mad cows and bt potatoes: global public goods in the food system laurian unnevehr department of...
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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
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Mad Cows and Bt Potatoes on the Hill
From Sacred Cows & Hot Potatoes of Farm Policy….
Bloom County, 1988
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Mad Cows and Bt Potatoes on the Hill
…To the Mad Cows and Bt Potatoes of Food Policy
Toles,2004
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Mad Cows and Bt Potatoes on the Hill
Bulk Commodities ProducedFor Domestic Markets
Or Overseas
The Traditional U.S. Agricultural Economics World
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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
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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
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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)
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Globalization In the Food System
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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
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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
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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
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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
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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
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Mad Cows and Bt Potatoes on the Hill
Supermarkets Increase Food Retail Share in Growing Economies
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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
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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
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Global Public Goods:Food Safety
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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
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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.
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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
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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
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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.
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Mad Cows and Bt Potatoes on the Hill
Mad Cows
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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
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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
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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
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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
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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
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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?
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Global Public Goods: Innovation
ReadingLivestockDNA sequence
GeneticModificationOf CastorBeans
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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%
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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
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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%
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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
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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
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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?
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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?
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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
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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
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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
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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
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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?
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Implications for Agricultural Economics in Federally Funded Research, Education,
and Extension
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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.
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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…”
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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
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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
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Thank you for your attention!