USDA AC21 September 16, 2003

1. USDA AC21September 16, 2003 What are the down-stream issues for the food chain? Current situation Challenges for the food marketer Consumer acceptance Knowing what consumers will want The paradox of added benefit An inadequate regulatory framework What is being done to prepare for these products?

2. Current products have not provided a benefit to food processors. Earlier attempts at value-added benefits did not play out in market either due to lack of adequate benefit, or lack of consumer acceptance. Currently, the benefits accrue to tech providers and farmers – no base of consumer benefit to build upon. Food industry continues to believe in the ultimate potential value of biotechnology in foods. However, we may oversell this technology to consumers if we imply that it would produce a product with consumer benefits that they would value IN THE NEAR TERM, (i.e. 3-5 years).

3. Consumer acceptance is critical. Food is a uniquely sensitive subject with people. Benefits can improve acceptance; But they are not the complete answer to market success. Labeling also is not the answer.

4. Today, acceptance data is not re-assuring to food marketers: Surveys do not show support or acceptance in the US. Cornell survey finds New York State residents almost evenly divided on agricultural biotechnology: 39% of New Yorkers oppose the use of bioengineered food  33% who support it  29% are undecided Residents are similarly divided on whether the use of biotechnology is risky: 37% believe the risks of food biotech are greater than any benefits;  36% say the benefits outweigh any potential risk; and  28% think the benefits and risks are about equal.

5. Consumer Support for Biotech Crops is DecreasingIFIC Polls for 1999 and 2003

6. Lack of acceptance outside the US presents challenges to US -based food marketers. Outside the US, the presence of genetically modified ingredients (or origin) is a major barrier to product export from the US. The US food industry confronts major barriers to trade in 21 of our top 25 export markets and concerns about market acceptance in even more.

7. It is, and will be, necessary to separate US/NA supplies from our global markets. Eliminate potential for US/NA production to contaminate the supply chain for export, or source/produce off-shore. The US food industry cannot export this technology off the North American continent w/o confronting technical barriers to trade. If we want to realize globally re-applicable food product innovation, we cannot source biotech.

8. Added-value products will present challenges for the food marketer: High cost to develop the technology – Lengthy time to develop the products. What do consumer want? Will they still want it when it is ready? Will they pay? Paradox of foods with a benefit. Are they different? What does this mean for acceptance? Regulatory status, health claims? Marketing in the face of ongoing controversy. Regulatory framework does not foster acceptance.

9. What do consumers want? How good are we are predicting food trends 5-10 years out? Will Adkin’s diet take over? Will fast food go away? Will low-fat come back? What will they pay for? How much will they pay? How long will they want it?

10. Genetically modified for added value: A paradox for the marketer of food products. If it is really different enough to be of big benefit, will it be seen as differently by the consumer and by the FDA? How do you market a new value-added biotech product that has a significant enough benefit to justify the cost, without raising consumer concerns around “new foods” and biotech origin? How to communicate the benefit without communicating that this is different from the foods the consumer eats today. What will it take to obtain an A+ health claim from the FDA? Will it still be eligible for GRAS status, or will it require a food additive petition?

11. Alignment between the food marketer and tech provider on consumer need, product benefit and cost is needed before the product is developed. If food industry must “react” to the arrival of a new value-added product, this won’t work.

12. Marketing added-value benefits at the same time controversial developments continue on other biotech products. Marketing added-value products in the face of publicity and activist challenges of GM-wheat, PMP, GM-animals. GM-wheat will be an emotional issue – it is the “staff of life”. It will be readily detected and foods containing it will be easy targets for activists.

13. PMPs will continue to present a great risk of controversy: given a voice …. “NFPA would not have supported the use of food plants for the production of plant-made pharmaceuticals (PMP’s). The risk and impact of contamination to the food supply is simply too great, as the food industry learned through experiences with the commodity crop StarLink O corn …. NFPA strongly opposes the use of food crops to produce PMPs commercially without effective controls and procedures that ensure against any contamination of the food supply ….” The manufacture of transgenic and cloned animals and whether they will become part of our food supply raise moral, ethical and cultural questions which science cannot resolve and which neither industry or government can continue to ignore. These developments will undoubtedly continue to provide a basis for controversy over the coming years.

14. A regulatory scheme which does not provide the food processor with “safe harbor” for human safety of GM foods. An important factor contributing to acceptance, especially in the face of any controversy, will be a better, more credible regulatory system in the US. The current complex voluntary regulatory scheme does not provide robust-re-assurance of the safety of human use. Both government risk managers and industry scientists assured us that accidents like StarLink, ProdiGene, and Champagne-Urbana “no take” pigs (non-transgenic offspring of bio-engineered pigs) just couldn’t happen. The current Govt. position does not support movement to improve this situation.

15. Food Industry makes what it can sell • Value created by price over time. • Reflected in ingredient price (organic). • Difficult for industry to experiment. • Pink cars don’t sell for a reason.

16. Risk / Value Proposition Undefined • Public companies required to be stewards of value and are very risk averse. • Most annual meetings have some resolution to ban or study GMO’s. • Keeps issue public for shareholders and management. • Usually a perception based question which elicits a science based response.

17. Issue Evolved From Grain Perspective • Market has uncanny ability to solve issues. • Terms/ tolerances should be negotiated between buyers and sellers. • Food industry doesn’t have ability to negotiate with consumers.

18. Segregation is a requirement, but has issues • Testing costs accelerate. What do you measure? • Drive for productivity hindered. • Plant structure often limits bin space for ingredients.

19. Creates Push For Integrated Supply Chain • Contracting increases as value segregates. • Easier to buy from 5 to 10 farmers than 500. • Risk is reduced as control increases. • Competitive landscape changes.

20. All Issues Point to Needed Rules Around Adventitious Presence / Tolerances • What is acceptable zero? • Difficult to develop independently in global markets with lack of harmonization. • Business does not stand still while governments negotiate.