Nicholas Kalaitzandonakes with the Economics and Management of Agrobiotechnology Center at the University of Missouri highlighted the issue in The Economic Impacts of Asynchronous Authorizations and Low Level Presence: An Overview for the International Food & Agricultural Trade Policy Council (IPC). His starting point in the analysis was the existing grain supply chain of farmers, country elevators, terminal elevators, grain processors and exporters. Controlling operating costs in the chain is important because grains have relatively low final value, but are bulky and expensive to transport. To achieve economies of scale, grain from farms and storage facilities are constantly mixed as they move through the delivery system. With asynchronous approvals in exporting and importing countries, standard commodity handling will lead to LLP issues.
Even if governments tried to coordinate approval processes, the timeliness and completeness of applications will vary as will the speed of regulatory review processes. Roughly 33 countries now have regulatory systems for biotech crops and more are in the process of developing their systems. The U.S., Canada and Japan move at similar speeds, while the EU takes twice as long.
At the heart of a response to LLP of unapproved biotech crops are tolerance levels – a weighting of risks and economic considerations. The level could be established for each LLP situation or be a fixed level for all LLP situations. Tolerances determine the exposure of human and animal populations and the environment to the biotech event. They also determine the effectiveness and cost of segregated trade as a response to the LLP situation and are an important part of the national LLP risk management strategy.
According to Kalaitzandonakes, “Segregation costs increase as tolerances decease.” Costs can vary from one part of the supply chain to another and include both direct and indirect segregation costs. Direct costs are payable costs, while indirect costs are non-payable and result from efficiency losses. Segregation procedures depend mostly on the margin of error defined by the LLP tolerances. Under a zero tolerance for LLP, trade will likely cease because perfect segregation cannot be achieved on an ongoing basis.
Trade disruptions from asynchronous approvals can be transitory or long lasting depending on factors like the number of events involved, alternative products available and the length of time until approval. As a general rule, the greater the price elasticity in the market, the lower the incremental costs will tend to be. Downstream industries competitiveness, structure and level of employment can also be impacted.
The author sites empirical evidence on the impact of LLP, much of it based on EU conditions. For soybeans and meal imports, loss of U.S. supplies would have little impact on EU markets as long as Brazil and Argentina continued to be suppliers. Loss of two or all three suppliers increased feed expenditures by 23-600 percent. Another study found that loss of all three supplies would decrease EU pork and poultry production by 34 percent. The U.S. problem of Starlink corn approved for feed, but not food, found in the food supply ten year ago caused Starlink-free corn to command a 4-6 percent premium over commodity corn. A separate study found a 6.8 percent discount on U.S. corn in the export market for a year. An analysis of unapproved Liberty Link rice in U.S. exports resulted in a 17 percent decline in U.S. rice export prices for two months.
Kalaitzandonakes noted in his concluding comments that research and development and biotech innovations are assumed to be independent of the regulatory process. He acknowledges there is likely to be “a dynamic interplay” and indirect economic effects could include forgone productivity gains from unrealized innovation.
In a separate IPC analysis on Vietnam, Guillaume P. Gruere of the International Food Policy Research Institute found that Vietnam is using the Codex Alimentarius
Annex on LLP standard on biotech food safety assessment for the temporary approval of the LLP of biotech crops approved by the exporter but not yet approved by Vietnam. It has a zero tolerance for LLP and has been importing livestock and poultry feed produced with biotechnology. Government officials have expressed interest in growing biotech crops. One option for approval of import for a biotech crop for food use is to show that the biotech crop has been approved by at least five developed countries and no risk has been seen in these countries. This approach is unique to Vietnam and there is uncertainty over which countries are developed and how to determine a biotech crop has been approved for use. This approach allows government regulators to draw on the scientific expertise of other countries for products that have an established record of safety.
Kalaitzandonakes concludes by noting that trends point to more LLP situations. The pipeline of novel biotech events continues to expand; biotech acreage and the countries raising them continues to swell; the number of biotech crops grown continues to increase; and more biotech crops move in international commodity trade. Most important, the number of countries with new and inexperienced regulatory programs also continues to grow. LLP in some parts of the food/feed supply chain are almost inevitable and the need will exist for significant coordination in the international regulatory system to avoid trade disruptions.
While these are all challenges, regulators are developing frameworks for handling these problems and some countries are well on the way to putting them to work.
Ross Korves is the Economic Policy Analyst for Truth About Trade & Technology