Monday, April 6, 2009

By Matty Demont, Yann Devos and Olivier Sanvido

In 2008, France banned the cultivation of maize MON810 on its territory. Given the specific regulations in the EU on labeling and traceability of GE products and on threshold values for the adventitious presence of GE material in non-GE crop products, the question arises whether GE crops can ‘coexist’ with conventional and organic farming while still preserving consumers’ freedom of choice.

According to the European Commission (EC), coexistence refers to the ability of farmers to make a practical choice between conventional, organic, and GE crop production while complying with the legal obligations for labeling and/or purity standards3. More specifically, coexistence is concerned with the potential economic impact of the admixture of GE and non-GE crops. The EC published detailed and pragmatic recommendations for the development of coexistence regulations, which are to be developed and implemented at national or regional levels.

Coexistence can thereby be regulated at two levels: ex post regulations are backward-looking, whereas ex ante regulations are forward-looking. Since the publication of the EC recommendations for the development of national coexistence strategies, Member States have developed a diversity of ex ante regulations and ex post liability rules to ensure the coexistence of GE and non-GE crops4.

Economic incentives for coexistence
In scientific and regulatory communities, the coexistence debate centers mainly on (i) preventive coexistence measures needed to keep the adventitious presence of GE material in non-GE products below established tolerance thresholds, (ii) the feasibility and costs of implementing such measures, (iii) segregation costs and potential economic losses resulting from adventitiously co-mingled products, (iv) who should bear the costs of coexistence measures, and (v) who should redress the incurred economic losses due to adventitious mixing5-7. While these aspects are of fundamental importance when discussing national coexistence strategies, they do not take into account the economic incentives for coexistence.

ISB News Report April 2009
Economic incentives for coexistence consist either of (i) the adoption of GE crops as a way to capture GE gains or (ii) the identity preservation (IP) of non-GE crops as a way to capture IP gains. GE gains represent economic benefits relating to the adoption of GE crops, whilst IP gains stand for the total additional income generated by price premiums captured for non-GE crops compared with GE crops. If there is a substantial demand for non-GE crops, this will be reflected by a market price premium for IP crops.

However, if the content of GE material in IP crops exceeds the legal tolerance threshold of 0.9%, non-GE crops have to be labeled as ‘containing GE material’ and commercialized at the same price level as GE crops, without yielding any price premium3. Even though IP crops do not have to be labeled, it is still the case that costly IP activities can be necessary to guarantee the truthfulness of the (implicit) ‘non-GE’ claim.

The balance between GE gains following the adoption of GE crops and price premiums paid for IP crops largely dictates the share of GE and non-GE crops in a given region and therefore the need for explicit coexistence measures5. If one of the incentives is lacking, coexistence is not a concern because either GE or non-GE crops will not be cultivated. Farmers will only adopt GE crops—and thus invest in imposed coexistence measures—if the benefits of using GE crops exceed the costs associated with the technology plus the costs of implementing coexistence measures. Other farmer segments might gain more from preserving the ‘non-GE’ status of their production: where price premiums for IP products can be captured due to higher market prices, farmers opting for non-GE crops will have economic incentives to apply coexistence measures.

Regulating coexistence
Two types of national ex ante coexistence strategies have so far been proposed to keep the adventitious presence of GE material in non-GE products due to outcrossing below legal tolerance thresholds: isolation distances and pollen barriers. Isolation distances are rules governing the minimum distance between GE and non-GE crop fields of the same species. They are an efficient strategy to reduce the extent of cross-fertilization but may not always be feasible in practice, especially in areas where the GE crop is grown on a substantial part of the agricultural area and/or where crop fields are small and scattered throughout the cropped area.

If a farmer’s GE crop field is located too closely to a neighboring farmer’s non-GE crop field and both farmers do not concur with their respective cropping intentions, the GE crop field will have to be planted with other crops or the same crop species but with a non-GE variety. Hence isolation distances normally entail rigidity for the farmer forced to implement coexistence measures.

Pollen barriers, in contrast, are coexistence measures that give farmers more flexibility, as these consist of field margins planted with non-GE crops of the same species. These serve as cross-fertilization buffer zones between GE and non-GE varieties of the same crops and can be planted on both donor or recipient fields5. This introduces a degree of flexibility for the regulation of coexistence, as farmers adopting GE crops could be allowed to contract out the implementation of coexistence measures to their non-GE neighbors in return for a compensatory payment (in case the latter option is cheaper).

Most of the currently proposed coexistence regulations incorporate both ex ante and ex post regulatory rigidity.
Relaxing some of the regulatory rigidity in ex ante regulations would reduce the regulatory burden on GE crops and avoid jeopardizing economic incentives for coexistence5. Instead of specifying fixed isolation distances, policy makers could prescribe mandatory pollen barrier widths, and leave neighboring farmers the option to decide where and by whom the barrier is to be planted.

However, if any adventitious mixing occurs that affects the welfare of farmers and consumers, GE farmers would be held ex post liable for negligence. Hence, they would have to pay ex post tort liability costs if they did not comply with the ex ante coexistence regulations4. A recent case study focusing on the interplay between incentives and costs of coexistence suggests that large and fixed isolation distances are not proportional to the economic incentives of coexistence7.

Under low IP gains (when consumers are not willing to pay significant price premiums for non-GE crops), large and fixed isolation distances generate substantial opportunity costs for GE crop producers, as the latter forego GE gains, whilst they are hardly capturing any compensatory IP gains. Under these conditions, if farmers still incur costs due to mere compliance with EU coexistence laws, coexistence costs would not reflect (and hence, would not be proportional to) the economic incentives for coexistence, simply because the incentive— capturing IP gains—is lacking. On the other hand, under high IP gains (when consumers are willing to pay substantial price premiums for non-GE crops), some farmers who forego GE gains will attempt to compensate for these opportunity costs by planting non-GE crops and trying to capture IP gains by avoiding any adventitious mixing from GE crops. However, in doing so, they risk triggering a domino effect at the landscape level that will affect farmers’ freedom of choice to grow GE crops.

The domino effect is a dynamic spill-over effect of farmer decisions induced by enforcing large isolation distances on potential ISB News Report April 2009 GE crop adopters. It consists of the iterative process of farmers switching their planting intentions from ‘GE’ to ‘IP’ crops to comply with isolation distances and thereby restricting the planting options of neighboring farmers. The domino effect exacerbates the non-proportionality of large isolation distances by reducing GE crop planting options in the landscape and raising opportunity costs for GE crop adopters7.

Farmers will only have an incentive to supply IP crops if consumers have (i) strong and sustainable preferences for non- GE crops and (ii) are willing to pay significant price premiums for them. If the opposite holds, there is no coexistence issue stricto sensu and coexistence costs will purely reflect the costs of compliance with EU coexistence laws instead of the economic incentives for coexistence. Non-GE crops will not necessarily become more expensive in absolute terms. It may well be that, in equilibrium, average crop prices decrease as a result of the cost-reducing effect of the GE technology and negative consumer preferences for GE crops, while IP crops are sold at the pre-existing non-GE crop prices.

Conclusion
Rigid coexistence regulations are not proportional to the economic incentives for coexistence, especially in the absence of strong market signals for non-GE crops. Instead, we argue that flexible measures respect the proportionality condition, are less counterproductive for European agriculture and, hence, are more consistent with the coexistence objectives established by the EC.

Therefore, we recommend flexible ex ante coexistence regulations, complemented by rigid and clearly defined ex post liability rules. Our arguments provide a timely framework for EU policy makers who currently face the challenge of implementing coherent national coexistence regulations for the heterogeneous landscape of European agriculture.

Hence, to finally respond to our title question, we would argue that regulating coexistence could place another barrier on the path of GE crops in Europe, unless sufficient flexibility is incorporated such that farmers can spontaneously respond to economic incentives.

References
1. Devos Y, Demont M & Sanvido O (2008) Coexistence in the EU - return of the moratorium
on GM crops? Nature Biotechnol. 26, 1223-1225
2. http://www.europabio.org and http://www.internutrition.ch
3. EC (2003) Commission Recommendation of 23 July 2003 on guidelines for the
development of national strategies and best practices to ensure the coexistence of genetically
modified crops with conventional and organic farming. Official Journal of the European
Communities L189, 36-47
4. Beckmann V, Soregaroli C & Wesseler J (2006) Coexistence rules and regulations in the
European Union. Am. J. Agr. Econ. 88, 1193-1199
5. Demont M & Devos Y (2008) Regulating coexistence of GM and non-GM crops without
jeopardizing economic incentives. Trends Biotechnol. 26, 353-358
6. Devos Y, Demont M, Dillen K, Reheul D, Kaiser M & Sanvido O (2009) Coexistence of
genetically modified (GM) and non-GM crops in the European Union. A review. Agron.
Sustain. Dev. 29, 11-30
7. Demont M, Daems W, Dillen K, Mathijs E, Sausse C & Tollens E (2008) Regulating
coexistence in Europe: Beware of the domino-effect! Ecol. Econ. 64, 683-689
Matty Demont, Agricultural Economist
Africa Rice Center (WARDA), Saint-Louis, Senegal and previously Centre for Agricultural and Food Economics, Katholieke Universiteit
Leuven, Belgium
m.demont@cgiar.org
Yann Devos, Post-Doctoral Researcher
Department of Plant Production, Ghent University, Ghent, Belgium
yann.devos@efsa.europa.eu
Olivier Sanvido, Scientific Officer
Agroscope Reckenholz Tänikon Research Station ART, Switzerland
olivier.sanvido@art.admin.ch