|CCP:GR 99/3 - RI 99/3
COMMITTEE ON COMMODITY PROBLEMS
JOINT SESSION OF THE 28TH SESSION OF THE INTERGOVERNMENTAL GROUP ON GRAINS AND THE 39TH SESSION OF THE INTERGOVERNMENTAL GROUP ON RICE
Rome, 22 - 24 September 1999
BIOTECHNOLOGY DEVELOPMENTS AND THEIR POTENTIAL IMPACT ON TRADE IN CEREALS
1. The Committee on Commodity Problems (CCP) made a preliminary review of the present state of biotechnology developments and their possible impact on trade in agricultural products at its 61st session in February 1997 (Document CCP: 97/17). There was widespread agreement in the Committee on the need for the intergovernmental groups (IGGs) to undertake studies assessing the current and future impact of biotechnological developments on the commodities under their mandate.1 This report summarises the biotechnology developments in cereals and makes an attempt to assess their potential impacts on the competitiveness and trading patterns of the cereals concerned. The study is based on a review of the patents for biotechnological procedures and manipulations for improving productivity, marketability of cereals and the development of new uses for cereals, as well as a general review of literature on the subject.
2. An overwhelming portion of research on agricultural biotechnology in the developed countries has been on a very small number of specific crops. In the cereals sector maize has received the greatest attention, mainly from the private sector because of the perceived potential for widespread commercialisation, stemming from the extent and depth of the market supported by the fact that genetically modified maize seeds commercially available have been hybrids that prevent farmers from reusing the seed. By the mid-1990s, there had begun to emerge substantial private sector biotechnology-based breeding for other important cereal crops, including wheat and rice. For one of the world's most important cereals, rice, there has, in addition, been substantial public sector research. These developments suggest that the new technology may eventually become available for all cereals, with progress speeding up as hybrids become typical for both crops.
3. Most of the biotechnology developments in the cereals sector have been concentrated in applications aimed at reducing the costs of production and crop losses.2 The private sector has been at the forefront in developing the new applications that achieve cost savings through reducing the use of specific inputs (e.g. pesticides) or of certain processes (e.g. weeding). Applications that reduce crop losses are likely to have a similar impact, and moreover are likely to be beneficial in marginal areas. Although technologies that directly lead to increased yields are not widespread, many of those that achieve reduction in input costs and crop losses also result in enhancing average yields.
4. So far, the most widely used transgenic cereal varieties achieve cost savings by incorporating characteristics that eliminate the need for using specific inputs of production. One example is cereal varieties containing a gene that makes the plant resistant to specific herbicides. This permits the farmer to use the particular herbicide to control weeds, rather than having to till the field. There may be a cost saving, either with respect to the herbicides that are actually used or with respect to the differential cost of spraying as opposed to cultivating. And, to the extent that this could help reduce crop production losses to weeds, its yield implications that may be significant. There are major patents covering a variety of techniques, involving different herbicides. "Roundup Ready" is the most well known example. Another example is the varieties containing genes that code for the toxin produced by Bacillus thuringiensis (Bt), a bacterial disease of insects. In this case, the farmer saves by eliminating the need for spraying against particular pests.
5. Recently, many developments in cereal biotechnology have been focused on the prevention of crop losses due to pests, weeds and plant diseases. For virus management, the most common current genetic intervention is to insert into the plant cells, the genes that code for the coat proteins of the virus3 and, for reasons that are only partly understood, this confers resistance against the virus. Alternative approaches are being explored, and some are broad enough that they may apply to cereals. In order to deal with insect pathogens, many of the techniques involve inserting the gene that codes for the toxin produced by Bt, as noted above. There are literally hundreds of patents in the area, including the process itself, on specific strains of Bt that are useful against specific categories of insects, and on specific methods of enhancing the effectiveness of these strains. In the United States' market, for example, Bt maize was introduced in 1996 to control the European "corn" borer, and new products to control the corn rootworm are expected in the 2000-2001 period.4 Although there are fewer examples of biotechnology-based work to control fungal and other infections of crops, there are techniques that build resistance to certain pathogens or modify the reaction of the plant cells to infection so that they kill the fungus or die in the region of the fungal infection and thus prevent the infection from spreading.
6. Another area, albeit less developed, aims at enhancing the potential to grow cereals under conditions not normally associated with those crops. Limited research is taking place toward reducing the vulnerability of crops to stresses, such as drought and salt and toxic elements in soils. Only two patents were found in this area, one in the public sector and the other in private sector for conferring drought and salinity resistance to maize, which may be quite important in many marginal ecosystems. There has been discussion in the public sector of ways to reduce storage losses of crops, as, for example, by inserting genes that make the crop unpalatable to weevils, but do not affect its safety or palatability for humans or animals. This area of research is especially important for developing nations where the losses are particularly great, due to climate and to the inadequacy of storage facilities.
7. There are several ways that average yields can be directly increased. One is through improvements in the "architecture" of the plant to enable it to absorb more photosynthetic energy or convert a larger portion of that energy into grain rather than stem or leaf. This was, in essence, the "Green Revolution" approach of breeding dwarfing genes into plants so that the plants could make better use of fertiliser and water and produce more grain. This approach is being pursued again in the new rice architecture being studied by the International Rice Research Institute,5 as well as by some private sector interests undertaking research in the fundamental mechanisms that control plant architecture. Another approach, for climates where this is useful, is to modify the plant for a shorter growing season, so that more crops can be grown per year. But it must be noted that the on-farm yield improvements observed so far have been for transgenic varieties developed to reduce on-farm production costs rather than for the purpose of increasing yields.
8. For example, in the United States, average yield increases for a transgenic maize that has built-in pesticides were estimated to be approximately 9 percent in 1996 and 7 percent in 1997. For other types of crops for which such information is available, the yield increases were approximately 5 percent for herbicide tolerant soybean and 14 percent for Bt cotton in 1997, both in the United States, and approximately 8 percent each year for herbicide tolerant canola in Canada.6 These are well above the background rate of, at best, 3 percent yield growth per year that has derived from traditional breeding. It is clear the new technology is providing a significant jump in the curve of continual increase in yield per hectare that has long been the pattern in the United States, as well as in much of the world. It is not yet clear, of course, whether these examples reflect a one-time advance, or the first stage of a continuing increase in yields. Considering, however, that there are many new technologies that will, over time, be applicable for plant improvments and/or integrated into plants, the most reasonable judgment is that the new technologies will continue to provide yield increases, that these will be introduced on a regular basis, and that each of the associated yield increases will be somewhat more than historical trends. The yield improvements described above, while important, are not as dramatic as the yield increases (in some areas on the order of 50 percent or more) that characterized the Green Revolution. At this time, there is no indication that the technologies being developed will produce that kind of dramatic yield increase.
9. The adaptation of grains to specific end uses is another extremely important aspect of contemporary biotechnology-based breeding. For example, in terms of what one might consider traditional core markets, wheat can presumably now be modified as appropriate for different applications - flour products such as bread, pasta and cakes generally require different levels and quality of gluten and starch. And, in terms of more specialized markets, there is biotechnology-based breeding work being carried out on malting barley for applications such as beer-making.
10. There are many possibilities of improving the nutritional value of cereals by enhancing the presence of special nutrients or chemicals. A commercial example is the increase in the levels of biotin (vitamin H), for application in animal and human nutrition. Public sector breeders have also been looking into similar special purpose applications, such as inserting genes so that vitamin A becomes available through the consumption of rice.7 There is also the potential to modify the protein balance of tropical cereals in order to make them more nutritious.
11. Among the potentially more important applications for specific markets are those that seek to improve the quality of feed crops. New varieties of transgenic maize that contain higher oil levels to boost energy and improve feeding efficiency or have characteristics to reduce phosphorous in animal waste are examples that are currently under development.8 And, in an interesting development that is certainly relevant to feed grains, there is a patent covering the insertion of a protein into plants when eaten would facilitate control of animal parasites.
12. An extremely important area of development is related to the various industrial uses that are made of grain crops for sucrose, starch or fuel. In the United States, currently about 20 percent of the maize production is destined for such markets, with the production of high-fructose corn syrup and of alcohol being the largest of a number of the industrial uses.9 Maize and sorghum are among the crops that produce a high yield of starch/energy per hectare, and are the leading temperate zone crops for this purpose. Hence, industrial uses of these crops have been a high priority for breeding and processing firms. There is a substantial research effort, that reflects a deepening understanding of the biochemical processes by which the plant produces starches, and by which the starches can be broken down into sugars. In essence, it has become possible to vary the feed or starch production characteristics of important crop plants within wide bounds, making it possible to use almost any starch producing plant for many industrial purposes. There are a large number of patents for the modification of the plant itself to produce the desired forms of starch in high concentrations and the processing techniques to treat the crop to obtain the desired end-products. There are also other non-traditional uses of cereal crops, the most important example of which is cellulose, clearly available from other sources, but perhaps usefully produced in grain cultivation under certain circumstances.
13. Another important possibility is genetically altering crop plants for the production of proteins of pharmacological significance. Some of the patents in the area have wide applicability to different products, including for example, to the production of maize. One patent has very broad claims, but its examples emphasize production in rice. Several of the patents metion production of specific products, not all of which are therapeutic. However, commercial applications of these technologies are not yet widely available.
14. The level of research, based on the review of patents, on the use of maize is greater than that for the alternative cereals. The development and adaptation of maize among the major producing countries is due in part to the fact that most maize seeds are purchased each year because of the high use of hybrid seeds. The private sector has already introduced transgenic maize varieties, which have taken a significant portion of the seed market in the United States and Argentina. In 1998, transgenic maize constituted roughly 20 percent of all maize produced in the United States.10 Rice offers a completely different picture. It is already grown extremely intensively in a number of developing nations, and, among the cereals, is that for which developing nations provide by far the largest relative production and participate as leading exporters. The leading biotechnology work on the crop is being conducted in the public sector and is largely oriented toward the requirements of Asian agriculture and, to a lesser extent, those of other parts of the developing world. The private sector is just beginning to conduct research which may well be oriented toward Asia, depending on the evolution of intellectual property right issues and on the feasibility of using hybrids or some other form of technological protection. It seems very likely then that rice will be the next crop after maize to shift to large-scale transgenic production, in particular among developing nations. Wheat and other grains offer a still different picture, in that they are already grown globally and often grown in marginal areas (in terms of rainfall or length of growing season). Wheat has only recently gained appeal for biotechnology research in the private sector. These efforts certainly lag those for maize and may lag those for rice - for wheat is self-pollinated, and the possibility of hybrid seed or other technical control means is only now emerging. For minor grains, such as millets, biotechnology research has been even less.11 Thus, it appears that the implications of biotechnology for production and trade of these cereals are a long way off.
15. The Green Revolution was largely focused on the development of technologies and farming systems, such as integrated pest management, to increase yields and production. This pattern contributed to a fall in imports and, in some cases, shift to exports, of Asian nations. To the extent that the new biotechnologies permit increased cereal production in a food deficit nation, they could reduce the dependence on imports. Developments in biotechnology are also expected to reduce costs of production and, in some cases, processing, improve the quality of traditional products and/or create new uses of cereals. Over the longer term, one or all could give rise to new bases for international trade in cereals produced from genetically modified organisms (GMOs). However, it is also important to note that the current developments in new technologies will not likely alter existing cereal trade patterns because of the geographic location of the developments and the types of crops currently being targeted by current research efforts, most of which have been directed toward production in the large-scale, temperate-zone farming nations that are the leading grain exporters.
16. On the production side, the biotech developments reviewed in this paper have the potential to reduce per unit prices, depending on the structure of the commodity markets, through cost-cutting and higher yields, or both. This may create a competitive advantage for the farmers and countries which utilize the new technologies. Much of the current research is focused on major commercial crops, including maize, because the potential for recovering development costs and earning profits is likely to be greater in those markets, which include the world's current leading grain production centres, e.g. Argentina, Australia, Canada, the European Union and the United States. The shorter-term impact of biotechnology will almost certainly be to strengthen the competitiveness of the current leading temperate-zone, cereal exporting nations and, thus, to intensify traditional trade patterns. However, in the longer run and to the extent that yields are often significantly lower in developing countries, the improvements in productivity that some of the new technologies could lead to may be relatively greater there than those currently achievable in temperate-zone, exporting countries. There are certainly larger growing areas available in the developing countries that could potentially utilise such technological improvements.12
17. Over the longer term, the biotechnology potential for increased production in regions previously restricted to certain crops by soil and climate conditions may be realised and could modify trade patterns. Biotechnology developments leading to the ability to produce cereals in zones not previously used for such cultivation have the potential to expand overall production. For example, the ability to adapt wheat to more arid regions or in regions with different patterns of wintering and photo-period sensitivity is likely to expand production possibilities. Moreover, the new biotechnologies could also create varieties more tolerant to drought and reduce yield instability. In this case, the effect on trade maybe achieving more stability in the level of trade of the countries applying the technology rather than changing its pattern.
18. In addition to the price effects emanating from the improvements at the farm level, the new technologies also have the potential to affect cereal prices in the post-farm marketing chain, through limiting post-harvest losses and improving processing efficiencies. While lower prices can stimulate demand to the extent that the end use of the crop is responsive to price changes, it may be the development of value-enhanced products and new uses for cereals that would create new markets for cereals. It appears that most of the research developments in this area, to date, have been oriented toward non-traditional uses of cereals.
19. Cereals altered to produce certain characteristics more efficiently would have the ability to compete with those crops that are traditionally grown for this trait. For example, high-yield starchy (energy) crops, such as sugar and cassava, could be substituted by biotechnology-based alternatives, especially for industrial and animal feed uses. While these crops offer essentially the same industrial potentials as do coarse grains (primarily maize), they are almost certainly, in general, receiving less research attention. This, of course, could affect the market relationship between these crops and potential competitors and could increase the trade in grains at the expense of the starch-based crops.
20. The wider new-market effects - only slightly predictable - derive from the use of grain for industrial products or new products, e.g. cellulose, or of modifications in the usefulness of specific grains for animal feed. Feed applications amount to roughly three-fourths of all uses of maize in the developed world and a very large proportion of the use of sorghum, rye, oats and barley. Relatively little biotechnology research covering these crops is undertaken, as their total production is relatively small.13 Nevertheless, it is clear that the new technologies may be extremely significant in the feed market, but it is impossible at this point to determine which of the various natural and modified grains will gain relative importance in this market.
21. Although the speed of developments to adapt grains to specific niche markets and needs, e.g. to beer brewing or making a particular type of bread, is difficult to determine, the following considerations may be important in assessing their likely impact on trading patterns. One is that the new crops are likely to be grown near the particular markets, e.g., that a genetically modified grain useful in brewing will normally be grown near the breweries in which it is used, in which case the impact would be, in general, to decrease trade and decentralize production. In the case of using cereal by-products for pharmaceutical production, there will presumably be some important specific markets created for these products - but these markets will almost certainly be served by special purpose production under carefully controlled conditions, probably in the temperate zone. The technologies to increase overall market value may lead to new specialized products: However, their net impact as a portion of the overall market is likely to be relatively small.
22. The above discussion dealt with factors related to the direct effects of developments in biotechnology on the structure of supply and demand for cereals, and hence on trading patterns. National policies enacted to deal with environmental and public health issues stemming from biotechnology developments could also be important, partly through influencing the speed and direction of biotechnology research and partly through influencing consumer behaviour. These issues will be discussed in this section.
23. Environmental and ecosystem questions, related to biotechnology, are also likely to have a further, less direct, and less predictable impact on trade. Agricultural production has significant environmental consequences, and biotechnological changes in crops could modify these. The Green Revolution was linked directly to the use of modern inputs, such as mineral fertilisers and pesticides, to gain the benefits of the new varieties. It appears unlikely that the new biotechnology-based varieties will imply anything like the input changes associated with the Green Revolution. However, more stringent environmental regulations could shift the focus of biotechnology research towards techniques that could reduce some negative environmental effects of agricultural production. For eaxmple, research on cereal feeds to limit livestock phosphorus and nitrogenous residues, a serious problem especially in intensive production areas such as Europe and parts of Asia, could have a significant positive payoff for the environment. And a number of the other research directions, improved and drought and salinity tolerance, shorter crop cycles, etc., could also permit agriculture production with fewer additional inputs. As production requirements increase in the face of growing population and growing demands for animal feed, these factors will become more significant in shaping agricultural competitiveness. This trend, which is as much environmentally-driven as technologically-driven, may create new trade opportunities for some nations.
24. Perhaps the potentially most limiting factor for trade in the development and adaptation of biotechnology in cereals, as well as other crops, could be in the area of bio-safety, especially as it relates to human health. Many of the popular press reports on this subject during the past year have focused on the controversy in the EC over GM products which are perceived to be a threat to health. Import bans and delays in approving the use of Bt maize and other GM crops in the EC have limited the opportunities to the suppliers of these commodities.14 The efforts to assess scientifically the effects of using these products still continue. Moreover, since widespread application of some of the new technologies is relatively recent, assessments of their longer term effects are likely to continue for some time. As long as such uncertainty remains, trade in these products is likely to be restrained.
25. In most countries, the current marketing system for cereals relies on the distribution, storage and trade in bulk, i.e. lots are measured by weight, not by sacks or other containerized units of measure. This system, along with bulk grading standards, have developed over a number of years. With the introduction of large scale production of GM maize in the mid-1990s, the ability to segment or identify products containing new or altered characteristics has proven difficult and controversial. The labeling of GM products at the retail level, for example, to advise consumers of potential allergen reaction, requires the ability to trace the commodity from the farm, through the distribution, storage and processing stages. At this time, the cereal marketing systems in most countries appear to be inadequate to meet this requirement. In addition, there is currently no effective method to grade and standardize cereals based on traits resulting from biotechnology.15 This would be an important requirement to allow processors to make appropriate blends, whether for food products or animal feed, and to give farmers the appropriate price incentives to produce biotech crops.
26. A likely development in the marketing of biotechnology-based cereals may come from the experience with organic farming and the system used by some large retail food chains. In effect, the acquisition of cereals with specified traits/characteristics desired by processors and other end-users could be vertically integrated by direct purchases from the farm and/or by providing most of the distribution and storage services now found in the handling of bulk cereals. Initially, this procedure may become necessary if consumers/governments require that cereal-based products be labeled or otherwise identified as originating from crops produced from genetically altered seeds. Vertical integration would also be necessary to keep GM products separate to meet processing needs for mixing with other grades or products. Market segmentation could eventually lead to trade diversification and possible changes in trade patterns.
27. More recently several techniques have been patented that controls the life-cycle of seeds, biologically altering them so that they become sterile after each harvest. Thus, the user of these seeds is obligated to purchase new seeds each year from the supplier. This use of biotechnology has recently received much press attention and negative reaction because, among other things: 1) of the potential to reduce the level of security among farmers by creating dependence on seed suppliers, and probably imports, rather than on saving seeds from the previous harvest; 2) of environmental concerns related to the possible effects of cross-pollination with native plants and weeds; and 3) of the unknown implications of the consumption of foods and animal feeds produced from these seeds, some of which contain a toxin.16 The debate is still in its infancy and is likely spill over into fora such as the WTO, in particular the agreement on Trade Related Intellectual Property Rights (TRIPS), and the UN Convention on Biological Diversity.
28. There can be no discussion of the developments in biotechnology and cereal trade without a mention of the global trading agreements under the World Trade Organization (WTO). The Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Agreements are likely to be the main international instruments through which biotechnology and trade issues will be treated together. In general, the SPS Agreement would allow importing countries to limit trade based on scientific evidence of potential human, plant and animal health risks and/or environmental degradation. In the case of cereals, there has been concern expressed about the introduction of Bt into maize seeds and the possible implications for human health and the environment. The issue has been raised with regard to the labeling of maize products which may have been produced from seeds containing the Bt gene. While some countries require labelling of food products or components produced by genetic engineering, others do not. It is likely that such requirements for GMO labelling will become a multilateral or bilateral trade negotiating issue (e.g. in the WTO) over whether such labelling constitutes a trade barier.17 Morever, the UN-sponsored Biosafety Protocol, which failed to be approved in February 1999, would have required countries exporting GM products to obtain importing country approval prior to shipment. This requirement was rejected by the major grain exporting countries, excluding the EC.
29. Obviously these and other related safety and health issues will have an impact on future trade in cereals derived from biotechnology, but the outcome is very unclear at this time. Continued strong resistance from major cereal importing nations would limit demand and trade. The challenge for the international community is to reach agreements through the appropriate fora on the standards for biotechnology products based on objective criteria.
30. The most likely first effect of biotechnology developments on cereal trade will be to reinforce existing trade patterns because the developments pursued so far have been directed at and adopted by commercial producers located in the more advanced cereal producing and exporting nations. The technologies that have been developed are largely aimed at reducing cereal production costs. The crops receiving the most attention have been those which are likely to be more profitable for producers when compared to traditional varieties and where hybrids and agricultural chemicals are heavily used by the commercial farmers. At the same time, the impact on cereal trade could be limited by the public resistance to the consumption of food and, indirectly, feed products from genetically altered cereal seeds. The trade implications of the adoptation by producers and the acceptance by consumers of the next generation of technologies that could promote the development of new characteristics and uses of cereals are still unknown, as they are not yet commercially available.
31. If public sector biotechnology research picks up momentum and the results benefit the developing countries, this could lead to a shift in cereal trade patterns. Perhaps more important in terms of food security for these countries would be the technologies developed to stabilize cereal production and to offer opportunities to produce in marginal zones previously limited by soil and climate conditions. Almost certainly, in spite of the best efforts of the public sector, the technologies oriented toward developed world cereal markets will, at least initially, develop faster than those related to developing world agriculture. Probably the key issue from the perspective of developing nations is whether the technologies developed for specific conditions in the developed countries will be suitable so that they are adopted by producers in the developing countries as well. In this regard, there appears to be an urgent need for more public funded research which would likely benefit cereal production in the developing countries. The Groups may wish to recommend the continued monitoring of developments in the application of biotechnology to cereals and their trade impacts and the analysis of the particular issues facing the developing countries.
1 Similar studies have been presented earlier to the IGG on Oilseeds, Oils and Fats (CCP:OF 97/4) and the IGG on Meat (CCP:ME98/7).
2 In the case of Bt maize, average cost savings were some $US 67 per hectare (C. James, Global Status of Transgenic Crops, ISAA Brief No. 5, 1997).
3 "Coat protein of the virus" is the protein that surrounds the genetically active portions of a virus and typically enables the virus to enter a cell, so that it can then arrange for its reproduction using part of the cell's reproductive process.
4 Peter Riley, "The Impact of New Technology on the Corn Sector: 1998 Update and Prospects for the Future," in USDA, Economic Research Service, Feed Yearbook, April 28, 1998.
5 G.S. Khush, "Prospects of and Approaches to Increasing the Genetic Yield Potential of Rice, in R.E. Evenson, R.W. Herdt, & M. Hossain, Rice Research in Asia: Progress and Possibilities (CAB Int'l 1996), p. 59.
6 C. James, Global Review of Commercialised Transgenic Crops (ISAAA Brief No. 8, 1998).
7 G. Toenniessen, "Potentially Useful Genes for Rice Genetic Engineering," in G. Khush & G. Toenneissen, Rice Biotechnology (CABI 1991).
8 USDA, Economic Research Service, "Value-Enhanced Crops: Biotechnology's Next Stage,"Agricultural Outlook, February 23, 1999.
9 U.S. International Trade Commission, Industry and Trade Summary: Milled Grains, Malts, and Starches, USITC Pub. 3095, March 1998, at p. A-6.
10 Riley, Feed Yearbook, 1998.
11 Charles Spillane, Recent Developments in Biotechnology as They Relate to Plant Genetic Resources for Food and Agriculture, Background Study Paper No. 9, Commission on Genetic Resources for Food and Agriculture, April 1999, Section 5.4, p.33.
12 James (op., cit, 1998).
13 FAOSTAT. About one-fifth of the barley production is in the developing world and less than a tenth of the oats and rye production is in the developing world.
14 Recently, three large United States maize processors have agreed to ship only EC-approved maize varieties. Agra Europe, "US maize giants bow to EU standards", April 16, 1999 and Grains and Oilseeds, "Cargill swings towards EU GM standards", May 1999.
15 Spillane, Section 4.9, p.25.
16 A relatively unbiased explanation of the new technology can be found in an article by Martha Crouch, Associate Professor of Biology, Indiana University, "How the terminator terminates: an explanation for the non-scientist of a remarkable patent for killing second generation seeds of crop plants," 1998; on the Internet at "hhtp://www.bio.indiana.edu/people/terminator.html".
17 Spillane, p. 25.