Market for GM wheat still clouded

by Meyer Sosland
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Updated report indicates high export risk in commercializing GM wheat

by Arvin Donley

For many years, U.S. wheat has been an export-oriented crop, with more than half of the nation’s hard red spring wheat production typically being sold abroad along with roughly one-third of the country’s durum crop. 

The U.S. wheat industry has become understandably concerned about the long-term downward trend in U.S. wheat acreage and the declining U.S. share of the world wheat export market. Some have suggested that developing genetically modified (GM) wheat varieties that control diseases, insects and weeds might give U.S. wheat a competitive advantage over the world’s other wheat-exporting nations.

But a recently released report prepared by Dr. Robert Wisner, an economics professor at Iowa State University, said available market indicators continue to show a high risk of losing some important export customers if GM wheat is commercialized at this time. It is the latest update of Wisner’s October 2003 report on "Market Risks of Genetically Modified Wheat." Released in September, the report said indicators of foreign consumer attitudes toward GM wheat suggest that potential foreign market reactions would be similar to those of two years ago if it were commercialized at this time. Wisner’s earlier report indicated the introduction of GM wheat would risk the loss of up to one-half of U.S. hard red spring and durum wheat export markets and up to a 33% drop in price.

"We have not seen evidence, either from the WTO (World Trade Organization) policies or other developments, that consumers in major foreign markets are significantly changing their views toward GM Roundup Ready wheat from those of two years ago," Wisner said in the report.

In May 2004, the Monsanto Co. shelved plans to commercialize the first biotech wheat — Roundup Ready — which is genetically modified to resist applications of its broad-spectrum

herbicide. A statement released by the company said the basis for its decision was the lack of farmer and consumer acceptance. The only variety of genetically modified wheat currently being developed for possible commercial release is being modified to increase resistance to fusarium head blight.

U.S. wheat organizations have been concerned that wheat acres are being shifted to GM maize and soybeans because they are cheaper to plant and less susceptible to diseases than wheat and thus more appealing to farmers. These organizations and growers believe that commercializing a biotech variety of wheat would gain back some wheat acres lost to maize and soybean production.

Wisner’s report notes that wheat acreage is declining in part because of changing U.S. agricultural policy, increased production of crops suitable for the rapidly expanding biofuels market (maize and soybeans) and extremely rapid growth in Chinese demand for soybeans.

In October, the WTO released a report that said the E.U.’s failure to act on biotechnology approvals was, in effect, a moratorium on biotech products. The WTO report requires E.U. member states to eliminate national bans on products already approved by the E.U.

France, Germany, Luxembourg, Austria, Italy and Greece have each banned E.U.-approved biotech products but did not provide sufficient scientific

evidence of risks to either people or the environment, according to the WTO report.

But Wisner said he doesn’t expect the WTO’s report to have much immediate effect on the GM wheat situation in the E.U. He said the WTO decision "does not appear to prevent the E.U. from using its GM labeling and traceability program." The labeling program allows consumers to choose between GM and non-GM foods, and Wisner noted that "it is the consumer that determines how the market will react as long as the consumer has a choice."

In the report, Wisner notes that no technology has been developed that would significantly reduce the costs of segregating GM and non-GM wheat supplies in marketing channels at tolerance levels currently specified in Europe. If a low-cost acceptable segregation system is developed, it would increase the likelihood of market acceptance of GM wheat. "With the low tolerances required for GM food ingredients in some foreign markets, effective market segregation to meet those low tolerances would be important if negative impacts on export demand from commercializing GM wheat are to be avoided," Wisner said in the report. Some supporters of GM wheat have pinned their hopes on other GM crops gaining acceptance in the E.U. and opening the door for GM wheat varieties. In the past couple of years, new varieties of soybeans were developed through conventional breeding that offered potential health benefits, such as a reduced risk of heart disease. Seed companies inserted a GM herbicide-resistant gene in some of these varieties, and there is speculation that they might gain acceptance in foreign markets.

However, Wisner’s report said that so far these new low trans-fat soybean varieties have not changed European attitudes toward GM foods. For the 2005-06 soybean marketing year, U.S. soybean exports to the E.U. dropped by 54% from the previous year. U.S. soybean meal exports to the E.U. have fallen from once-large volumes to almost economically insignificant levels, the equivalent of the meal from 0.03% of last year’s crop. Until the late 1990s, the E.U. was a major importer of U.S. maize, but its imports in the marketing year ending Aug. 31, 2006 represented 0.06% of the 2005 U.S. crop.

The report mentioned that based partly on China’s purchases of U.S. soybeans, a number of market analysts believe China’s wheat import market is potentially less sensitive to GM wheat issues than that of other countries. China consumes more soybeans directly for human food than western nations, although most of its imported soybeans are processed into soybean oil and meal.

China is the world’s largest importer of soybeans and purchases supplies from both the U.S. and South America. U.S. soybeans are mostly GM varieties, as are those from Argentina.

Unlike wheat-based foods, much of China’s soybean imports are processed so that GM soybean protein is removed from the oil, and the meal is mainly fed to livestock and poultry. Therefore, Wisner said the Chinese consumer attitudes may not be a reliable indicator of potential acceptance of GM wheat. The report noted that China has a food labeling program, but it does not appear to be enforced as strictly as in other countries. It also notes that China has been a highly variable market for wheat.

Wisner said trying to gauge the Chinese government’s stance on GM crops has been difficult. In late 2005, a report indicated that a committee of Chinese officials and scientists was unable to recommend commercialization of GM rice because of inadequate information on its safety. However, a more recent report indicated that the Chinese government is still working on developing GM rice. 

So what makes the attitude of European consumers toward GM wheat such an important factor in the decision

to commercialize biotech wheat? The E.U. typically is second only to Japan in importance to the U.S. as a foreign market for hard red spring wheat and is the largest U.S. foreign market for durum wheat. In the past two marketing years, the E.U. has accounted for about 15% of all U.S. hard red spring wheat. The E.U. is even more important for U.S. durum wheat. It accounted for between 30% and 34% of U.S. durum exports during the last three marketing years.

Neighboring North Africa, whose consumers may be influenced by the E.U.’s GM views and policies, is also a sizeable market for U.S. hard red winter wheat, but sales have been restricted recently by nearby supplies from Ukraine and the Russian Black Sea ports. North Africa is also an important market for U.S. white wheat and durum wheat. In the last three years, it has accounted for 30% to 45% of U.S. durum wheat exports.

These figures illustrate why the loss of the E.U. and North African markets would be a serious blow to the U.S. hard red spring and durum wheat industries.

The Japanese market also appears to remain sensitive to GM issues, as evidence by that country’s concern about recent biotech rice import issues.