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Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

Accelerating adoption of GM crops through a trade liability regime <Or how to fence-out Europe in the trade of GM products>. Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips. The story so far. Smyth, Kerr & Phillips—a trilogy in 4 parts:

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Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

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  1. Accelerating adoption of GM crops through a trade liability regime <Or how to fence-out Europe in the trade of GM products> Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

  2. The story so far Smyth, Kerr & Phillips—a trilogy in 4 parts: • 2009: rent seeking by producers supplemented by consumer and citizen protectionism • 2010: scale and scope of the problem • 2011: Managing Trade in Products of Biotechnology: Which alternative to choose—science or politics? CPB Article 26.2 discussions

  3. First best solution: negotiate • Locus of SEC discussions/processes: • CBD, Art. 8j, traditional knowledge • ITPGR, Art. 9, farmers rights; Art. 13, benefits sharing • CPB, Art 26.1, diversity; Art 26.2, socio-economic considerations • WTO, Art 20, SPS Art. 5.3, risks to plants and animals take into account economic factors and TBT

  4. Second best solution: compensate • Paarlberg (2008) concludes fear of market loss at root of reluctance to adopt • Failures happen: LL 601, CDC Triffid • 2 forms of compensation fund: • long-term, self-sustaining: funded by premiums from the purchase of insurance contracts (i.e. crop insurance) • short-term specific incident: created and funded by governments, such as for natural disasters

  5. Ex ante commitments best? • DK has fund for those affected by the production of GM crops (Smyth et al. 2010)—yet no GM production yet • 'The Compact' is an industry-funded scheme, launched in 2010 by the leading firms, agrees to compensate any state that can prove biodiversity damage due to the release of a LMO (CropLife International, 2010).

  6. What needs indemnifying?Total African Exports? US $ Millions

  7. African corn & cotton exports to EU? ($US Millions)

  8. Size of the ‘at risk’ trade • Total Africa-EU trade in commodities with GM varieties (corn/cotton) less than US$10M in 2010—50% lower than in 1995 • So, if US$10 million trade is rejected likely cost is marketing and transport to next best market—10% or $1 million?

  9. African banana exports to EU? ($US million)

  10. Potential maximum $ requirement • African trade in bananas worth more than $200 million per year • GM bananas approaching (Kikulwe 2010) • If all banana’s rejected, cost could rise to US$20+US$1M = US$21M • Unlikely all product would be rejected at once—so US$21M is worst case—US$10-11 million most likely

  11. Type of a fund • Type of fund? Long-term or short term? Needs to be credible, so long-term, funded • Who pays? • Biotech companies: they earn rents • Farmers: they benefits from accelerated research • NGO (esp. Gates, World Bank, et al) concerned about food security • Governments: food security and technological change all priorities

  12. Dimensions of a fund • Long-term, funded: • Amortized over some set period (say 15-30 years until full acceptance) • Endowed: If the likely annual liability is US$10-12 million, a fund of US$600M • $600 million could be raised by: • 3-year, $1.00/acre levy on GM crops in Canada, US, Australia • Shared four ways?

  13. Administration • Levy 25 cents on see sales then each other partner would match based on that data • Process: • Base would be binding trade contract with EU • RASFF would trigger the event • Onus on African to find alternate market—new contract would determine compensation • Need to avoid fraud, moral hazard, rent seeking • Residual could be used for R&D on food

  14. Conclusions • Global food security will require sustained R&D—GM crops are likely to been continually needed • In absence of first-best negotiation, second-best market solutions offer an alternative • The benefits of facilitating diffusion and adoption positively match the moderate costs of funding a liability system.

  15. Accelerating adoption of GM crops through a trade liability regime <Or how to fence-out Europe in the trade of GM products> Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

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