Mad Cows and Bt Potatoes Global Public Goods

Mad Cows and Bt Potatoes: Global Public Goods in the Food System Laurian Unnevehr Department of Agricultural and Consumer Economics NCFAR Seminar for Congressional Staff October 18, 2005

From Sacred Cows & Hot Potatoes of Farm Policy…. Bloom County, 1988 Mad Cows and Bt Potatoes on the Hill

…To the Mad Cows and Bt Potatoes of Food Policy Toles, 2004 Mad Cows and Bt Potatoes on the Hill

The Traditional U. S. Agricultural Economics World Bulk Commodities Produced For Domestic Markets Or Overseas Mad Cows and Bt Potatoes on the Hill

The New Realities of Consumer Demand Globalization High-Valued Products Enter World Markets For Standardized Retail Outlets Mad Cows and Bt Potatoes on the Hill

Global Context for Our Policy Research • Globalization of food system and changes in demand bring “deep integration” of markets • Risks and benefits now cross borders more often, creating demand for global public goods • Challenges us to carry out policy analysis on familiar issues in new ways Mad Cows and Bt Potatoes on the Hill

Agricultural Economics Research Meets This Challenge with Federal Support • Regional Research Committees provide powerful synergies for addressing new economics questions – NE 165: Private Strategies, Public Policies, and Food System Performance – NC 1003: Impact Analysis and Decision Strategies for Agricultural Research – Each include about 25 states, federal agencies, private companies, plus international • Competitive grants programs fund specific projects (NRI, IFAFS) Mad Cows and Bt Potatoes on the Hill

Globalization In the Food System

Agricultural Trade has Grown Faster than Production Trade 3. 8% Production 2. 0% Average Annual Percentage Change 1990 to 2002 Source: WTO Mad Cows and Bt Potatoes on the Hill

Food Demand Changes Shape Globalization • Demand changes with higher income, urbanization: – More meat, fish, fruits and vegetables – More processed, branded products – Higher, uniform quality – More services • World markets reflect these demand changes: – Market growth and integration faster for high -value products – Growth in food service, retailing – More uniform quality standards Mad Cows and Bt Potatoes on the Hill

High Valued Products Lead Growth in World Agricultural Trade High Valued Products Bulk Commodities Source: FAOSTAT Mad Cows and Bt Potatoes on the Hill

Trade Increasing as Percent of World Production for High Income Elasticity Foods 1983 -1992 1993 -2001 Source: FAOSTAT Mad Cows and Bt Potatoes on the Hill

U. S. Fast-Food Chains Have More Outlets Outside U. S. 1994 2000 Source: Restaurant Business, 2001 Mad Cows and Bt Potatoes on the Hill

Supermarkets Increase Food Retail Share in Growing Economies Mad Cows and Bt Potatoes on the Hill

Global Adoption of “Meta-Standards” for Quality and Product Information • Need to ensure uniform quality and to provide product information • Adoption of internationally recognized systems of quality control for certification • Increased use of tracking and testing technologies • Result is increasing “deep integration” of methods of production Mad Cows and Bt Potatoes on the Hill

Integration and Fragmentation in Global Food Markets INTEGRATION • More trade & specialization • Shared benefits, risks – animal & plant health, food safety – new technologies FRAGMENTATION • Continued market protection • Non-tariff market barriers – Risk standards – Intellectual property rights – Labeling policy Mad Cows and Bt Potatoes on the Hill

Global Public Goods: Food Safety

Exports from Poor Countries Must Meet Standards of High Income Consumers Fish in U. S. Supermarket Fish Market in India Mad Cows and Bt Potatoes on the Hill

Changes in Animal and Fish Production Towards Larger Units Increased scale of production can introduce new hazards or speed the spread of existing ones. Mad Cows and Bt Potatoes on the Hill

Controls Linked Throughout the Supply Chain Some foodborne hazards can enter the food supply chain at many points and can multiply once present. Mixing animals from different sources increases the potential to spread microbial contamination. Controls must address the entire system from farm to table. Mad Cows and Bt Potatoes on the Hill

As More Food is Purchased Away from Home… • Consumers have less control over food preparation • Industry takes greater responsibility for final safety of food when consumed Deli Salads in a Supermarket Mad Cows and Bt Potatoes on the Hill

Managing Food Safety as a GPG: Global Institutions • Sanitary and Phytosanitary (SPS) agreement under the WTO sets these principles for standards – – – Transparency Science-based Equivalence National sovereignty Harmonization • These principles have worked to reduce trade barriers, but many challenges remain. Mad Cows and Bt Potatoes on the Hill

Mad Cows and Bt Potatoes on the Hill

The Global Spread of BSE 2000 1989 1986 Canada USA 2003 1997 2002 2000 2001 1991 2001 1990 2001 1994 Japan 2001 2000 2001 Israel 2002 Source: Hueston, 2004 Mad Cows and Bt Potatoes on the Hill

BSE news in 1988, 1996, and 2000 Led to Swift Declines in Beef Demand in EU Source: USDA/ERS Mad Cows and Bt Potatoes on the Hill

The U. S. Cow is a Global Animal Hides Bones Meat & Bone Meal Spinal Cord Semen Meat Blood Embryos U. S. COW Pet Food Tallow Bile Milk Fat Mad Cows and Bt Potatoes on the Hill

BSE Risk Reduction as a Regional Public Good: NAFTA Cattle and Beef Markets in 2002 1. 5 M 1. 1 B 0. 82 M 0. 24 B 0. 68 B 0. 16 B Cattle in million head Beef in billion lbs Mad Cows and Bt Potatoes on the Hill

Managing BSE as a Global Public Good • To re-establish trade requires agreement – Among NAFTA partners – Between Japan and U. S. re • Equivalent measures in U. S. and Japan • Measures in U. S. re Canadian imports • SPS agreement recognizes World Organization for Animal Health guidelines for: – country risk level determination – reducing meat import risk Mad Cows and Bt Potatoes on the Hill

Food Safety as a GPG - Unresolved Issues • What are the limits to private efforts for food safety control? • When would coordinated risk management reduce the costs of control? • How to compensate increased costs in one part of the supply chain that provide risk reduction in another part or country? Mad Cows and Bt Potatoes on the Hill

Reading Livestock DNA sequence Global Public Goods: Innovation Genetic Modification Of Castor Beans

Global Sources of Innovation are Changing • Importance of private research investment growing Global Agricultural Research Expenditures by Source, 1995 Private 35% Public 65% • Private investment exceeds public in U. S. for past two decades • Private ownership of IP concentrated among major firms $33 Billion total Source: Pardey and Beintema, 2003 Mad Cows and Bt Potatoes on the Hill

U. S. Private Research Expenditures Exceed Public and Grow More Rapidly 2000 Dollars in Billions Private Funding Public Funding Source: USDA/ERS Mad Cows and Bt Potatoes on the Hill

Concentration in Supply of New Technology Other 2% Public Sector 24% 5 Top Multinational Firms 41% Small Firms 33% Ownership of Ag Biotech Patents Source: Graff et al, 2003 Mad Cows and Bt Potatoes on the Hill

Innovation is a Mixed Public-Private Good • Incentives for private investment – Changes in intellectual property law – Advent of modern biotechnology • Public research has become more private – Collaboration with firms – Patenting within public sector Mad Cows and Bt Potatoes on the Hill

Private Innovation with Global Impact: Bt Cotton Bt cotton in: • United States • China • South Africa • India Yield Effect 0 – 15% 10% 20% – 40% 60% – 80 % • Chemical use reduced in every country. Source: Zilberman et al. , 2004 Mad Cows and Bt Potatoes on the Hill

Private Innovation Going Nowhere: Bt Potatoes • Bt potatoes to repel major pest marketed by Monsanto • Only adopted on 15% of US acreage • In 2000, Mc. Donalds decides no GM in fries • Monsanto withdraws from market • Lost potential for future innovation? Mad Cows and Bt Potatoes on the Hill

Will Private Investment Meet Demand for Innovation? • Does lack of agreement on risks inhibit investment? • Do current intellectual property laws – Create hold-ups? – Divert research from public goals? Mad Cows and Bt Potatoes on the Hill

Demand for Innovation Not Met by Private Investment • Yield increases in poorest countries • Orphan or minor crops or animals Pearl Millet • Traits that promote public health or environmental quality Cassava Mad Cows and Bt Potatoes on the Hill

Managing Innovation as a GPG: Intellectual Property Rights • Extending Global Recognition of IP Rights – Eg. , Trade Related Aspects of IP Rights (TRIPS) under WTO • Creating New Institutions to Reward IP – Clearinghouses for sharing property • Eg. , Public IP Resource for Ag (PIPRA) patent sharing group – New incentives mechanisms • Eg. Prize for African ag innovation Mad Cows and Bt Potatoes on the Hill

Managing Innovation as a GPG: Regulation • Health Risks – Labeling and traceability requirements for GM foods differ in EU, Japan, and Australia • Environmental risks – Cartegena Protocol sets standards for sharing information in trade • Clear differences remain in regulatory approaches Mad Cows and Bt Potatoes on the Hill

Different Mandatory Labeling Requirements Have Different Cost Implications EU Japan Australia/ NZ Only if novel NO protein in final product? YES Tolerance level? 0. 5% 5% 1% Traceability/ IP required? YES Only for negative claim Green = least costly Red = most costly Mad Cows and Bt Potatoes on the Hill

Innovation as GPG – Unresolved Issues • How can incentives be provided for new technologies with limited private benefit and large public benefit? • Can public research investment be more strategic in complementing private investment? • How can U. S. suppliers position themselves to meet demand for information? Mad Cows and Bt Potatoes on the Hill

Implications for Agricultural Economics in Federally Funded Research, Education, and Extension

“Agriculture” Has Expanded Meaning “Agricultural research will support agriculture as a positive economic, social, and environmental force and will help the sector to fulfill everevolving demands. These include further gains in food production and such other benefits as enhanced public health, environmental services, rural amenities, and community well-being. ” Vision statement from Frontiers in Agricultural Research: Food, Health, Environment, and Communities, National Academies Press, 2003. Mad Cows and Bt Potatoes on the Hill

More from the Frontiers report…. • “US agricultural research should be conducted with an increased understanding and awareness of how problems and solutions are interconnected globally…” • “US agricultural leaders are changing their primary emphasis from production efficiency to meeting consumer demands…” • “Agricultural research will engage relevant biophysical and socioeconomic disciplines in a systems approach to address new priorities…” Mad Cows and Bt Potatoes on the Hill

Global Public Goods and Bads in the Food System • • Invasive species Mad cow disease Biotechnology regulation Agricultural trade liberalization Bioterrorism Carbon sequestration Obesity “epidemic” Ocean fish stock collapse Mad Cows and Bt Potatoes on the Hill

Implications for Our Research, Education & Engagement • Shared risks, benefits will shape future food system and food policy • All of our stakeholders interested in GPGs – Producers and Agribusiness – Consumers – Policy makers • Agricultural Economics research will continue to support expanding goals of the agricultural research system Mad Cows and Bt Potatoes on the Hill

Thank you for your attention!