PG Economics - comments on GMO crop markets

What is the real demand for non GM products in the EU?

A distinct non GM market began to develop in 1998 (for ingredients used in human food) and was extended to the animal feed sector from about 2000[1]. It has focused largely on soybeans and derivatives, and to a much lesser extent maize, because these were the first two crops for which approvals for the EU importation and use of products derived from GM crops where granted (before the introduction of the de facto moratorium). Key features of the market development have been:

In the human food sector there has been a switching to using alternative non GM derived ingredients (eg, the replacement of soy oil with sunflower or rapeseed oil). This was relatively easy for a number of food products like confectionery and ready meals, where soy ingredient incorporation levels were low (eg, 1%). This course of action has been more difficult to take in the animal feed sector because of the importance of soymeal as an ingredient in some feeds (eg, broiler feeds where typical incorporation rates are 20%-25%);

If the GM crop or derivative could not be readily replaced, non GM derived sources of supply were sought. This focused mainly on Brazil (but not exclusively) and involved the initiation of identity preserved (IP) or segregated supply lines (traditional supply lines use commodity based systems where there is broad mixing of seed in bulk for transportation) to ensure non GM derived supplies to customer-specific tolerances were adhered to;

GM derived ingredients have largely been removed from products directly consumed (by humans), although the non GM share is less prominent or important in terms of (soy) oil usage. In the animal feed sector, about 25% of soymeal used is required to be non GM in the EU and in the industrial user sectors, there is little or no development of the non GM market[2] (ie, the market is indifferent to the production origin of raw materials);

It has been reasonably easy for the European buyers to identify and obtain supplies of non GM derived soybeans and soymeal at ‘competitive prices’. Where the threshold applied has been 1%[3] (for the presence of GM material), price premia have tended to be in the range of 2% to 5%, on average over the last two years, whereas when tighter thresholds and a more strict regime of testing, traceability and guarantees are required (eg, to a threshold of 0.1%), the price premia has been within a range of 7%-10%;

the additional cost burden of supplying non GM ingredients has largely been absorbed by the supply chain up to the point of retailers (ie, the cost burden has fallen on feed compounders, livestock producers and food manufacturers and has not been passed on to retailers and end consumers);

in non GM markets where there is a price differential (in favour of non GM) this is mainly post farm gate. 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 tended to be within the range of 1%-3% higher than GM supplies, and this level of differential in favour of non GM crops has had little positive effect on the supply of non GM crops (ie, GM plantings have continued to increase, with the price differential being widely perceived to be an inadequate incentive for most farmers to grow non GM crops like soybeans). In Brazil, trade sources[4] also suggest that a farm level differential of 5%-10% for non GM soybeans will be required to keep a significant volume of Brazilian soybean farmers growing non GM soybeans once GM soybeans are permanently approved for planting in Brazil. In the EU, where GM crops are currently grown commercially (effectively only Spain), there is also no evidence of a price differential having developed at the farm level.

Market developments relating to GM versus non GM maize market have followed a similar path to the developments discussed above in relation to soybeans:

The food industry targeted removal of all GM derived ingredients from products, including GM maize or;

non GM derived sources of supply were sought. This was relatively easy and focused on domestic EU origin sourcing, where the approval and commercial adoption of Bt maize has been very limited. The need to initiate identity preserved (IP) supply lines has also been limited because of the absence of GM maize material in the vast majority of EU supplies. Only in Spain where 20,000-25,000 hectares of Bt maize have been grown annually in the period 1998-2002 has a (potential) need for greater attention to segregation/IP been relevant and even here, there have been limited problems; the majority of Bt maize grown in Spain is concentrated in a few regions and is supplied to the local animal feed compounding sector, where there is little demand for non GM ingredients;

the demand for non GM material is mostly found in the food sector (including starch). These uses, however account for a minority of total EU maize use (about 23%), with the feed sector being the primary user of maize (75% of total use[5]). In the animal feed sector about a quarter of ingredients are required to be of non GM origin (see above);

as non GM maize has dominated the supply of maize in the EU, the development of clear price differentials between GM and non GM derived maize has been less marked than in the market for soybeans and derivatives. Where users of maize (notably in the food and starch sectors) have specifically required guaranteed non GM maize (to the same thresholds as non GM soy of mostly 1% and some to 0.1%), price premia for non GM derived maize have tended to be in the range of 1% to 3%;

the cost burden (where applicable) of using non GM derived maize has generally been absorbed by the food chain.

Overall, the analysis above suggests that current EU requirements for non GM ingredients of maize and soybeans (ie, where buyers actively request that supplies are certified as being non GM) accounts for about 27% of total soybean/derivative use and about a third of total maize use. In respect of other arable crops such as oilseed rape and sugar beet, there is no real GM versus non GM market in the EU because, in the case of oilseed rape, no GM product is currently permitted for planting or importing for use in the EU, and in respect of sugar beet, no GM sugar is currently grown commercially anywhere in the world.

Continued - Future demand for non GM derived products

[1] Brookes G (2001)

[2] This refers to all non food industrial uses and does refer to industrial uses where the raw materials are destined for human food use (eg, maize starch used in food products)

[3] And more recently 0.9% in line with the new legal threshold

[4] With interests in the supply of non GM soybeans

[5] The balance is accounted for by seed

[6] Sources: Brookes G (2003) and Canola Council (2001)

[7] Source: Quan L (2002)

[8] We draw an important distinction here between consumer market research that examines factors affecting actual food buying habits/factors of influence and more simplistic surveys of consumer views on GMOs. Most of the latter form of research has been of very limited value because findings have been biased by the language used in questions, the existing (poor) knowledge of respondents and failure to explore and verify actual buying behaviour relative to views expressed