TUM 1

GMO Regulations and Food Self-Sufficiency Rate

Qianqian Shao, Maarten Punt, Justus Wesseler

Technische Universität München

TUM 2

Main Idea

• Using a standard political economy model to show the GMO policy as an outcome of the political process.[Grossman Helpman (1994) and Eerola (2004)]

• Lobbying cost and GM regulations affect Food Self-Sufficiency Rate(SSR)s.

TUM 3

Previous Studies

• Josling et al. (2003): political economy analysis is important to show consumer preferences and conflicting pressure on governments.

• Graff et al. (2009): conceptual political economy framework of formulating biotechnology regulations.

• Swinnen and Vandemoortele (2011): dynamic political economy model to explain regulation in the EU and US.

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Food Self-sufficiency Rate

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GM Regulations and SSR

• Many countries with different SSR have a similar biotechnology agricultural policies.

• A government cannot ignore domestic food availability concerns while formulating agricultural policies.

• The level of GM input may influence food supply in a country.

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Paper Structure

• Socially determined GMO regulations

• Politically determined GMO regulations

• GMO regulations with SSR

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The Economy

• Production (domestic)

Two sectors:– Tradable numeraire goods– Agricultural food sector including two firms

• GM firm: GM input (g), regulated to and conventional inputs (q)

• Non-GM firm: q

z

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Production

o Production function• GM firm:• Non-GM firm:

o Profit function• GM firm: (1)• Non-GM firm: (2)

( , )Gx kf g q ( 1)k

( )Nx f q

( ) ( , ) ( , )G G G Gp x kf g q c g q

( ) ( , ) ( , )N N N Np x f g q c g q

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Consumers

• Three kinds of consumers– α :GM group– β: Non-GM group– (1-α-β): neither group

• Consumers in either GM or non-GM group should make contributions to the group for lobbying, and share the profits.

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Consumers (cont.)• The net income of consumers in each group:

(3)1 1( , , ) ( )G GI w p g q B g

1 1( , , ) ( )N NI w p g q B g

1I w

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Consumers (cont.)• The utility function

for ,• The demand functions:

,

{ ( ) ( )}maxj

j

z y

z u y D g

1

. .j

j ji i

n

s t I z p y

, ,1i

(1 ) ( , ),

(1 ) ( , ),

G G Nj

N G N

y d p p j Gy

y d p p j N

,j G N

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Socially determined GMO level

• The domestic aggregate gross welfare

(4)

where

and ,

( ) ( ) ( ) ( )j j

j jW g w cs g g D g

0 0

( )

G Ny yj G G N N G G N N

jcs g p dy p dy p y p y

( )j G N

jg ( )D g g

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Socially determined GMO level (cont.)

• The aggregate welfare of each group:

(5)( ) ( ) ( , , )G G GW w cs g D g p g w

( ) ( ) ( , , )N N NW w cs g D g p g w

1 (1 ) (1 ) ( ) (1 ) ( ) (1 ) ( )G NW w cs g cs g D g

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Socially determined GMO level (cont.)

• The effects of changing GM policy on welfare:

(6)

where , , , ,• The socially optimal GM input level is

determined by:

(7)

( )( , , ) [ ( ) ( )]G G G

g g g

W gp g w cs g D g

g

( )( , , ) [ ( ) ( )]N N N

g g g

W gp g w cs g D g

g

1 ( )(1 )[ ( ) ( )]j

g gj

W gcs g D g

g

1( *) ( *)( *)( )0

W g W gW gW g

g g g g

( ) 0Ggcs g ( ) 0G

g g ( ) 0Ngcs g ( ) 0N

g g 0gD

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The Political Process

• Government payoff function:

(8)

and • Lobbying cost of each group:

(9)• The optimal contribution level of each group:

(10)

( ; , ) ( ) ( ) ( )G g C C aW g C g C g

( ) max[0, ( )]i i iC g W B

( ) (1 ) ( )i i iB g C g

*( ) ( )(1 )i i

i

W g C g

g g

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The Political Process (cont.)• The optimal politically determined GM policy:

(11)• Rewrite the equation:

(12)

• The lobbying process changed the outcome of GM regulations from social point of view. The change of welfare benefit or loss depends on the lobbying efficiency of two groups.

( )( )( ) ( )0

C gC gG g W ga

g g g g

1( ) ( )( )( ) 1 10

1 1

W g W gW gG ga a a

g g g g

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GMO regulations with SSR

• From (11)

and (10)

we found that the more concern on contributions, the less concern on the welfare.

• If the government is more inclined to listen to the lobbying groups, it consider the SSR less.

( )( )( ) ( )0

C gC gG g W ga

g g g g

*( ) ( )(1 )i i

i

W g C g

g g

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GMO regulations with SSR (cont.)• Rewriting the lobbying costs:

where (13)• The contribution equilibrium:

(14)• Interest groups have less incentive for lobbying

due to the less increase in welfare from more contribution in a low SSR country.

• The lobbying behavior is more efficient when the SSR is high, that is,

( ) (1 ) ( )ii iB g C g

s

*( ) ( )(1 )i i iW g C g

g s g

0 1s

(1 ) (1 )i i

l hs s

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GMO regulations with SSR (cont.)

• We conclude our discussion that since a lower lobbying cost, lobbying is more efficient in a high SSR country.

• If the government pays more attention to the social welfare than contributions from the lobbying groups, the GM regulation will be less strict, and the SSR will be increased.

• Or: If in a low SSR country, GM regulation is strict, the government pays less attention to SSR.

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GMO regulations with SSR (cont.)

• We proved the result by comparing the marginal effects of changing GM policy to the government payoff in a low SSR country to a high SSR country:

• A stricter GM regulation will not induce a higher payoff effect to the government in a low SSR country, so the policy will be lenient.

0.l hs sg gG G

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Summary

• Using a standard political economy model to explain the reasons behind the GM policy outcomes.

• Different SSR is influenced by the GM lobbying policy. A stricter GM policy will affect a country’s SSR.

• In a country with a low SSR and strict GM policy, the non-GM lobby group has a stronger influence on government policy than the GM lobby group.

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