Global Public Goods in the Food System: Implications for Rapidly Modernizing Food Markets Laurian J....

Global Public Goods in the Food System: Implications for Rapidly Modernizing Food

Markets

Laurian J. UnnevehrProfessor, University of Illinois

Presentation at the CCAP 10th Anniversary ForumChina's Agriculture and Food Economy in

the 21st Century

CCAP 10th Anniversary Forum

Global Context for Agricultural Markets

• Globalization of the food system and changes in demand bring “deep integration” of markets

• Risks and benefits now cross borders more often, creating demand for global public goods

• Risks and benefits share similarities across developed and modernizing food systems

• Challenges us to carry out policy analysis on familiar issues in new ways

Globalization In the Food System


Agricultural Trade has Grown Faster than Production

Trade 3.8%

Production 2.0%

Average Annual Percentage Change 1990 to 2002Source: WTO


Income Growth and Urbanization Drive Food Demand Changes

• More meat, fish, fruits and vegetables

• More processed, branded products

• Higher, uniform quality

• More services


Source: Senauer and Goetz, 2003

0

5

10

15

20

25

Staples Fruit &vegetables

Meat & Dairy Food Service

Poor

Poor

Poor

Poor

Rich

Rich

Rich

Rich

An Example from Lima, Peru in 2000

As Incomes Grow, Demand for Meat, Produce, and Food Service Increases

Mon

thly

Food

Exp

en

dit

ure

s in

US

$


Demand Shapes Globalization Trends

• Market growth and integration faster for high-value products

• Increasing specialization of production to meet growing demand for high value perishables

• Growth in food service, retailing leads to more uniform quality standards


0

50

100

150

200

250

300

350

400

450

500

Va

lue

(m

illio

ns

of

do

llars

) High Valued Products

Bulk Commodities

High Valued Products Lead Growth in World Agricultural Trade

Source: FAOSTAT


Specialization in Agricultural Production and Trade

Product High Income Countries

Developing Countries

Labor-intensive

Fish 9,857 -7,044

Fruit & Veg 33,195 -43,198

Land-intensive

Meat -3,031 1,591

Cereals -119,197 113,151

Net imports million MT, 2000

Source: FAOSTAT


Supermarkets Increase Food Retail Share in Growing Economies


The New Realities of Consumer Demand and Globalization

High-Valued Products

Enter World Markets For StandardizedRetail Outlets


Global Adoption of “Meta-Standards” for Quality and Product Information

• Need to ensure uniform quality and to provide product information

• Adoption of internationally recognized systems of quality control for certification

• Increased use of tracking and testing technologies

• Result is increasing “deep integration” of methods of production


Integration and Fragmentation in Global Food Markets

INTEGRATION• More trade &

specialization

• Shared benefits, risks

– animal & plant health, food safety

– new technologies

FRAGMENTATION• Continued market

protection

• Non-tariff market barriers

– Risk standards

– Intellectual property rights

– Labeling policy

Consumer Demand Meets Globalization:Food Safety


Food Produced in One Country Must Meet Standards in Another Country

Fish Market in India

Fish in U.S. Supermarket


Changes in Animal and Fish Production Towards Larger Units

Increased scale of production can introduce new hazards or speed the spread of existing ones.


Some foodborne hazards can enter the food supply chain at many points and can multiply once present.

Controls must address the entire system from farm to

table.

Mixing food from different sources increases the potential to spread microbial contamination.

Controls Linked Throughout the Supply Chain


As More Food is Purchased Away from Home…

• Consumers have less control over food preparation

• Industry takes greater responsibility for final safety of food when consumed

• Especially in rapidly urbanizing food markets Deli Salads in a Supermarket


Food Safety Controls Shared Responsibility

• Shared public and private responsibility

• Shared international responsibility across regions and international borders

• Shared by all participants in supply chain

• Who bears costs and risks?


Mad Cows and Sick Birds

• Managing “mad cow” (BSE) disease:– Strong consumer reaction– High costs for producers– Imperfect scientific understanding of the risk– Trade patterns make management a regional and

global public good

• Is Avian influenza (HPAI) another similar emerging risk?


Global Institutions for Managing Food Safety

• Sanitary and Phytosanitary (SPS) agreement under the WTO sets these principles for standards– Transparency– Science-based– Equivalence– National sovereignty– Harmonization

• These principles have worked to reduce trade barriers, but many challenges remain.


Food Safety – Challenges for Agricultural Economists

• When would coordinated risk management reduce the costs of control?

• How to compensate increased costs in one country that provide risk reduction in another country?

• How to balance costs and benefits in rapidly modernizing food systems?

Consumer Demand Meets Globalization: Genetically Modified Foods

ReadingLivestockDNA sequence

GeneticModificationOf CastorBeans


GM Crops with Global Impact: Bt Cotton

Bt cotton in: Yield Effect• United States 0 – 15%• China 10% • South Africa 20% – 40%• India 60% – 80 %

• Chemical use reduced in every country.

Source: Zilberman et al., 2004


But Consumers Want to Know How Their Food is Produced

• Farmers in Iowa, New South Wales, and Brazil under scrutiny from consumers in Europe and Japan

• Labeling rules for GM foods in most major markets

• Productivity gains are not only criteria for technology choice


GM Crop Going Nowhere: Bt Potatoes

• Bt potatoes to repel major pest marketed by Monsanto

• Only adopted on 15% of US acreage

• In 2000, McDonalds decides no GM in fries

• Monsanto withdraws from market

• Lost potential for low income agriculture?


Global Institutions to Manage Biosafety of GM Foods

• Extending Global Recognition of IP Rights– Eg., Trade Related Aspects of IP Rights (TRIPS) under WTO

• Health Risks– Labeling and traceability requirements for GM foods differ in

EU, Japan, and Australia

• Environmental risks– Cartegena Protocol sets standards for sharing information in

trade

• Clear differences remain in regulatory approaches


Different Mandatory Labeling Requirements Have Different Cost Implications

EU Japan Australia/NZ

Only if novel protein in final product?

NO YES YES

Tolerance level?

0.5% 5% 1%

Traceability/ IP required?

YES YES Only for negative claim

Green = least costly Red = most costly


Genetically Modified Foods– Challenges for Agricultural Economists

• How can labeling regimes be designed to be most useful to consumers and least disruptive to markets?

• How can we measure the value of risk avoidance versus the value of new technologies?

• What do emerging regulations mean for incentives to develop and adopt new technologies in modernizing food systems?


China’s Rapidly Modernizing Food System

Meat ProcessingLocal Markets

Public Health

Supermarkets


China’s Rapidly Modernizing Food Markets

• Urban consumers increasingly demand high value products and services

• Intensifying livestock production means new demand for food safety and disease control

• Exports of seafood, fruits and vegetables important and growing

• Development and adoption of GM crops and livestock well underway


Questions for China’s Rapidly Modernizing Food Markets

• How to facilitate participation by small farmers in increasingly coordinated marketing chains?

• How to facilitate private sector response to demand for safety, quality, information?

• How to respond to export markets and to participate in international rule setting?

• How and at what point in development to protect domestic consumers?


Closing Comments-- Implications for Our Research

• “Goods” and “Bads” from modernizing food systems are increasingly global in nature

• Shared risks, benefits will shape future food system and food policy

• Challenge for countries now modernizing to exploit benefits of these trends and to minimize costs

Global Public Goods in the Food System: Implications for Rapidly Modernizing Food Markets Laurian J....

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