Economic impacts of genetically modified crops on the agri-food sector

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WORKING DOCUMENT Rev. 2
Directorate-General for Agriculture
Economic Impacts of Genetically Modified Crops on the Agri-Food Sector

1.   Areas sown to GM crops in the world : fast but uneven developments

About the data
The data used in this chapter are derived from a GMO dataset established by DG AGRI in co-operation with external experts. They originate from various sources: agricultural and economic administrations and related research institutes (of which USDA, ERS), biotech companies, seed associations or seed companies, scientific reviews, news agencies and private consultants (of which ISAAA¹ and SPARKS).
The main objective was to obtain a dataset which was as coherent as possible, offering a good comparability of data. ISAAA seemed to be recognised by most of the GMO specialists as a consistent and comprehensive source of data. However, ISAAA data have been confronted and complemented with other sources.
Despite all efforts to create a coherent, reliable and up to date dataset, all figures presented in this report should be interpreted with care, certainly for Chinese figures and for the 2000 projections. Indeed, most of the data are based on sales of seeds and not on area surveys which can lead to a bias.

1.1.    Development of GM crops : a global picture
Analysis was restricted to studying the sowings of five transgenic crops which are covered by a EU Common Market Organisation (CMO), soybeans, corn, rapeseed, cotton and tobacco respectively. Figures concerning areas planted with GM potatoes are also provided. Research on genetically modified crops² started in the eighties but sales of first commodity seeds began only in the midnineties. The first significant sowings of GM crops (2.6 Mio ha) took place in 1996 and almost exclusively in the US³. Since 1996, the areas have increased dramatically to reach 41.5 Million hectares - Mio ha - in 1999. Adoption rates for transgenic crops are in some countries the highest for new technologies by agricultural industry standards, much faster than has been the case for hybrids. Of the 41.5 Mio ha sown in 1999, 53% were soybeans, 27% corn, 9% cotton, 8% rapeseed, 2% tobacco and 0.1% potatoes. Figures 1 and 2 show respectively the development of the GM crops between 1996 and 1999 and their share in the 1999 GM area.
Table 1.1 Development of GM area by crop

Figure 1.1
Development of GM Area

Figure 1.2
1999 Share of GM Crops in%

As shown in table 1.2 and in figures 1.3 and 1.4, most of the GM crops are sown on the American continent, 96% of the total in 1999. Australasia follows with 3.8% whereas Europe and Africa represent together around 0.1%.
Table 1.2 Development of GM area by country

The US have by far the most important area (29 Mio ha) of GM crops, around 70% of the total, followed by Argentina (5.8 Mio ha or 14%) and Canada (4 Mio ha or >9%). In China (3%), the GM tobacco area ranks between 1 and 1.3 Mio ha, depending on the sources, whereas they started limited sowings of GM cotton in 1998. In Europe, Spain ranks first with around 10000 ha followed by Romania with 2000 ha and France, Portugal and Ukraine at just 1000 ha.

About Argentina and Brazil
Following a Court ruling, sowings of GM crops are not allowed in Brazil and public authorities are committed to control it. However, certain sources mentioned that at least 10% of their soybean area in 1999 was GM. The GM area would be located south and the seeds would be fraudulently imported from Argentina. ISAAA does not give figures for Brazil and that is the reason why their total GM area in Argentina is higher than the one reported here, which is based on figures from the Argentinean "Direccion de Economia Agraria" and from the Argentinean seed association.
For that reason, '1999 seeds were reallocated to Brazil to cover 1.2 Mio ha. The total of Argentinean and Brazilian soybean area of this report (7 Mio ha) is close to ISAAA figure for Argentina (6.4 Mio ha).

Figure 1.3
Development of GM area by country

Figure 1.4
1999 Share of GM by country in%

Of the 41.5 Mio ha sown with transgenic crops in 1999, the distribution of traits is as follows.

Ranked first is the herbicide tolerant (HT) GM crop with 69% of total,

followed by insect resistant (IR) GM with 21%,

GM crops containing both genes (HT+IR) represented 7%,

and virus resistant (VR) GM crop (almost exclusively Chinese tobacco) nearly 3%.

This is quite the same order as in 1998 but with an increase of crops containing both genes, the herbicide tolerant and insect resistant. However, this is an important shift compared with 1996 where virus resistant GM represented 40% of total, insect resistant 37% and herbicide tolerant only 23%. This is mainly due to the dramatic increase in HT soybeans. Figure 1.5
Share of GM traits in 1996 and 1999

TRAITS of Present GM crops
The present "wave" of GM crops' primary objective is to improve pest resistance;In turn, this should reduce/change the use of crop protection products and/or increase yields.

1. Herbicide tolerance
The insertion of a herbicide tolerant gene⁴ into a plant enables farmers to spray wide spectrum herbicides on their fields killing all plants but GM's. For that reason, the new GM seeds opened new markets for both products. In fact, these crops contain a slightly modified growth-regulating enzyme that is immune to the effects of the active ingredient and allow it to be applied directly on the crops and kill all the plants not possessing this gene.

2. Insect resistance
By inserting genetic material from the Bacillus thuringiensis (Bt) into seeds, scientists have modified crops to allow them to produce their own insecticides. Bt gene responsible for producing the toxin is directly inserted into the plant to produce pest resistant varieties. For example, Bt cotton combats bollworms and budworms, whereas Bt corn/maize protects against the "European" corn/maize borer.

3. Virus resistance
Today a virus resistant gene has been introduced in tobacco and potatoes (also tomato, but this product is not analysed in this report).
The insertion of a potato leaf roll virus resistance gene protects the potatoes from the corresponding virus which is usually transmitted through aphids. For that reason, it is expected that there will be a significant decrease in the amount of insecticide used.
The introduction of a virus resistance gene in tobacco may offer similar benefits

4. Quality traits
Today quality traits-crops are only sown marginally and represent less than 50 000 hectares in Canada and the USA. It concerns high oleic soybeans, high oleic canola/rapeseed and laurate canola. More explanations are given in chapter 1.3 "In the pipeline: quality/outputs traits crops"

Providing early estimates for the 2000 sowings of GM seeds proves difficult. 1999 was a turning point as far as demand is concerned, as explained in chapter 4. In Europe, as well as in some Asian countries, many food suppliers took a restrictive stance on GM food. In the US, some export- oriented food processors are considering segregating GM and non-GM crops. Whether, and to what extent, these recent developments on the demand side will have a feed back effect on 2000 GM sowings remains a controversial issue. In early 2000, first indications could be found in various sources, but they point to divergent directions. Given the contradictory signals by the time of closure of the report (end of March 2000), an own approach has been adopted for estimating the 2000 GM sowings indicated in tables 1.1. First, the latest USDA previsions for 2000 sowings of soybeans, corn and rapeseed in the main producing countries have been recorded. For the US, the USDA prospective plantings are based on farmers' surveys carried out in early March. This first step allows for taking into account various factors which are influencing farmers' planting decisions, in particular expected commodity prices. Second, an estimated percentage for areas under GM crops is applied to these USDA forecasts. This percentage is based on "expert judgement". It takes into account the results and developments outlined in the present report. First, results concerning the profitability of GM crops are mixed, depending on varieties, growing conditions, prices etc. Second, developments on the demand side are expected to have a cascading effect backward in the food chain, up to farmers. However, this effect still is of limited and variable magnitude. The lack of non-GM seeds might be a factor limiting a potential move back to conventional crops. As a result, the GM area for 2000 is forecast to plateau just above 42 Mio ha. Further specifications by type of crops are given below in chapter 1.2. 1.2.    GM crops grown on a commercial basis : input-oriented
A detailed picture is provided for the main GM crops which are grown on a commercial basis. These crops are ranked according to the importance of areas under cultivation. Soya and corn account for 80% of GM areas world-wide.

1.2.1. Soybeans

Commercialised GM soybeans were first sown in 1996 in 2 countries, the USA and Argentina and represented respectively 1.6 and 0.8% of their total soybean area.
Table 1.3 Development of GM soybean area

In 1999, GM soybean sowings accounted for nearly 22 Mio ha or more than 52% of total GM sowings. With this area, GM soybean represents nearly one third of world total soybean area and nearly 47% of area of countries producing GM soybeans. Of the 22 Mio ha, 15 or two-third of total are in USA (51% of US soybean⁵), 5.5 in Argentina (75% of Argentinean soybean), 1.2 in Brazil (10% of Brazilian soybean) and less than 0.1 Mio ha in Canada and Romania. Figure 1.6 shows the geographic breakdown of GM soybean area in 1999.
Figure 1.6 Geographic breakdown of GM soybean area in 1999

Almost all GM soybeans are herbicide tolerant (HT). HT crops allow for increased flexibility in growing practices. This "convenience effect" appears to be a driving force for the quick adoption of HT soybeans by farmers. On the demand side, the main soybeans producing countries are dependent on exports, in particular on the European and the Japanese markets. Reluctance against GM food on these markets might have an incidence on growers' and handlers' decisions. However, feed uses are the main outlets for exported soybeans/meals (see chapter 4) and no firm stance has been taken up to now on the feed issue.

Given these factors of uncertainty, a conservative assumption has been adopted for the estimated areas under GM soybeans in 2000. Depending on countries, this percentage is estimated to remain unchanged, or to decline slightly. However, as USDA forecasts a global increase in areas sown to soybeans, a merely unchanged share of GM applied on this basis means an increase in absolute terms. In particular, in the US, the total soybean area is expected to reach an unrecorded level of 30 Mio ha. Hence, the world area sown to GM soybeans in 2000 is forecast to increase by 3%, reaching 22.5 Mio ha.
1.2.2. Corn
First sowings of GM corn took place in 1996 exclusively in North America, 0.3 Mio ha in USA and 0.001 Mio ha in Canada and represented respectively 1% and 0.1% of their corn area.
Table 1.4 Development of GM corn area

In 1999, GM corn sowings accounted for more than 11 Mio ha and 27% of total GM sowings. With this area, GM corn represents about 8% of world total corn area and 28% of area of countries producing GM corn. Most of the areas are located in USA (10.3 Mio ha or 36% of US corn), 0.3 Mio hectares in Argentina (11% of Argentinean corn), 0.5 in Canada (44% of Canadian corn) and a few thousands of hectares in Spain, France and Portugal. Figure 1.7 shows the geographic breakdown of GM corn area in 1999.
Figure 1.7 Geographic breakdown of GM corn area in 1999

Two thirds of corn area or nearly 8 Mio ha are insect resistant (Bt-corn), about 2 Mio ha is herbicide tolerant corn and around another 2 Mio ha of corn contain both genes.

Herbicide Tolerant corn was introduced onto the US market in 1998. However, experts (USDA) do not expect a development as fast as for HT soybeans.

There is evidence about yield gains for Bt corn, however, its profitability depends on different factors, in particular the degree of infestation and market prices. In addition, farmers are required to set up refuges (ie non-Bt areas to prevent resistance) for at least 20% of their Bt-area. For these reasons, the share of GM corn in US areas is forecast to decrease in 2000. Based on surveys carried out in early March, the USDA estimates that GM corn sowings in major producing States are down by 25% compared to 1999. By contrast, according to various sources, the share of GM Corn is forecasted to increase in Argentina, as well as in South Africa. All in all, the world area under GM corn in 2000 is estimated to decline to 10.5 Mio hectares.

1.2.3. Cotton

First sowings of GM cotton (0.7 Mio ha) took place in 1996 in the USA and represented 12% of their total cotton area.
Table 1.5 Development of GM cotton area

In 1999, GM cotton sowings accounted for nearly 4 Mio ha or nearly 10% of total GM sowings. With this area, GM cotton represents about 12% of world total cotton area and 38% of area of countries producing GM cotton. Most of the area is located in USA (3.2 Mio ha or 55% of US cotton), 0.3 Mio hectares in China, 0.3 in Australia (three quarter of Australian cotton) and less than 0.1 Mio ha in Mexico and South Africa. Figure 1.8 shows the geographic breakdown of GM cotton area in 1999.

A Member of the European Parliament (MEP) has recently raised questions⁶ about GM seeds being included in import consignments of traditional cottonseed. No authorisation has been granted so far for placing GM cotton on the EU market. Hence imports or growing of GM seeds are not allowed in the EU. The question raised by the MEP deserves further checks and should be addressed in the process of revision and completion of the EU seed regulation.
Figure 1.8 Geographic breakdown of GM cotton area in 1999

More than 40% of the 4 Mio hectares is herbicide tolerant, one third is BT cotton and the remainder (more than 20%) contains both genes.
In 2000, the GM cotton area is forecast to increase up to nearly 5 Mio ha. Most of this expansion is expected to take place in China, where there has been a three-fold increase. In the US, the USDA has observed significant increases in yields for Bt cotton, and its profitability also appears to be higher. Based on March surveys, the USDA foresees a decrease in the share of areas under GM cotton in major producing States, but a high rate in other producing States. In addition, a 5% increase in total cotton plantings is expected. These developments lead to a significant increase in the area under GM cotton, both in China and in the US (+25% world-wide).

1.2.4. Rapeseed

First sowings of GM rapeseed⁷ took place in 1996 exclusively in North America, 0.1 Mio ha in Canada and less than 0.01 Mio ha in USA and represented respectively 3% and 5% of their rapeseed area.
Table 1.6 Development of GM rapeseed area

In 1999, GM rapeseed sowings accounted for nearly 3.5 Mio ha or about 8% of total GM sowings. With this area, GM rapeseed represents about 13% of world total rapeseed area. The area is located in Canada (3.4 Mio ha or two third of Canadian rapeseed, ie Canola), and in the USA (0.06 Mio hectares or 15% of US rapeseed).

All GM rapeseed is herbicide tolerant.

For 2000, the share of GM rapeseed is expected to rise in the US (alongside with a significant increase in total rapeseed plantings) and to remain at its 1999 level in Canada. As total sowings in Canada are down, this translates into a decline in GM areas to 3 Mio ha.
1.2.5. Potatoes

GM potatoes represented in 1999 about 40 000 ha. Sowings took place in the USA (30 000 ha), Canada (10 000 ha), Romania (1 000 ha) and Ukraine (1 000 ha). The GM potato contains either a virus or an insect resistance trait.
Figure 1.9 Geographic breakdown of GM potato area in 1999

1.2.6. Tobacco
GM tobacco is exclusively sown in China and contains a virus resistance trait. The area reported is about 1 Mio hectares or 2.3% of total GM area.
1.3.    In the pipeline: quality/output traits crops
In the short term, the main improvement will result from inserting 2 genes in one cell ("stacked traits"). This is already the case for GM crops containing both the insect resistant and the herbicide tolerant genes.

In the medium term, traits will still be input-oriented, but they should be extended to new varieties, of which sugarbeet, rice, potato and wheat. New virus-resistant varieties are expected to be introduced on the market in particular for fruit, vegetables and wheat. Also fungus resistant crops are in the pipeline and this concerns fruit and vegetables, potato and again wheat. Nevertheless, in the medium term, the same crops as today will have the lead, that means soybeans, corn, rapeseed, cotton, tomato and potato.

In the longer term, new value-enhanced or output-oriented traits are likely to develop among field crops, mostly created through biotechnology. However to succeed, the products must be able to deliver not just improved quality, but also good agronomic performance. By contrast with first generation GM crops where farmers expected a direct impact on their use of pesticides and herbicides (in order to diminish their input costs), the adoption rate of the new generation may proceed more slowly. In addition, some of the value enhanced GM crops will be limited to niche markets (see chapter 4).

Nevertheless, the new generation of GMs is developed in order to provide benefits for food processors and/or for consumers. Hence, the adoption by the consumers could be less conflictory.

GMOs also have potential in the non-food sector. One innovative example is that of Cynara Cardunculus-thistle grown in Spain for electricity generation. Also GM poplars have been developed in France for paper production which demand less energy and produce less waste during processing. Oil and carbohydrate crops also offer opportunities in the chemical sector. An example is high-erucic rapeseeds used for fuel, lubricants and plastics.

The table below provides an overview of some leading developments. Of course, this list is not exhaustive.
Table 1.7 Quality traits in the pipeline

Soybeans
1. high oleic soybeans : this variety contains less saturated fat than conventional soybean oil. Moreover, this variety is more stable and requires no hydrogenation for use in frying or spraying. For that reason, this variety has a "health" image.
2. soybeans with improved nutritional traits for animals : this variety contains higher levels of 2 amino acids (lysine and methionine) which will reduce the proportion of higher cost protein meals in the preparation of feed mixes.
3. high-sucrose soybeans : this is one of the new varieties introduced to improve food quality. This variety has a better taste and a greater digestibility.

Rapeseed/Canola
1. High-lauric variety produces an oil containing 40% of lauric acid for chemical and cosmetic purposes.
2. High-stearate variety produces oil high in stearic acid, solid at room temperature without hydrogenation. It would be used for baking, margarine and confectionery foods that cannot use liquid oils.

Corn
Several researches, both conventional and biotech, aim to produce value-enhanced corn that will offer improved nutritional traits for livestock. Since grain is fed primarily as a source of energy, many of the new value-enhanced varieties aim to increase the content or availability of energy. But some new varieties will also include more protein and better amino acid balances, which would reduce the need to buy supplemental feed ingredients.

Cotton
Coloured cotton is already available on a niche market basis. This trait would reduce the need for chemical dyes.
Fibre quality improvement, such as polyester-type traits, would make sturdier fabrics.
Chinese researchers are breeding a new strain of cotton that includes rabbit keratin. Fibres of this cotton are longer and more resilient and they have an increased ability to maintain warmth.
Research is also carried out to develop wrinkle-resistant cotton and even fire-retardant qualities.

Nutraceuticals
The real bright prospect for GM is to produce varieties that could provide immunity to a disease or improve the health characteristics of traditional food, like canola oil with high-beta carotene content or vitamin A supplemented rice. This 3^rd generation of GM called nutraceuticals or "functional foods" is designed to produce medicinal qualities and/or food supplements within the plant.

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