IP GRAINS - GROWING, HANDLING, STORAGE & MARKETING

1. George Flaskerud NDSU Extension Economist Sept. 22, 2005 http://www.ag.ndsu.nodak.edu/aginfo/cropmkt/cropmkt.htm IP GRAINS - GROWING, HANDLING, STORAGE & MARKETING NDSU EXTENSION SERVICE (BioTechConf.ppt)

2. Organization • Overview • Production • Segregation • Traceability • Tolerances • Testing • Country Elevators • Situation • Modification • Volume Implications • Labor Costs Source of Information Benjamin Henry Thesis NDSU, July 2005 "Marketing Mechanisms to Facilitate Co-Existence of GM and Non-GM Crops"

3. Overview: Identity Preservation • IP, segregation, traceability, tolerances & testing are all interrelated • IP applicable to specialty crops, GM crops & organic production • IP is an alternative system of procurement, management & trade • Involves identifying crop features to preserve • Facilitates commercialization of GM products • Increases costs to cover segregation, testing, ... • Tradeoff between costs & risks • Premiums must be generated to cover costs • Affects growing, handling, storage & marketing

4. Overview: GM Production • Growing importance of biotechnologies in Ag and agribusiness • Crops: corn, soybeans, cotton, canola • Issues • Benefits: costs & yields • Consumer acceptance • International trade • Nations divided • Pro: US, Arg, Canada, China, Brazil • Con: Europe, Japan, ... • IP conducive to commercialization

5. Production • Detailed records • Seed identity, planting date, field location & size, inputs used, harvest date, yield, bin #, and delivery person, date & vehicles used • Samples kept at the farm & throughout marketing chain until final buyer is fully satisfied • Added costs • Record keeping & sample storage • Cleaning equipment & bins • Build new structures for proper storage • Costs incease as tolerance levels tighten • Vertical integration/coordination a possibility

6. Segregation • Isolation of like products with particular attributes • New organizational structure emphasized • Problems • Adventitious commingling • Loss of conventional elevator efficiency • Storage & handling constraints • High costs as number of grains received increases

7. Traceability • Transmission of specified information concerning the identity of a product to the next agent • One step back & one step forward system • Breadth, depth & precision impacts • Key points • From seed to consumer • Vertical coordination • Information flow • Additional costs & premiums

8. Tolerances and Testing • Most important area in co-existence of GM & non-GM • Tolerance: improve quality & mitigate risk • Testing: verify that tolerance levels not violated • Precautionary principle: test loads "thought to be" non-GM • Tests for GM material • Strip-test: 95% confidence level, $7.50/test • PCR: 99% confidence level, $120/test • Cost-risk tradeoff depends on# tests, # testing locations and tolerance levels

9. Country Elevators • Survey conducted (Benjamin Henry study) • Physical characteristics: # bins, # pits, capacities, certifications • Current segregation, testing & other IP practices • GM crops currently handled • Variety declaration • Analysis based on survey results • Engineering-economic model by Hurburgh • Model combined with @RISK software to analyze modification costs, volume implications and labor costs

10. Survey Results • Response Rate of 5%  43 respondents but only 40 usable surveys

11. Survey Results: Crops & Varieties Handled • Wheat, Soybean, Corn  Most Largely Handled Crops . • Bt® corn, RR® corn & RR®soybeans  Most Largely Handled GM Varieties .

12. Survey Results: Physical Characteristics • Large Number of Bins  Large Number of Pits  Large Loading, Receiving, Load-out & Track Capacities

13. Survey Results: Policies on Quality

14. Survey Results: Certifications & Testing • Elevator Certifications • 20% Elevators Approved ISO or/and HACCP • 10% Anticipate Getting Facility Approved • Deliveries Tested • Protein Moisture Test Weight Dockage  93% • Test for Falling Number & Vomitoxin  34% • 20% of elevators  Test for GM content or Variety  Mostly at Receipt

15. Survey Results: Testing (cont.)

16. Survey Results:Segregation Constraints

17. Survey Results: Segregation (cont.) • Estimated Cost of Segregation • Smaller for Large Elevators  6 c/bu VS 12 c/bu • Cost of Modification • Major Constraint to Effective Segregation • Smaller for Large Elevators

18. Survey Results: Segregation (cont.) • Cost of Segregation • 90% Handling-Related .  Importance of Cost of Modification • 95% Volume Based .  Importance of Volume Tested or Handled

19. Correlations Between Input Variables and Cost of Segregation + 0.76 Cost of Modification - 0.48 % Grain Tested - 0.11 Volume Grain Handled

20. Impact of Modification Costs on the Cost of Segregation • 50% of observations  Less than 8 cents per bu • 65% of observations  Less than 10 cents per bu • 75% of observations  Less than 12.5 cents per bu

21. Cost of Segregation Versus Changes inVolume of Grain Handled 50,000 bu  <16c/bu 100,000 bu  <13c/bu 250,000 bu  <11c/bu

22. Cost of Segregation Versus Changes inVolume of Grain Tested 10,000 bu  < 40c/bu 50,000 bu  <16c/bu 100,000 bu  <13c/bu

23. Impact of Different Labor Costs Increase of 5 $/hour Labor Cost  Increase by 0.5 cents Cost of Segregation

24. Summary of Survey & Analysis • Success or Failure of Segregation System depends upon Ability of Elevators to Implement at Lowest Cost • Segregation Already Implemented by Most Elevators . • Implementation of New Segregation Practices not too Costly • Large Volume Handled & Tested  Lower Segregation Cost . • Premiums for Quality should be High enough to Offset Extra Costs of Segregation

25. QUESTIONS? That's All Folks NDSU EXTENSION SERVICE