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

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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

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From Sacred Cows Hot Potatoes of Farm Policy.
Bloom County, 1988
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To the Mad Cows and Bt Potatoes of Food Policy
Toles, 2004
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The Traditional U.S. Agricultural Economics World
Bulk Commodities Produced
For Domestic Markets
Or Overseas
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The New Realities of Consumer Demand and
Globalization
High-Valued Products
For Standardized Retail Outlets
Enter World Markets
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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

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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)

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Globalization In the Food System
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Agricultural Trade has Grown Faster than
Production
Trade 3.8
Production 2.0
Average Annual Percentage Change 1990 to 2002
Source WTO
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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

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High Valued Products Lead Growth
in World Agricultural Trade
High Valued Products
Bulk Commodities
Source FAOSTAT
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Trade Increasing as Percent of World Production
for High Income Elasticity Foods
1983-1992
1993-2001
Source FAOSTAT
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U.S. Fast-Food Chains Have More Outlets Outside
U.S.
1994
2000
Source Restaurant Business, 2001
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Supermarkets Increase Food Retail Share in
Growing Economies
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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

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Integration and Fragmentation in Global Food
Markets

• INTEGRATION
• More trade specialization

• FRAGMENTATION
• Continued market protection

• Shared benefits, risks

• Non-tariff market barriers

• animal plant health, food safety

• Risk standards

• Intellectual property rights
• Labeling policy

• new technologies

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Global Public GoodsFood Safety
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Exports from Poor Countries Must Meet
Standards of High Income Consumers
Fish in U.S. Supermarket
Fish Market in India
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Changes in Animal and Fish Production
Towards Larger Units
Increased scale of production can introduce new
hazards or speed the spread of existing ones.
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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.
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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
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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.

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Mad Cows
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The Global Spread of BSE
Japan 2001
2000
1989
1986
1997
2002
Canada USA 2003
2000
1997
2001
2001
1991
1990
2001
2001
1994
2000
2001
Israel 2002
Source Hueston, 2004
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BSE news in 1988, 1996, and 2000 Led to
Swift Declines in Beef Demand in EU
Source USDA/ERS
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The U.S. Cow is a Global Animal
Hides
Bones
Meat BoneMeal
Spinal Cord
Semen
Meat
Blood
Embryos
U.S. COW
Pet Food
Tallow
Bile
Fat
Milk
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BSE Risk Reduction as a Regional Public
Good NAFTA Cattle and Beef Markets in 2002
1.5M
0.24B
1.1B
1.4B to Asia
0.68B
0.82M
0.16B
Cattle in million head Beef in billion lbs
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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

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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?

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Global Public Goods Innovation
Reading Livestock DNA sequence
Genetic Modification Of Castor Beans
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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
Public 65
Private 35
33 Billion total
Source Pardey and Beintema, 2003
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U.S. Private Research Expenditures Exceed
Public and Grow More Rapidly
Private Funding
Public Funding
2000 Dollars in Billions
Source USDA/ERS
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Concentration in Supply of New Technology
Other 2

Public Sector 24
5 Top Multi-national Firms 41
Small Firms 33
Ownership of Ag Biotech Patents
Source Graff et al, 2003
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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

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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
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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?

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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?

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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

Pearl Millet
Cassava
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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

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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

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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
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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?

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

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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

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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

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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

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• Thank you for your attention!