GMOs, Trade Policy, and Welfare in Rich and Poor Countries
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GMOs, Trade Policy, and Welfarein Rich and Poor Countries
University of Copenhagen, andDanish Institute of Agricultural and Fisheries Economics
Chantal Nielsen Kym Anderson
CEPR, and School of Economics, and Centre for International Economic StudiesUniversity of Adelaide
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Genetically modified organisms (GMOs) in agriculture
Proponents argue that GMOs can offer:
Increased ag productivity & higher farm profits Less use of chemicals Better use of natural resources More nutritious foods
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Opponents are concerned about:
The environment Food safety Market power Ethics
Genetically modified organisms (GMOs) in agriculture
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Rich countries can afford to be critical
Developing countries face a different trade-off between potential risks and the need for productivity increases in food production and lower food prices
Developing countries also need to consider how GMO policy actions may affect:
- market access
- world market prices
- global food demand
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Three types of technical barrier to trade:
1) Import bans
2) Technical standards
3) Information remedies
Standards concerning GMOs have not yet been established … but there is a possibility of import bans and a demand for labels, which is leading to:
National GMO regulations
International trade agreements
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National GMO regulations:
European Union:
De facto moratorium since June 1999 Labelling required on all GMO-inclusive foods
United States:
Flexible permit procedure Labelling of GMOs is generally not required
Others are also beginning to regulate GMOs, with some (e.g. Sri Lanka) already banning their importation
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International trade agreements:
(i) The Cartagena Protocol on Biosafety
Objective: Ensure safe transboundary movement of GMOs
Allows govt’s to decide whether or not to accept GMO imports and under what conditions
Lack of scientific evidence shall not prevent a country in taking action
“May contain GMOs” label on primary products
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International trade agreements:
(ii) The WTO The WTO also acknowledges the rights of a country to protect its environment and to ensure food safety and information for consumers.
But there are rules on how such trade-relatedmeasures may be used to achieve these goals.
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International trade agreements:
Potential conflict between Protocol and WTO rules,particularly concerning:
WTO’s SPS agreement requires scientific evidence
The product/process distinction: ‘like products’
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Empirical analysis
Two regulatory response scenarios1. Western Europe imposes a ban on GM
imports as permitted in the Biosafety Protocol
2. The WTO rules against the import ban, but allows the labels as defined in the Protocol
Quantify the effects of GMO adoption by some producers, and regulations on production, trade and welfare in other countries
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Modelling framework
Standard global economy-wide CGE model
Vertical and horizontal linkages, bilateral trade
GTAP database: 17 sectors and 16 regions
Representation of GMO technology:
+5 % TFP shock for maize and soybean in North America, Mexico, Southern Cone of LA, India, China, Rest of East Asia and South Africa
All other regions do not adopt GM crops
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1. WEU import ban scenario
Imports of maize and soybeans banned from GM-regions
Protocol label enables identification of GMOs Labelling costs are assumed to be negligible
2. Protocol label scenario “May contain GMOs” label is perceived as
uninformative Partial shift in WEU preferences away from
imports and in favour of domestic products WEU producers signal non-GMO status
through “country of origin” labels
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Selected results of WEU ban and Protocol label scenariosPercentage change from base with no GMO regulations
Adopters Non-adopters North
America China India Western
Europe Sub-
Saharan Africa
Ban Ban Ban Ban Ban Production Cereal grains -1.2 -0.2 0.0 10.3 0.1 Oilseeds -13.3 -2.6 -0.3 87.4 5.8 Livestock 0.4 0.1 0.0 -0.6 0.1 Meat & dairy 0.3 0.1 0.1 -0.4 0.1 Veg.oils,fats 1.3 0.2 0.1 -2.5 1.2 Other foods 0.1 0.1 0.1 -0.4 -0.1 Exports* Cereal grains -7.6 -10.1 -10.1 31.0 8.6 Oilseeds -34.4 -24.6 -24.9 236.1 178.9 Livestock 4.4 2.0 2.9 -2.7 -0.3 Meat & dairy 2.6 1.0 1.2 -0.9 0.5 Veg.oils,fats 8.1 1.3 5.3 -10.6 11.7 Other foods 1.3 0.4 0.4 -0.8 -0.7
* Includes intra-regional trade
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Adopters Non-adopters North
America China India Western
Europe Sub-
Saharan Africa
Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Production Cereal grains -1.2 -0.3 -0.2 0.0 0.0 0.0 10.3 2.6 0.1 -0.3 Oilseeds -13.3 -2.5 -2.6 -0.7 -0.3 -0.1 87.4 22.4 5.8 -0.3 Livestock 0.4 0.1 0.1 0.1 0.0 0.0 -0.6 -0.2 0.1 0.0 Meat & dairy 0.3 0.1 0.1 0.0 0.1 0.0 -0.4 -0.1 0.1 0.1 Veg.oils,fats 1.3 0.1 0.2 0.0 0.1 0.0 -2.5 -0.2 1.2 0.0 Other foods 0.1 0.0 0.1 0.0 0.1 0.0 -0.4 -0.1 -0.1 0.1 Exports* Cereal grains -7.6 -1.8 -10.1 -2.5 -10.1 -2.3 31.0 -20.6 8.6 -5.1 Oilseeds -34.4 -6.5 -24.6 -5.6 -24.9 -6.1 236.1 -26.4 178.9 -8.0 Livestock 4.4 0.8 2.0 0.3 2.9 0.5 -2.7 -0.7 -0.3 0.3 Meat & dairy 2.6 0.5 1.0 0.1 1.2 0.2 -0.9 -0.2 0.5 0.3 Veg.oils,fats 8.1 0.9 1.3 -0.1 5.3 -0.2 -10.6 -0.9 11.7 0.4 Other foods 1.3 0.2 0.4 0.1 0.4 0.0 -0.8 -0.1 -0.7 0.0
* Includes intra-regional trade
Selected results of WEU ban and Protocol label scenariosPercentage change from base with no GMO regulations
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Selected results of WEU ban and Protocol label scenarios
Welfare changes and their decomposition (per year)
Adopters Non-adoptersNorth
AmericaChina India Western
EuropeSub-Saharan
AfricaBan Ban Ban Ban Ban
Welfare Million USD 2299 804 1277 -4334 42 - of whichAllocativeefficiency 27 74 109 -4601 5Terms of trade -1372 70 -3 257 38Technicalchange 3641 669 1092 0 0Othereffects 3 -9 79 10 -1
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Adopters Non-adopters North
America China India Western
Europe Sub-Saharan
Africa Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Welfare Million USD 2299 2554 804 834 1277 1267 -4334 715 42 -5 - of which Allocative efficiency 27 -100 74 106 109 184 -4601 393 5 0 Terms of trade -1372 -1092 70 69 -3 -9 257 319 38 -7 Technical change 3641 3726 669 672 1092 1093 0 0 0 0 Other effects 3 20 -9 -13 79 -1 10 3 -1 2
Selected results of WEU ban and Protocol label scenarios
Welfare changes and their decomposition (per year)
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Adopters Non-adopters North
America China India Western
Europe Sub-Saharan
Africa Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Ban Mrkt Welfare Million USD 2299 2554 804 834 1277 1267 -4334 715 42 -5 - of which Allocative efficiency 27 -100 74 106 109 184 -4601 393 5 0 Terms of trade -1372 -1092 70 69 -3 -9 257 319 38 -7 Technical change 3641 3726 669 672 1092 1093 0 0 0 0 Other effects 3 20 -9 -13 79 -1 10 3 -1 2
Selected results of WEU ban and Protocol label scenarios
Welfare changes and their decomposition (per year)
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Global welfare changes:Base with no GMO regulations: 9.9 billion USDWEU import ban scenario: 3.4 billion USDProtocol label scenario: 8.5 billion USD
Selected results of WEU ban and Protocol label scenarios
Welfare changes and their decomposition (per year)
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What do these results indicate about the effect of GMO regulations on production, trade & welfare
1. Almost all countries gain from selected countries adopting GMO technology if there
are no GMO trade regulations But this is so for different reasons, depending on
- whether or not GMO crops are produced nationally
- nation’s net-exporter status in the particular crop
- initial price distortionary policies
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3. A market-based solution is far better for both adopters and WEU
- but other non-adopting regions lose in terms of a relative productivity decline
and increased competition on international markets
2. WEU import ban is very costly for WEU itself - and production in adopting countries might fall in spite of positive TFP shock, depending on importance to them of WEU and other export markets
- non-adopters gain market shares in WEU
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Future analytical work on the economics of GMOs
1. Need to fine-tune empirical evidence of productivity impact of GM technology
2. Consumer reactions to regulations, or lack thereof, depend on how well the regulations meet national policy objectives
3. Split the model’s national production and marketing systems into GMO and non-GMO products