Genetically Modified Food and International Trade: The Case of India, Bangladesh, Indonesia and the Philippines

In the last eleven years, the global production of genetically modified (GM) crops has increased dramatically. Yet more than 95% of GM crops are produced in four countries: the United States, Argentina, Canada and China. During the same period, a group of countries with consumer opposition to GM food, lead by the European Union (EU) and Japan, have implemented stringent policies regulating the approval and import of GM crops and the marketing of GM food. In the context of increased international agricultural trade, the regulations of these importers and the lack of demand for GM food in these countries likely limited the expansion of agricultural biotechnology to many developing countries. Cohen and Paarlberg (2002) argued that the restricted adoption and availability of GM crops in developing countries may not be due to science incapacity, intellectual property rights constraints, biosafety risks or food safety fears, but mainly to the fear of lost export sales to the EU and East Asian countries because of their approval, labeling and traceability regulations. For several years, a number of Asian countries have been actively developing programs of research on agricultural biotechnology, focusing on GM crops with potentially beneficial agronomic traits (Runge and Ryan 2004). Some of these countries have developed biosafety regulatory frameworks, but until now only a few have approved one or more GM crops. Recent studies show that the introduction of Bt cotton in India and China, have generated yield and revenue gains for farmers (Bennett et al. 2004, Pray et. al 2002). But these two countries only approved the large scale production of GM cotton, in part because unlike other GM crops, the main products of cotton are not used for food, and thus are not subject to food safety approval, traceability and labeling regulations in major importing countries. In particular, neither Japan nor the European Union directly regulates textile products derived from GM cotton. At the same time, the Philippines have approved the commercialization of GM maize, but maize remains largely imported in the Philippines. Following a detection of unapproved US rice in the EU and Japanese markets, prompting rapid import bans, Thailand and Vietnam have recently announced that they would not produce GM rice. In this context, most Asian countries that have invested in research and regulations on crop biotechnology are confronted with three possible alternatives: 1) allowing the production of GM food crops with the risk of losing potential exports, 2)reject the commercialization of any GM food crop, 3) producing both GM and non-GM crops separately at a marketing cost. The purpose of this paper is to provide an integrated economic assessment of these three strategies focusing on India, Bangladesh, Indonesia and the Philippines. More specifically, this paper has two main objectives. First, the study assesses the impacts of large importers' regulations (such as the EU and Japan) on the potential benefits of adopting particular GM crops in the four countries. Secondly, we evaluate the opportunity cost of GM/non-GM segregation for these crops under the external constraints previously defined. We focus on four major traded commodities: rice, wheat, maize and soybeans. For each crop, we selected a set of biotic or abiotic stress resistance traits (such as drought resistance) according to the status of research, and its productivity and income potential in these countries. To achieve our two specific objectives, we first conduct multiple focus groups and interviews of local scientific experts on the future productivity potential of the selected GM crops in the four countries (in the summer of 2005). Second, we analyzed the drought and salinity constraints affecting each crop locally in irrigated versus rainfed conditions using GIS data analysis, and we reviewed the literature on biotic stresses for each of these crops. Third, we coupled these data with projections of irrigated versus rainfed areas at the water basin level in the four countries in a 10-15 year horizon. The derived estimated ranges of regional productivity potentials are then aggregated at the national level. These productivity changes are used as factor-biased productivity shocks calibrated into a multi-market, computable general equilibrium (CGE) model that accounts for the specificity of the GM/non-GM commodity markets and the international regulatory policies of GM food at all major importers. We build on previous literature using CGE models by improving the representation of trade policies and refining the assumptions on the productivity effects of biotechnology. First we account for the trade filter effect of GM food marketing policies, e.g., accounting for the fact that the EU is importing large quantities of GM products for animal feed. We also allow the costly segregation of non-GM crops for export, and we model GM crop adoption as a factor-biased productivity shock based on water-basin level data of agricultural constraints. These assumptions help us to obtain robust estimates of the economic and welfare effects of adopting GM crops under trade regulations and allow us to derive the opportunity cost of segregation of GM and non-GM crops. Many developing countries have delayed the adoption of GM crops for fear of losing export markets to the European Union and other countries with stringent regulations on the approval and marketing of GM food. Yet, previous trade studies showed that despite the presence of these importing countries' regulations, the production of relevant GM crops in Africa and China is still expected to provide significant net welfare gains. Similarly, our study will provide estimates of the potential economic benefits of adopting specific GM crops in India, Bangladesh, Indonesia and the Philippines based on a disaggregated assessment of the potential effects of the technology and of current international trade related regulations. The results of our paper will support policy recommendations suggesting which strategy would be best for India, Bangladesh, Indonesia and the Philippines to maximize expected welfare gains from the use of GM food crops in the presence of stringent international regulations. References Bennett, R.M., Ismael, Y., Kambhampati, U., and S. Morse (2004). Economic impact of genetically modified cotton in India. AgBioForum, 7(3), 96-100. Cohen, J. I., and R. Paarlberg (2002). Explaining restricted approval and availability of GM crops in developing countries. AgBiotechNet, 4, Review Article, October. Pray, C., Rozelle, S., Huang, J., and Q. Wang (2002). Plant biotechnology in China. Science, 295, 674-677. Runge, C. F., and B. Ryan (2004). The Global Diffusion of Plant Biotechnology: International Adoption and Research in 2004. Technical Report, Center for International Food and Agricultural Policy, December