Claudio Soregaroli, Stefano Boccaletti, Alessandro Varacca 14 November 2012

1. WP5: Coexistence implications within the EU and international supply chain Stakeholder dialogue workshop Claudio Soregaroli, Stefano Boccaletti, Alessandro Varacca 14 November2012

2. WP5: Who is involved • UNICATT – UNIVERSITA’ CATTOLICA DEL SACRO CUORE • IPS - INSTITUTO POLITECNICO DE SANTAREM • TUM - TECHNISCHE UNIVERSITAET MUENCHEN • EVD - EIDGENOESSISCHES VOLKSWIRTSCHAFTSDEPARTEMENT • JRC -JOINT RESEARCH CENTRE

3. WP5: Motivation • Coexistence has implications downstream within the national and international supply chain that are pivotal in determining scenarios for the EU agricultural, food and feed industry • Consumer’s preferences (demand) are the driving force. Firms need to comply with market requirements (positive or negative labelling – public or private mandatory/voluntary standards)

4. WP5: Economic problem • International supply chain and EU supply chain • They are interdependent and face the economic risk of adventitious presence (AP) of GMOs • The economic risk is influenced by: • Endogenous factors • Actions taken by firms to control risk of AP • Exogenous factors • Asynchronous approval, threshold levels, enforced liability, imports from non-EU countries…

5. WP5: Purpose • To evaluate implications of coexistence and segregation along the supply chain under an industrial organization and institutional perspective. • Taking into account the structure of the chains and exogenous factors (approvals, thresholds, liability…)

6. WP5: Structure Structure of the supply chain for maize and soybean Economic risk of AP • Asynchronous approval • Liability • Traceability • Thresholds • Imports Governance Case studies • Maize (Portugal) • Milk (Switzerland and Germany) WP2 WP4 Scenarios Implications for the EU industry

7. WP5: Description of work (1) • Description of the international (soybean and maize) and EU supply chains • Objective is to identify: • the structure of the chain, with a clear picture of the economic agents involved and their linkages; • Identify the relevant governance aspects with particular focus on segregation and “GM-free” labelled foods • contractual arrangements, standards, quality management procedures, market failures, transaction costs… involvement of stakeholders, data availability from secondary sources !

8. WP5: Description of work (2) • Factors influencing the economic risk of adventitious presence • (differentiated by crop, trait, and supply chain) • Subtasks: • Legal issues, their costs and possibilities for reducing them (TUM) • Three levels: farm, supply chain and WTO • Up-date of the JRC-IPTS report on GM crops in the pipeline (JRC-IPTS) • Overview of the technical traceability requirements and their relevance to firms (JRC-IHCP)

9. WP5: Description of work (3) • Case studies • Description and analysis of the maize bread supply chain in the context of maize coexistence in Portugal (IPS) • Description of the market for conventional and “GM-free” labelled milk in Switzerland and Germany (EVD) • Detailed description of the structure and focus on costs

10. WP5: Description of work (4) The final goal is to • evaluate implications of coexistence and segregation along the supply chain • provide scenarios and implications for the EU feed and food industry

11. WP5: First year of work • Countriescovered • EU: Germany, Italy, Portugal, Switzerland • Non-EU: Brazil, Argentina (USA, Ukraine...) • Objective: description of supply chains • Method: • Use of secondary data sources (statistics) • Literature review (supply chains: maize and soybean, GM and non-GM) • Qualitative unstructured survey on key agents at different levels of the supply chain

12. Survey on key agents of supply chain • Step 1: Literature review • Step 2: Questionnaires setting up • Building on available literature • One common framework for all countries • Step3: Questionnaires drafts tested with industry experts • Step 4: Interview with representative stakeholders

13. Questionnaires • Type: open questions • Structure: • One general structure adapted to the type of respondent • Questions cover the supply chain structure, the market of commodities and processed products, supply chain deals and pricing mechanisms, GM and non-GM products and their segregation, certifiers and certifications, liability long the supply chain • Selection of respondents: • Relevant players, associations, snowball selection

14. Questionnaires for Italy (1) • EU supply chain: main actors interviewed • Multinational trading companies • Domestic oilseeds crushers • Compound feed producers • Livestock breeders • Retailers • Certification bodies

15. Questionnaires for Italy (2) • Other actors interviewed: • One Brazilian oilseeds crusher focused on non-GM soybean processing • One port shipping agent • One market broker • One crereal food processor • One representative of a national association of processors

16. Italy: Soybean meal (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews

17. Italy: Maize (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews

18. Italy: Maize flour (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews

19. Italy: Structure of the supply chain Soybean / soybean meal Maize Domestic Domestic Retailers/consumers

20. Italy: Traders and crushers • International traders • 5 Multinational trading companies: Bunge, Cargill, Dreyfus, Nidera, Noble. • Only Nidera supplies non-GM soybean meal • Non EU non-GM soybean meal comes from Brazil • Two main ports: Mestre (Venice) and Ravenna • Domestic crushers • 5 domestic crushers • 2 only process domestic soybean - non-GM • 1 has a dedicated plant to domestic soybean • 1 (Bunge) only crushes GM soybean • 1 crushes non-GM and GM soybean

21. Italy: Compound feed industry • Almost 260 industries, but 3 are the main players in terms of volumes, • 2 integrated downstream (Veronesi and Amadori) • 1 multinational integrated upstream (Cargill) • Inputs: • they source soybean meal from domestic crushers and international traders • they source maize from domestic farmers or elevators (often cooperatives) • Outputs: • local markets matter • market niches can be exploited

22. Italy: Supply chain deals • Personal relationships are very important • Middle-men operate as an “outsourcing” of the purchasing department (especially for SMEs and large stock breeders) • Trust on supplier and its flexibility are seen as the most important attributes... after price! • There is no evidence of long-term contracts, orders are processed for each supply and based on market price • Price shocks are largely transmitted downstream

23. Italy: market for non-GM soybean • World supply for non-GM soybean product decreasing: • non-GM price premiums on the rise (higher costs of IP and less economies of scale) HP non-GM premium for soybean meal over the price of the regular pellet 46 protein in the market of Paranagua Source: International trading companies, Industry representatives, interview by UNICATT staff, 2012

24. Italy: market for non-GM products • It is a small market, its size is becoming smaller in latest years (niche), and it is concentrating on fewer dealers • Only one international trader involved and domestic crushers rely on domestic production paying soybeans with no premium • Two kind of structures emerge for compound feed processors: • large firms with dedicated plants and small specialized firms • other SMEs outsource production of non-GM feed • Dedicated plants of compound feed processors usually work at full capacity, however they don't sell all of the product as non-GM • Most of the market is driven by Coop, the largest Italian retailer. No mark-up at the consumer level.

26. Retailer case study: COOP Italia (1) • Non-GM Private labels: • Animal products: poulty meat, beef, pork, milk, eggs, farm fish, some cold cuts and cheeses. • Processed meat/eggs so far excluded • 0.9% treshold (fed without GM feedstuff) • Negative labeling • Certified • Grocery products • 0.1% treshold • No negative labeling: corporate policy • Certified

27. Retailer case study: COOP Italia (2) • Non-GM Animal PL Products: • Technical specifications imply vertical coordination • Suppliers qualification guidelines: suppliers shall deal with other qualified subcontractors only • Certification: • BVQI, CSQA • Audits on: • Retailer • Slaughterhouses • Feed Producers • Retailer price: in line with that of regular animal products (no premium charged at the consumer level)... This implies....

28. Final remarks • Only soybean supply matters (coexistence in producing countries and segregation practices) • No price premium at the consumer level for non-GM products implies lower margins • Upstream the supply chain there is little incentive to produce for non-GM feed • What would happen if coexistence is allowed in the country? (maize, soybean...) • Except for organic production, will any liability issue be relevant?

29. Thanks for your attention!