Round-up Ready? Wheat: Will the International Markets Accept it?
A summary of testimony at the North Dakota Legislative Hearing
In Bismarck, North Dakota, July 10, 2002
By Dr. Robert N. Wisner, University Professor
Department of Economics
Iowa State University
Several indicators are caution signs that, at least in the immediate few years ahead, there is substantial risk that hard red spring and durum wheat will not be well accepted in foreign markets, and that acceptance may be significantly lower than has been the case for corn and soybeans. In fact, there is a large risk that major wheat
export markets will be lost, forcing wheat into the domestic feed market at prices roughly one-third lower than in recent years.
Foreign acceptance of GMO wheat likely less than with corn & soybeans
While corn and soybean exports have already been affected substantially by the GMO issue, a large part of these two crops is used for livestock feed, with the exception of vegetable oil and the part of the crop processed directly into human cereal and protein foods. This characteristic has helped to make foreign acceptance of GMO corn and soybeans somewhat better than seems probable for high quality wheat. Cereal and protein foods made from GMO versions of the two crops are required to be labeled in approximately 22 foreign countries at this time. The portion of the market represented
by direct processing of grain into human foods accounts for about 20 percent of the export demand for corn and considerably less for soybeans. In contrast, it accounts for nearly 100 percent of the export demand for high quality spring wheat and durum grown in North Dakota. Our sources indicate that nearly all foreign processors who convert corn and soybeans into direct human food products (except for vegetable oils) in
the EU and eastern Asia have shifted to non-GMO corn and soybean supplies. Vegetable oils at this time are not required to carry labels in foreign markets indicating the type (GMO vs. non-GMO) of grain or oilseed they were produced from, because the GMO protein is not found in the oil.
Products from corn and soybeans that are fed to livestock are somewhat better accepted in the Far East than those processed directly for human food use. However, GMO corn and soybeans for use as feed are not fully accepted in all foreign markets. Labeling countries so far do not require labeling of meat and dairy products by the type of feed they were fed, but some are considering feed labeling and some chain stores sell non-GMO fed livestock products.
Countries labeling by GMO ingredients
The current number of nations requiring processed foods such as cereals, flour, and other foods made directly from grain to be labeled by type of genetic origin of the grain is expected to expand to at least 40 in the next few years. The labeling programs
have been put in place in response to strong consumer concerns about the long-term safety of GMO crops. What counts in the market place is not whether the products in fact are safe, but consumer perception of the safety of the products.
Foreign markets currently labeling food by genetic origin are major markets for the types of wheat grown in North Dakota. About 80% of the U.S. hard red spring
wheat exports go to markets that either are currently labeling by GMOs, or are expected to be labeling within the next 2 or 3 years. For durum, if north African countries are included (which currently prohibit GMOs), the total rises to about 80 to 85% of the export market. The EU alone accounts for about 2/3 of the U.S. durum
exports, and EU has had a De Facto moratorium on approval of new GMO crops for four
years. Given the complexity of obtaining unanimous approval of such products by all EU nations plus the EU government, approval of round-up ready wheat in the EU looks quite doubtful in the short-run. Even if it is approved, consumer acceptance is questionable. Government approval in Japan and South Korea is much more likely, but consumer
acceptance is where the risk exists. Food processors and beverage manufacturers in
these nations have shifted almost entirely to non-GMO corn and soybeans, according to our information sources.
Other indicators of problems
Other indicators of potential problems in international marketing of GMO wheat include
; Virtually total loss of the formerly long-standing and dependable EU market
for unprocessed U.S. corn in the last three years
; A decline in the U.S. share of the combined EU soybean and soybean meal
import market, which is the U.S.’s largest export market for these products
; A decline in U.S. corn exports to major Far East markets since the StarLink?
GMO corn crisis of 2000-01
; A virtual halt to U.S. soybean exports to China for more than three months as
a result of its zero tolerance GMO labeling program.
Some sources place the costs of these last two developments at upwards of a billion dollars, not counting impacts on prices of the remaining portions of the crops. Several lawsuits are still in progress over the StarLink? problem.
Challenges in Identity Preservation
Further complications to the challenge of marketing GMO wheat internationally are the problems from contamination of commercial wheat and seed wheat by cross pollination and/or co-mingling of supplies in commercial handling if the wheat has been raised as a non-GMO crop. With tolerance levels of zero, one percent and five percent that are being used in international markets, even a small amount of grain can cause rejection of an entire vessel load or train-load of grain. It can also require recall of product from grocery shelves, and/or necessitate shutting down processing plants for cleaning. All of these problems have been experienced in domestic and export marketing of U.S. corn, at substantial cost to farmers, grain elevators, processors, and retailers.
In Iowa, one older grain elevator has been designated for receiving and shipping non-GMO soybeans and has contracted with farmers at a premium price to receive soybeans directly from farms. As long as cross-pollination does not occur in either the seed or the commercial grain, this process will work for segregating non-GMO supplies from the market. However, these older facilities typically are less efficient than state of the arts facilities, and generally do not have access to low-cost freight rates available to train-load shipping facilities. Added freight costs alone can typically account for eight to twelve cents per bushel disadvantage over newer more efficient facilities.
When other costs of identity preservation are added in such as certification and testing at several points in the marketing system, the identity preserved non-GMO product can be considerably more expensive than under the current marketing system. From the foreign consumers’ standpoint, the question is likely to be “Why should I pay
you more for the same product I have been buying, when it costs you no more to produce than in the past and I get no added benefit for the higher price? The added cost is just to
keep it from being mixed with grain I don’t want.” With this view, foreign consumers
are likely to turn first to non-GMO wheat supplies from countries not using this technology, rather than buying higher priced ID preserved U.S. non-GMO wheat which has some risk of being contamination with GMO wheat. Potential alternative supplies for EU include eastern Europe and former Soviet Republics, among others. Production in these countries has trended upward in the last few years, and is likely to increase further in the years ahead as their agriculture is modernized.
The bottom line
The bottom line is that (1) export markets are very important for hard red spring and durum wheat and (2) at this time and probably for the next few years, foreign consumer resistance to round-up ready wheat is likely to be strong. This market acceptance problem may change somewhat in later years, provided the seed industry can produce GMO crops that show clear benefits to consumers. Until then, consumer safety concerns create substantial risks that GMO wheat will not be readily accepted.