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

Mad Cows and Bt Potatoes: Global Public Goods in the Food

System

Laurian UnnevehrDepartment of Agricultural and Consumer

EconomicsNCFAR Seminar for Congressional Staff

October 18, 2005

Mad Cows and Bt Potatoes on the Hill

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

Bulk Commodities ProducedFor Domestic Markets

Or Overseas

The Traditional U.S. Agricultural Economics World

Mad Cows and Bt Potatoes on the Hill

The New Realities of Consumer Demand and Globalization

High-Valued Products

Enter World Markets For StandardizedRetail 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– NC1003: 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)

Globalization In the Food System

Mad Cows and Bt Potatoes on the Hill

Agricultural Trade has Grown Faster than Production

Trade 3.8%

Production 2.0%

Average Annual Percentage Change 1990 to 2002Source: 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

0

50

100

150

200

250

300

350

400

450

500

Va

lue

(m

illio

ns

of

do

llars

) High Valued Products

Bulk Commodities

High Valued Products Lead Growth in World Agricultural Trade

Source: FAOSTAT

Mad Cows and Bt Potatoes on the Hill

Trade Increasing as Percent of World Production for High Income Elasticity Foods

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Chicken Pork Fruit Vegetables

1983-1992

1993-2001

Source: FAOSTAT

Mad Cows and Bt Potatoes on the Hill

Source: Restaurant Business, 2001

0%

10%

20%

30%

40%

50%

60%

KentuckyFried

Chicken

McDonald's BaskinRobbins

Dunkin'Donuts

Burger King Domino'sPizza

Perc

ent

Outl

ets

Overs

eas

U.S. Fast-Food Chains Have More Outlets Outside U.S.

1994

2000

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

Global Public Goods:Food Safety

Mad Cows and Bt Potatoes on the Hill

Exports from Poor Countries Must Meet Standards of High Income Consumers

Fish Market in India

Fish in U.S. Supermarket

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

Some foodborne hazards can enter the food supply chain at many points and can multiply once present.

Controls must address the entire system from farm to

table.

Mixing animals from different sources increases the potential to spread microbial contamination.

Controls Linked Throughout the Supply Chain

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

Mad Cows and Bt Potatoes on the Hill

The Global Spread of BSE

19861989

1991

1994

1997

1997 2000

2000

2000

1990

2001

2001

2002

2001

2001

2001

Israel2002

Japan2001

CanadaUSA2003

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

U.S. COW

Meat & BoneMeal

Meat

Milk

Embryos

Semen

HidesBones

SpinalCord

Blood

PetFood

Bile

Fat

Tallow

Mad Cows and Bt Potatoes on the Hill

BSE Risk Reduction as a Regional Public Good:NAFTA Cattle and Beef Markets in 2002

Cattle in million headBeef in billion lbs

1.5M

0.16B

0.82M

0.24B1.1B

0.68B

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?

Global Public Goods: Innovation

ReadingLivestockDNA sequence

GeneticModificationOf CastorBeans

Mad Cows and Bt Potatoes on the Hill

Global Sources of Innovation are Changing

• Importance of private research investment growing

• Private investment exceeds public in U.S. for past two decades

• Private ownership of IP concentrated among major firms

Global Agricultural Research Expenditures by Source, 1995

Source: Pardey and Beintema, 2003

$33 Billion total

Private35%

Public65%

Mad Cows and Bt Potatoes on the Hill

U.S. Private Research Expenditures Exceed Public and Grow More Rapidly

Source: USDA/ERS

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1970 1975 1980 1985 1990 1995

Private Funding

Public Funding

2000 D

ollars

in

Billion

s

Mad Cows and Bt Potatoes on the Hill

Concentration in Supply of New Technology

Ownership of Ag Biotech Patents

Source: Graff et al, 2003

Small Firms33%

5 Top Multi-national

Firms41%

Other 2%

PublicSector

24%

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: Yield Effect• United States 0 – 15%• China 10% • South Africa 20% – 40%• India 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, McDonalds 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

• Traits that promote public health or environmental quality

Cassava

Pearl Millet

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 protein in final product?

NO YES YES

Tolerance level?

0.5% 5% 1%

Traceability/ IP required?

YES 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?

Implications for Agricultural Economics in Federally Funded Research, Education,

and Extension

Mad Cows and Bt Potatoes on the Hill

“Agriculture” Has Expanded Meaning

“Agricultural research will support agriculture as a positive economic, social, and environmental force and will help the sector to fulfill ever-evolving 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

Thank you for your attention!