depends on the crop, use and market:
- crops going directly into human food
have the highest level of requirement for non GM produce. Therefore
crops with relatively high shares of produce going into the human food
chain are likely to be markets in which GM crop take up may be least and
slowest (eg, sugar, potatoes, wheat). Sugar beet is probably the most
‘affected’ crop because British Sugar is the monopoly buyer of sugar
beet and sole supplier of seed to farmers. Whilst British Sugar
maintains a policy of not accepting GM sugar beet (its current policy)
there will be no market for GM sugar beet. If this policy changes by the
time of commercialisation (eg, for use in non food sectors such as
bio-ethanol) and/or export opportunities in the bio-ethanol market
arise, a GM market may develop;
- In contrast, a significant part of the
animal feed and industrial sectors (about three-quarters of the
ingredients used in EU animal feeds) are largely indifferent as to
whether crops used are derived from GM crops or not. For crops destined
for these markets, there is less likely to be a problem in finding
outlets for GM crops and hence the crops likely to see the highest level
of interest in GM technology take up will probably be in grain and
forage maize, oilseed rape, and starch potatoes;
- The nature of competition may affect
‘willingness to accept GM crops’. In markets where (low) price is
considered to be the primary driver of demand (this is relevant to both
domestically consumed foods and to export markets), access to the lowest
priced products and raw materials is the main criteria used for
purchasing. In such markets (eg, frozen rather than fresh poultry), GM
based feed ingredients tend to be attractive because they are often
cheaper to produce than the non GM alternative.
d) Take up of GM crops will also be
influenced by the impact on farm incomes. Farmers will assess whether to
grow GM crops according to the likely impact of the GM crops on factors
such as yield and costs of production (and other factors that are more
difficult to put a monetary value on such as convenience). Within this
assessment the level of price differential between GM and non GM crops
will play a role in influencing take up. The higher the level of price
differential in favour of non GM crops, the less likely GM crop take up is
likely to be and vice versa..
e) It is important to emphasise that the
GM crop traits examined in this study are intended to be cost reducing.
This means that if the majority of global production switches to this
technology there will a cost and price reducing effect on the baseline
price of the commodity. To date this has probably only occurred in the
soybean market. The net effect of this is that any price differential that
may develop between GM and non GM products will partly reflect this cost
of production differential and may also reflect any costs of
segregation/IP of the non GM product. It is therefore incorrect to assume
that price differentials only reflect segregation/IP costs. In the soybean
sector, estimates of the impact of GM technology suggest that the real
price of soybeans had fallen by 1%-2% by the end of 2001 because of the
technology (see section 3).
f) In the longer term (10 years plus), GM
crops containing quality traits (eg, offering possible traits such as
lower fat content, food products with improved taste) might be
commercialised. This category of GM crop could offer farmers price premia
to grow such crops and may be attractive to some farmers because of the
premium price and/or because producing on contract to processors may
contribute to reducing price risk.
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