Mad Cows and Bt Potatoes: Global Public Goods in the Food System

1. Mad Cows and Bt Potatoes: Global Public Goods in the Food System Laurian Unnevehr Department of Agricultural and Consumer Economics NCFAR Seminar for Congressional Staff October 18, 2005

2. From Sacred Cows & Hot Potatoes of Farm Policy…. Bloom County, 1988

3. …To the Mad Cows and Bt Potatoes of Food Policy Toles, 2004

4. The Traditional U.S. Agricultural Economics World Bulk Commodities Produced For Domestic Markets Or Overseas

5. The New Realities of Consumer Demand and Globalization High-Valued Products For Standardized Retail Outlets Enter World Markets

6. Global Context for Our Policy Research • Globalization of food system and changes in demand bring “deep integration” of markets • Risks and benefits now cross borders more often, creating demand for global public goods • Challenges us to carry out policy analysis on familiar issues in new ways

7. Agricultural Economics Research Meets This Challenge with Federal Support • Regional Research Committees provide powerful synergies for addressing new economics questions • NE 165: Private Strategies, Public Policies, and Food System Performance • NC1003: Impact Analysis and Decision Strategies for Agricultural Research • Each include about 25 states, federal agencies, private companies, plus international • Competitive grants programs fund specific projects (NRI, IFAFS)

8. Globalization In the Food System

9. Agricultural Trade has Grown Faster than Production Trade 3.8% Production 2.0% Average Annual Percentage Change 1990 to 2002 Source: WTO

10. Demand changes with higher income, urbanization: More meat, fish, fruits and vegetables More processed, branded products Higher, uniform quality More services World markets reflect these demand changes: Market growth and integration faster for high-value products Growth in food service, retailing More uniform quality standards Food Demand Changes Shape Globalization

11. High Valued Products Lead Growth in World Agricultural Trade High Valued Products Bulk Commodities Source: FAOSTAT

12. Trade Increasing as Percent of World Production for High Income Elasticity Foods 1983-1992 1993-2001 Source: FAOSTAT

13. U.S. Fast-Food Chains Have More Outlets Outside U.S. 1994 2000 Source: Restaurant Business, 2001

14. Supermarkets Increase Food Retail Share in Growing Economies

15. Global Adoption of “Meta-Standards” for Quality and Product Information • Need to ensure uniform quality and to provide product information • Adoption of internationally recognized systems of quality control for certification • Increased use of tracking and testing technologies • Result is increasing “deep integration” of methods of production

16. Integration and Fragmentation in Global Food Markets • INTEGRATION • More trade & specialization • FRAGMENTATION • Continued market protection • Shared benefits, risks • Non-tariff market barriers • animal & plant health, food safety • Risk standards • Intellectual property rights • Labeling policy • new technologies

17. Global Public Goods:Food Safety

18. Exports from Poor Countries Must Meet Standards of High Income Consumers Fish in U.S. Supermarket Fish Market in India

19. Changes in Animal and Fish Production Towards Larger Units Increased scale of production can introduce new hazards or speed the spread of existing ones.

20. Controls Linked Throughout the Supply Chain Some foodborne hazards can enter the food supply chain at many points and can multiply once present. Mixing animals from different sources increases the potential to spread microbial contamination. Controls must address the entire system from farm to table.

21. As More Food is Purchased Away from Home… • Consumers have less control over food preparation • Industry takes greater responsibility for final safety of food when consumed Deli Salads in a Supermarket

22. Managing Food Safety as a GPG: Global Institutions • Sanitary and Phytosanitary (SPS) agreement under the WTO sets these principles for standards • Transparency • Science-based • Equivalence • National sovereignty • Harmonization • These principles have worked to reduce trade barriers, but many challenges remain.

23. Mad Cows

24. The Global Spread of BSE Japan 2001 2000 1989 1986 1997 2002 Canada USA 2003 2000 1997 2001 2001 1991 1990 2001 2001 1994 2000 2001 Israel 2002 Source: Hueston, 2004

25. BSE news in 1988, 1996, and 2000 Led to Swift Declines in Beef Demand in EU Source: USDA/ERS

26. The U.S. Cow is a Global Animal Hides Bones Meat & BoneMeal Spinal Cord Semen Meat Blood Embryos U.S. COW Pet Food Tallow Bile Fat Milk

27. BSE Risk Reduction as a Regional Public Good: NAFTA Cattle and Beef Markets in 2002 1.5M 0.24B 1.1B 1.4B to Asia 0.68B 0.82M 0.16B Cattle in million head Beef in billion lbs

28. Managing BSE as a Global Public Good • To re-establish trade requires agreement • Among NAFTA partners • Between Japan and U.S. re • Equivalent measures in U.S. and Japan • Measures in U.S. re Canadian imports • SPS agreement recognizes World Organization for Animal Health guidelines for: • country risk level determination • reducing meat import risk

29. Food Safety as a GPG - Unresolved Issues • What are the limits to private efforts for food safety control? • When would coordinated risk management reduce the costs of control? • How to compensate increased costs in one part of the supply chain that provide risk reduction in another part or country?

30. Global Public Goods: Innovation Reading Livestock DNA sequence Genetic Modification Of Castor Beans

31. Importance of private research investment growing Private investment exceeds public in U.S. for past two decades Private ownership of IP concentrated among major firms Global Sources of Innovation are Changing Global Agricultural Research Expenditures by Source, 1995 Public 65% Private 35% $33 Billion total Source: Pardey and Beintema, 2003

32. U.S. Private Research Expenditures Exceed Public and Grow More Rapidly Private Funding Public Funding 2000 Dollars in Billions Source: USDA/ERS

33. Concentration in Supply of New Technology Other 2% Public Sector 24% 5 Top Multi-national Firms 41% Small Firms 33% Ownership of Ag Biotech Patents Source: Graff et al, 2003

34. Innovation is a Mixed Public-Private Good • Incentives for private investment • Changes in intellectual property law • Advent of modern biotechnology • Public research has become more private • Collaboration with firms • Patenting within public sector

35. Private Innovation with Global Impact: Bt Cotton Bt cotton in:Yield Effect • United States 0 – 15% • China 10% • South Africa 20% – 40% • India 60% – 80 % • Chemical use reduced in every country. Source: Zilberman et al., 2004

36. Private Innovation Going Nowhere: Bt Potatoes • Bt potatoes to repel major pest marketed by Monsanto • Only adopted on 15% of US acreage • In 2000, McDonalds decides no GM in fries • Monsanto withdraws from market • Lost potential for future innovation?

37. Will Private Investment Meet Demand for Innovation? • Does lack of agreement on risks inhibit investment? • Do current intellectual property laws • Create hold-ups? • Divert research from public goals?

38. Yield increases in poorest countries Orphan or minor crops or animals Traits that promote public health or environmental quality Demand for Innovation Not Met by Private Investment Pearl Millet Cassava

39. Managing Innovation as a GPG: Intellectual Property Rights • Extending Global Recognition of IP Rights • Eg., Trade Related Aspects of IP Rights (TRIPS) under WTO • Creating New Institutions to Reward IP • Clearinghouses for sharing property • Eg., Public IP Resource for Ag (PIPRA) patent sharing group • New incentives mechanisms • Eg. Prize for African ag innovation

40. Managing Innovation as a GPG: Regulation • Health Risks • Labeling and traceability requirements for GM foods differ in EU, Japan, and Australia • Environmental risks • Cartegena Protocol sets standards for sharing information in trade • Clear differences remain in regulatory approaches

41. Different Mandatory Labeling Requirements Have Different Cost Implications Green = least costly Red = most costly

42. Innovation as GPG – Unresolved Issues • How can incentives be provided for new technologies with limited private benefit and large public benefit? • Can public research investment be more strategic in complementing private investment? • How can U.S. suppliers position themselves to meet demand for information?

43. Implications for Agricultural Economics in Federally Funded Research, Education, and Extension

44. “Agriculture” Has Expanded Meaning “Agricultural research will support agriculture as a positive economic, social, and environmental force and will help the sector to fulfill ever-evolving demands. These include further gains in food production and such other benefits as enhanced public health, environmental services, rural amenities, and community well-being.” Vision statement from Frontiers in Agricultural Research: Food, Health, Environment, and Communities, National Academies Press, 2003.

45. More from the Frontiers report…. • “US agricultural research should be conducted with an increased understanding and awareness of how problems and solutions are interconnected globally…” • “US agricultural leaders are changing their primary emphasis from production efficiency to meeting consumer demands…” • “Agricultural research will engage relevant biophysical and socioeconomic disciplines in a systems approach to address new priorities…”

46. Global Public Goods and Bads in the Food System • Invasive species • Mad cow disease • Biotechnology regulation • Agricultural trade liberalization • Bioterrorism • Carbon sequestration • Obesity “epidemic” • Ocean fish stock collapse

47. Implications for Our Research, Education & Engagement • Shared risks, benefits will shape future food system and food policy • All of our stakeholders interested in GPGs • Producers and Agribusiness • Consumers • Policy makers • Agricultural Economics research will continue to support expanding goals of the agricultural research system

48. Thank you for your attention!