October 11, 2001

GM Wheat Might Benefit U.S. Producers and World Consumers

If wheat producers in the United States were the only adopters of genetically modified (GM) wheat they would enjoy a competitive advantage over other exporting countries as a result of lowered production costs while producers in other countries would suffer. At the same time, consumers worldwide would benefit, according to a prediction model developed at North Dakota State University. The analysis is in a report from the Center for Agricultural Policy and Trade Studies at NDSU.

Eric DeVuyst of the NDSU agribusiness and applied economics department says that controversies surrounding GM commodities and the reluctance of some importers to accept GM varieties creates problems for introducing GM crops. GM wheat varieties are not now being grown, but varieties tolerant to glyphosate herbicide could be available as soon as the 2002 or 2003 growing season.

These varieties could give U.S. producers improved weed control and lowered production costs, but the potential for lost access to some markets presents an enormous downside potential, he says.

DeVuyst says accurately predicting the effect of a planned introduction like GM wheat is extremely difficult because of insufficient data. He and colleagues Won Koo, Cheryl DeVuyst and Richard Taylor developed a model using existing supply, demand and elasticity estimates to demonstrate the impact of several possible scenarios of GM wheat adoption and consumer acceptance.

One scenario assumes that U.S. producers adopt GM wheat while other wheat-exporting countries do not. Some importing countries, notably Japan, South Korea and the European Union, are assumed to purchase from U.S. competitors if the United States cannot ensure "GM-free" wheat. Other importers, mainly lesser developed countries, have expressed less concern about GM-derived foods and are expected to purchase at the lowest possible cost.

Under this scenario, DeVuyst says, U.S. producers enjoy a competitive advantage because of lowered production costs while all other countries suffer trade losses. U.S. consumers suffer slightly under this scenario while consumers outside the United States benefit from lower world wheat prices.

Other scenarios assuming various levels of GM adoption by other countries and levels of acceptance of GM wheat by importing countries generally show large gains for consumers. However, says DeVuyst, producers, even U.S. producers, are harmed by higher levels of GM adoption because of falling wheat prices.

A final simulation evaluated the impact of lost U.S. export markets because of importers shifting away from U.S. wheat due to GM adoption. This effect was simulated in the analysis by restricting U.S. wheat exports to Mexico to zero. Describing the results as surprising, DeVuyst says, "Initially we expected the United States to lose producer surplus as the closest export market was lost. However, the reduction in production costs and increased sales of GM wheat exported elsewhere more than offset the lost revenue."

DeVuyst cautions that benefits to U.S. producers are based on an assumption of 4.8 percent cost savings from planting GM varieties. Any lower savings might be offset by lost markets.

For a copy of the report, "Modeling International Trade Impactsf of Genetically Modifies Wheat Introductions," contact Carol Jensen, Department of Agribusiness and Applied Economics, P.O. Box 5636, Fargo, ND 58105, phone (701) 231-7441, Fax (701) 231-7400, e-mail cjensen@ndsuext.nodak.edu . The report is also available electronically at http://agecon.lib.umn.edu/ .

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Source: Eric DeVuyst, (701) 231-7466, edevuyst@ndsext.nodak.edu
Editor: Gary Moran, (701) 231-7865, gmoran@ndsuext.nodak.edu