Actions at the recently completed meeting of the 132 countries that are parties to the Cartagena Protocol on Biosafety have again raised issues on the costs of compliance for international environmental regulations. By 2012 documents for commodities that now “may contain” Live Modified Organisms (LMOs) will need to identify and quantify the amount of LMOs. The costs of testing for LMOs are only part of the burden of redesigning food chains and increased shipping costs when testing problems develop.
The Biosafety Protocol took affect in September 2003 and is part of the Convention on Biological Diversity designed to protect local biological diversity from movement of LMOs, known as biotech crops in the U.S., across international borders. The protocol does not address food safety issues or consumer product labeling. The protocol acknowledges the rights of each country to regulate bio-engineered organisms consistent with existing international obligations. LMOs intended for planting must have an Advance Informed Agreement. LMO commodities intended for use in feed, food and processing are required to have documents that state that they “may contain” LMOs. Non-living products like milled corn or soybean meal and oil are not covered by these requirements for documents. Parties to the protocol will work over the next six years to define additional information the documents will need by 2012. The U.S., Canada and Argentina, three of the largest exporters of biotech commodities, are not parties to the protocol.
In early March the International Food and Agricultural Trade Policy Council (IPC) based in Washington, DC released two technology issue briefs that estimate the costs of potential regulations under the Biosafety Protocol. One brief provided cost estimates for Brazil and the other for China. These two countries were chosen because one is a major developing country commodity exporter and the other a major developing country commodity importer. The briefs can be accessed at the IPC website at agritrade.org
The IPC briefs look at costs for three levels of documentation:
“may contain” LMOs, (current BSP requirement met by Brazil)
“contains” LMOs, and identifies the LMOs (current Chinese practice)
“contains” LMOs, identifies LMOs and quantifies them
Brazil is unique because it is a party to the protocol and a major developing country exporter of biotech agricultural commodities. Brazil has a long internal supply chain with underdeveloped transportation and a shortage of storage. Identity preservation is generally impossible under its current high volume system. The current “may contain” requirement is a good description of the present situation for Brazil.
Costs for a simple detection of the presence of LMOs were estimated for a system with five transshipments at 0.6 percent of the export value for soybeans and 1.49 percent for corn. Identifying three specific LMO events in the same five transshipment system is estimated to cost 0.91 percent of the export value in soybeans and 2.24 percent in corn. Quantifying the three LMO events would cost 1.21 percent of the export value in soybeans and 2.99 percent in corn. This level of testing may be almost double the current capacity of testing laboratories in Brazil. Adopting a full identity preserved system was estimated to cost 5–9 percent of the export value for the crops in 2004. This is similar to press reports that the National Confederation of Agriculture in Brazil estimates the new regulations could add 10 percent to production costs. According to the IPC issue brief, the premiums for LMO free soybeans range from 4 to 7 percent of the export price.
China is an opposite image of Brazil as a large developing country importer of commodities including biotech soybeans from Brazil, Argentina and the U.S. Over the past 15 years China has developed a comprehensive biosafety regulatory system. The system is relatively easy to manage because of the limited number of ports, the need to test only once and the ability to recover testing costs from the importers. For soybeans the simple “may contain” test costs 0.12 percent of the value of imports, the identify LMOs test costs 0.15 percent and the quantify LMOs test costs 0.20 percent. While corn is not imported at this time, costs were estimated, respectively, at 0.25 percent of import values, 0.63 percent and 1.17 percent.
The IPC issue briefs point out that for most developing countries the costs as a percent of the export value will likely be several times that for Brazil and China. Both countries have regulatory systems that are relatively advanced compared to most developing countries and have economies of scale in testing. Some developing countries may not be able to do the tests because they simply lack the technical equipment and experienced personnel. These limitations could result in new technology like Bt corn not being available to some countries that may also export small amounts of corn.
The testing process can result in other costs for commodity transportation systems. If the testing process in Brazil slows down ship loading, demurrage is estimated at $40,000 per day per ship. Tests done on the same grain with the same testing procedure at time of export and import can differ based on normal sampling error. The issue brief on China notes that port costs can run up to $50,000 a day for delayed uploading. These regulations also have political economic considerations as government agencies that oppose LMOs can use the regulations to thwart efforts by other agencies.
All of these costs act like tariff barriers to trade. Prices to producers are lower, prices to consumers are higher and trade is lower than it would be without the additional costs. Adding to the costs of trading in commodities is not likely to protect biodiversity, but will adversely impact both producers and consumers.