Iowa Ag ReviewSpring 2002, Vol. 8 No. 2

Rural America and Modern Agriculture: What Kind of Future?Bruce A. Babcockbabcock@iastate.edu515-294-6785

Farmers and food manufacturerscontinue to evolve toward abusiness model that empha-

sizes financial efficiency and lowerconsumer prices. American consum-ers are driving this movement byspending an increasing proportion oftheir food dollar at fast food restau-rants and at mammoth food retailerssuch as WalMart, Albertsons, andKrogers. What these restaurants andretailers have in common is the needfor predictable, uniform, low-costsupplies. They find that they canbest meet their needs by conductingtheir business with large, innovativefood manufacturers, such as Hormel,ConAgra, Kraft, Nestle, andSmithfield, or by working directlywith the largest farmers, such as thecompany founded by J.R. Simplot.

The push for low-cost anduniform agricultural products,combined with the tremendousincreases in agricultural productivityfrom new technologies, has createdan economic incentive for farmers tospecialize and has given them themeans to do it. Commercial fertilizersubstitutes for livestock manure.Pesticides substitute for crop rota-tion. And machinery continues toreduce the need for labor. We nowhave specialized grain producers andspecialized livestock producers. Thisspecialization has resulted in lowerproduction costs and the ability tosignificantly increase the size offarming operations. It is no accidentthat American consumers pay solittle for their food compared toconsumers in other countries. Ournational policy has been to fund

agricultural research that increasesyields, decreases labor require-ments, and enables farmers to relymore on biotechnology and chemi-cal inputs than on traditional farm-ing practices. The result of thisnational policy has been lowerprices, ever fewer farmers, and, asshown in the map on page 4, wide-spread population losses in majorU.S. agricultural production regions.

To a large degree, this policy hasbeen a national and internationalsuccess story. Most Americans donot have to worry about whetherthey will have enough to eat, andU.S. agricultural surpluses help holddown prices paid by consumersaround the world. The loss ofpopulation in many rural U.S.counties simply reflects the bettereconomic opportunities that urbanareas have to offer individuals andtheir families.

However, there are some draw-backs. A policy of increasing agricul-tural research and the subsidizationof commodity production inevitablyleads to lower farm prices over time.But Congress is unwilling to allowprice supports to decrease. With this

increased reliance on governmentsubsidies, crop farmers have devel-oped a culture of dependency. Thisculture is most evident at farm billtime when, it seems, few farmers, orat least few who lobby on theirbehalf, are willing to considerwhether agriculture would be betteroff without subsidies. With thesignificant exception of dairy,livestock producers have remainedlargely free of subsidies, so they arenot dependent on the governmentfor their livelihood. But they facetheir own problems. Increased sizeand integration of operations putstraditional producers at an economicdisadvantage, either because ofhigher production costs, lowerdemand for their less uniformproduct, or limited market access. Inaddition, the gradual but seeminglyinevitable migration of people out ofthe Plains States means fewereconomic opportunities for remain-ing residents and less vibrantcommunities.

To the great majority of Ameri-cans, these drawbacks do not evenregister. Their involvement with thefood system is limited to their

2 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT SPRING 2002

Iowa Ag Review

ISSN 1080-2193http://www.card.iastate.edu

Becky OlsonPublication Design

Iowa Ag Review is a quarterly newsletter pub-lished by the Center for Agricultural and RuralDevelopment (CARD). This publication presentssummarized results that emphasize the implica-tions of ongoing agricultural policy analysis,analysis of the near-term agricultural situation,and discussion of agricultural policies currentlyunder consideration.

EditorBruce A. Babcock

CARD Director

Editorial StaffSandra Clarke

Managing EditorBetty Hempe

Editorial Consultant

Editorial CommitteeJohn BeghinTrade and AgriculturalPolicy Division HeadKeith HeffernanCARD Assistant DirectorRoxanne ClemensMATRIC Managing Director

Iowa State UniversityIowa State University does not discriminate on thebasis of race, color, age, religion, national origin,sexual orientation, sex, marital status, disability, orstatus as a U.S. Vietnam Era Veteran. Any personshaving inquiries concerning this may contact theDirector of Affirmative Action, 1031 Wallace RoadOffice Building, Room 101, 515-294-7612.

Contact Betty Hempe for a free subscription, publica-tion information, and address changes at: Iowa Ag Re-view, CARD Publications, Iowa State University, 578Heady Hall, Ames, IA 50011-1070; Phone: 515-294-7519;Fax: 515-294-6336; E-mail: CARD@card.iastate.edu; Website: www.card.iastate.edu

immediate needs: “I want it conve-nient, I want it reasonably priced,and I want it to taste good.” Thedemand for convenience and lowprices has given an economicadvantage to the McDonalds,WalMarts, and Krafts of the worldand to their large suppliers. And, asauthor Eric Schlosser in his bookFast Food Nation points out, thesecompanies have obtained good tasteand aroma by turning to a series oflarge chemical plants off the NewJersey Turnpike.

IS THERE AN ALTERNATIVE?The choices we make with our fooddollar suggest that the interests ofmost Americans are well served bythe current system of food produc-tion. After all, no one is forcing us toeat fast food or to shop for inexpen-sive food in mega-markets. There-fore, rural advocates who push foran alternative food productionsystem that reverses the direction ofmarket competition are not neces-sarily serving the broad publicinterest. Rather, they serve theinterests of a minority of Americanswho want to see a different systemtake shape. This minority includespeople who will benefit from areversal in the loss of small towns inagriculturally dependent counties. Italso includes those who oppose onmoral or ethical grounds the in-creased vertical coordination andconsolidation that has accompaniedthe march toward lower costs andincreased efficiencies in foodproduction, and those who believethat American moral values and theteaching of the merits of hard workare at risk with the loss of smallrural towns.

There are two ways that analternative food production systemcan take shape. The first way isthrough government regulation orgovernment subsidies. The ban onpacker ownership of livestockpassed by the U.S. Senate agricul-ture committee as part of its farmbill is such a regulation. The Iowalegislative proposal that would favor

livestock facilities that have “familyfarm” or “good neighbor” character-istics is another. An effort to targetfarm subsidies to farmers withfavored characteristics rather thanto the largest farms is an example ofa subsidy policy that would try toreverse the trend.

The difficulty with trying toregulate or subsidize a new systemof agriculture is that it is likely tofail if it goes against the economicinterests of the majority of Ameri-cans. Either innovative companiesmeeting consumer demands willcircumvent the regulations or theregulations will not muster enoughsupport to pass legislatures.

The second—and more sustain-able—way to develop an alternativefood production system is to induceAmerican consumers to change theway that they spend their fooddollar. For example, if enoughconsumers start demanding porkthat comes from pigs raised inpasture instead of in confinement,then farmers that have a competi-tive advantage at producing pas-ture-raised pigs would have aneconomic advantage. It is likely thata different set of resources andskills is required to raise pasturepigs than to raise confinement pigs;therefore, market competitionwould change the very nature of ourfood production system. If Ameri-can consumers were to demandtraceable ground beef because ofconcerns about E. coli, then theprice of hamburger would increase,a typical pound of hamburger likelywould not come from many differ-ent cows, and we would have adifferent beef production systemthan we now have.

This path may be more sustain-able, but it is much more difficultand expensive. Changing consumerdemands that would lead to asignificant change in the business offeeding Americans would involve amassive education and marketingcampaign. The education part of thecampaign would involve makingAmerican consumers aware of how

IN THIS ISSUERural American and ModernAgriculture: What Kindof Future? ........................................ 1

By the Numbers: CountyPopulation Trends ......................... 4

Patented Agriculture ..................... 5

Iowa’s Agricultural Situation ........ 6

The EU-U.S. HormoneDispute: The NegotiationsContinue ......................................... 9

Meet the Staff:Phil Gassman................................ 11

Recent CARD Publications ......... 11

SPRING 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 3

Iowa Ag Review

their food is produced, from thebiotech and chemical labs thatproduce the seed, feed, embryos,and chemical inputs, to the farm, tothe food manufacturers, and to theretail outlet. A prime example ofsuch education is Michael Pollan’sarticle in the New York Times Maga-zine (March 31, 2002) titled “ThisSteer’s Life,” which documents whata typical steer goes through intoday’s food system. Educationalone may lead some Americans tochange their food buying decisions.For example, anecdotal evidencesuggests that some readers of FastFood Nation have sworn off ham-burger chains.

But it is unlikely that educationalone would lead enough Americansto change their food consumptionpatterns to bring about a significantchange in most of the U.S. agricul-tural system. After all, convenience,low cost, and good taste are power-ful attributes of the food producedin the current system. Thus, thefree-market approach to large-scalechange in the food productionsystem would also require a largemarketing campaign aimed atconvincing Americans that analternative food production systemwould be in their best interest. Thisalternative production system wouldinvolve farmers growing and per-haps processing products that havesome attribute that differentiatesthem in the consumer’s mind. Thatis, this system would move awayfrom low-cost, high-volume produc-tion of undifferentiated commoditiestoward production of higher-value,differentiated products. Supposeconsumer demands were changed inthis way. Would rural vitality neces-sarily increase?

THE LINK BETWEEN PRODUCT

DIFFERENTIATION AND RURAL VITALITY

Many in Congress justify subsidizingcommodity production in terms ofpropping up rural America. But theevidence suggests it has not worked.The December 15 issue of TheEconomist showed that the counties

that received the most farm subsi-dies from 1950 to 2000 were thecounties that suffered the greatestdecreases in population. While onecannot say that the subsidiesnecessarily caused the populationdecreases, it is clear that encourag-ing commodity production withprice subsidies has not kept peoplein rural areas.

Can movement away fromsubsidies to differentiated, value-added products reverse the popula-tion loss? First, we must recognizethat people are more mobile todaythan ever before. People will chooseto live where they think they canhave the best life. This involvesjudgments about types of jobs,associated income, recreationalamenities, and other family consid-erations. All things being equal,businesses and entrepreneurs willlocate in areas where they can makemoney, where they can find work-ers, or where they can induceworkers to live.

Would an increased demand fordifferentiated agricultural productsreverse the population decline inagriculturally dependent regions inthe Central United States? At firstglance, the answer would seem to beyes. Any movement away from asystem that encourages consolida-tion, uniformity, and large-scalecommodity production wouldincrease the payoff from entrepre-neurship. So it is likely that suchmovement would increase theincome and job opportunities in

rural areas. But would this attract asignificant number of people to ruralareas? The evidence here is mixed.For example, in Iowa, many peoplewho work in rural areas choose tolive in urban areas, such as CedarRapids, West Des Moines, andCouncil Bluffs. They make thischoice for a variety of reasons,including access to better educationand recreation opportunities. Ruralareas have an inherent disadvan-tage: most Americans simply do notwant to live in relative isolationwithout the amenities that a richcountry can provide. But anyincrease in economic opportunity inrural areas is bound to at least slowthe loss of population, and perhapsthat is the most that advocates of anew food production system canhope for.

In our free-market, capitalisticsociety, the type of food productionsystem that we will have is largelyout of the control of policymakersand local residents. Rather, it isdriven by the choices U.S. and worldconsumers make with their fooddollar and the response of profit-driven firms and entrepreneurs tomeet these choices. The firms andindividuals who can best meet thesechoices at the lowest per-unit costwill prosper. Those that cannot willfade away. Despite increased callsfor government regulation to changethe relationships between parties inthe food production system, suchregulations will likely have, at most,a small impact in the long run. Fillingmarket needs efficiently and, forniche markets, quickly is the key tolong-term success. Rural regions,communities, and residents whowant to build a brighter economicfuture should take stock of whatthey do best, what they can poten-tially offer the world, and theninvest their time and money tostrategically position themselves tomeet the future, whether that be incommodity production, nichemarket food products, or expandedprovision of recreational amenities.There is room for all. �

Rural regions,communities, and

residents who wantto build a brighter

economic future shouldtake stock of what they

do best. . .

4 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT SPRING 2002

Iowa Ag Review

By the Numbers: County Population Trends Chad E. Hartchart@card.iastate.edu

515-294-9911

In the mapabove, the coun-ties shaded in blue have

lost population since 1970. Mostof these counties are located in theupper Midwest and Great Plains andrepresent the bulk of the area that receivesfederal farm subsidies. While the population ofthe United States has grown from 203 million in1970 to 281 million in 2000, a 38.4 percent increase,population growth in the upper Midwest over the sameperiod ranges from 3.6 percent in Iowa to 29.3 percentin Minnesota. Midwestern states have failed to keep upwith population growth in the rest of the country. And,within these states, population growth varies greatlyfrom county to county. For example, Iowa has had anoverall population growth of 3.6 percent since 1970, butonly 28 of the 99 counties have had positive populationgrowth. In the upper Midwest, what characteristicsdistinguish the counties with population gains fromthose with population losses?

The most obviously common characteristic amongcounties that gained population is their location nearurban centers. In the upper Midwest, the countiessurrounding Des Moines, the Quad Cities, Omaha, SiouxFalls, Minneapolis/St. Paul, and Fargo grew. As thesuburbs around these cities have grown, they havespilled over county lines and expanded the populationbase for neighboring counties.

A second characteristic of county growth is locationnear transportation lanes. The corridors around Inter-

state 80 in Nebraska and Interstates 35 and 94 in Minne-sota follow this pattern. Rural counties along interstatehighways offer residents the opportunity to live in a ruralsetting but with quick access to urban areas and alterna-tive transportation choices, such as air travel. Quickerand easier transportation, combined with changingeconomic opportunities, has made it more likely forpeople to move away from their birthplace. For the WWIIgeneration and its predecessors, it was common for mostof the extended family to live within the same geographicarea (often in the same county). Now, it is more commonfor grandparents and grandchildren to live in differentstates. Thus, convenient access to transportation routescan play a crucial role in population growth patterns.

A third characteristic is location near touristattractions. The Black Hills area of South Dakota andthe Lake Okoboji region of Iowa are good examples ofthis. Population growth in these areas is not onlyspurred by the availability of the attractions but alsoby the tourist dollars brought into the areas. Thetourist industry provides an economic incentive forpopulation growth by providing an alternative sourcefor jobs in the area. �

SPRING 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 5

Iowa Ag Review

GianCarlo Moschinimoschini@iastate.edu515-294-5761

On December 10, 2001, theU.S. Supreme Court issuedan opinion that may have

important long-run implications forU.S. agriculture. Ruling in J.E.M. AgSupply, Inc. v. Pioneer Hi-Bred Interna-tional, Inc., the Court held that plantseeds and plants themselves (bothtraditionally bred and produced bygenetic engineering) are patentableunder U.S. law. This opinion concernsa case that started when Pioneer Hi-Bred sued J.E.M. Agricultural Supply(doing business as Farm Advantage)for selling Pioneer hybrid corn seedwithout Pioneer’s authorization.Pioneer alleged that the seed inquestion was protected by a numberof patents and that, as the patentholder, it had the right to decide how,and by whom, the seed was to be soldand/or used. J.E.M. Ag Supply’sdefense, in a counter suit, argued thatthe patents claimed by Pioneer wereinvalid. Specifically, J.E.M. Ag Supplymaintained that Congress had ex-cluded plants from the subject matterof patents when it provided special-ized protection for plants through the1930 Plant Patent Act (for asexuallyreproduced plants) and the 1970 PlantVariety Protection Act for sexuallyreproduced plants. The Court dis-agreed with this line of defense andruled in favor of Pioneer. Essentially, itheld that the landmark 1980 U.S.Supreme Court decision in Diamond v.Chakrabarty (which established thatbiotechnology innovations could bepatented) does in fact extend toplants. Whereas this interpretationhas been standard at the U.S. Patentand Trademark Office since 1985, theexplicit U.S. Supreme Court rulingremoves any ambiguity and, as aresult, the right to patent plants isnow firmly entrenched in U.S. law. Wecan expect that patents increasinglywill be used to assert intellectualproperty rights on plant varieties andcultivars, inbred lines and hybrids

Patented Agriculture

alike. To understand what differencethat might make, some background isin order.

WHAT IS A PATENT?A patent gives an inventor the soleright to exclude others from eco-nomically exploiting the innovationfor a limited time (20 years from thedate of filing). To be patentable, aninnovation must be novel in thesense of not constituting part of theprior art or more generally of notbeing already in the public domain.A patentable innovation also mustinvolve an inventive step, meaningthat it must be non-obvious to aperson with ordinary skills in theparticular field of application. Theinnovation also must be useful; thatis, it must permit the solution of aparticular problem in at least oneapplication. A major element of apatent application is disclosure: theinvention must be described insufficient detail to enable thoseskilled in the particular field topractice it. The patent applicationalso lays out specific claims as tothe scope of the patent itself.Traditionally, patents were used fornew machines, industrial processes,chemical and pharmaceuticalcompounds, and various manufac-tured articles, but more recentlypatents also have been used toassert ownership of computersoftware, information technology,

biotechnology innovations, andinternet-based business methods.

Patents are special kinds ofproperty rights secured over intan-gible assets associated with humaninventiveness and creativity. Patentsare perhaps the most important legalinstruments for protecting intellec-tual property rights (trade secrets,copyrights, and trademarks are othercommon instruments). Patents areawarded by the U.S. Patent andTrademark Office upon successfulreview of an application (a processthat can take years and entail consid-erable legal expenses).

WHY PATENTS?The rationale for the existence ofpatents stems from the presumptionthat, without patents, not enoughresources would be devoted toresearch and development activitiesrequired to bring about new productsand other innovations. This perspec-tive can be appreciated by viewingthe product of research as newinformation. Information is a peculiarkind of good in that it is typically verycheap to reproduce, regardless ofhow costly it was to produce in thefirst place, and therefore innovationsare vulnerable to copying and imita-tion. Thus, in economic terms,knowledge can be considered a“public good.” Absent patents,private producers of knowledge willnot be able to acquire fully (or evenmeasurably) the value of their work,and this failure to reap the benefits oftheir knowledge would lead tounderproduction of new ideas andnew technologies in the economy. Awell-defined (and enforceable)allocation of property rights on newdiscoveries—such as that afforded bythe patent system—can address thisproblem by restoring sufficientprivate incentive to invest in researchand development.

Thus, patents can be considereda system of incentives: they stimulateand bring forth innovations thatotherwise would not take place. Infact, this seems to be the motivationfor patents envisioned in the U.S.

Continued on page 8

6 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT SPRING 2002

Iowa Ag Review

Iowa’s Agricultural Situation

2002 2001 Avg 97-01

Iowa Corn Price

1.35

1.55

1.75

1.95

2.15

2.35

2.55

2.75

Do

llars

per

Bu

shel

Iowa Soybean Price6.50

Do

llars

per

Bu

shel 6.00

5.50

5.00

4.50

4.00

Iowa Oat Price

1.95

Do

llars

per

Bu

shel

1.80

1.65

1.50

1.35

1.20

1.05

2.10

Iowa Alfalfa Price

Do

llars

per

To

n

100

95

90

85

80

Alexander Saakasaak@card.iastate.edu515-294-0696

Analysts expect a shift from soybeans to cornand more biotech plantings

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01

PLANTING INTENTIONS

As Iowa farmers decide on what to plant this year, marketprices are quick to respond to any news about supply side andinternational trade developments. The March 28 U.S. Depart-ment of Agriculture (USDA) Prospective Plantings reportconfirmed analysts’ expectations of an overall shift fromsoybeans into corn compared to last year. According to thereport, U.S. growers plan to sow 79 million acres of corn in2002, up 4 percent from 2001 but only slightly above the five-year average. Most of the growing regions reported an in-crease in the expected corn acreage except for a few stateswith concerns about dry conditions. However, unlike lastyear’s wet planting season, so far this year’s weather appearsto be favorable to corn growers. U.S. soybean producers areprojected to plant 73 million acres, down 2 percent from theprevious year but on a par with the five-year average. Themarkets largely anticipated the results of the report and, asexpected, responded with lower corn and higher soybeanprices. However, in subsequent trading days, corn prices haverebounded somewhat with the news of steady exports andpotential delays in planting in some midwestern states, whilesoybean prices have slipped because of imminent SouthAmerican supply.

On the positive side for both crops, corn and soybeanstocks were recorded at 5.8 and 1.3 million bushels as ofMarch 1, down, respectively, 4 and 5 percent from last year’slevels. The report suggests that, in addition to prices, croprotations and farm bill uncertainty played a role in producers’intended acreage allocations. Along with the uncertaintysurrounding the federal farm program, USDA intentions toadjust loan rates for corn and soybeans to reflect the currentmarket price conditions and the timeliness of rains for soilacross the nation will factor into growers’ planting decisions.In Iowa, with the nation’s largest acreages of both corn andsoybeans, intended corn acreage for 2002 is 12 million acres,up 3 percent from the 2001 level. Intended soybean acreage is10.8 million acres, down 2 percent from a year ago.

BIOTECH ACRES

According to the report, crop varieties developed usingbiotechnology continue to gain momentum and amount to32 percent of the national corn acreage, up 6 percent from2001 but still 1 percent below the highest estimated shareattained in 1999.

Continued on page 10

SPRING 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 7

Iowa Ag Review

Iowa Cash Receipts Jan. – Dec.2001 2000 1999

(Million Dollars)

Crops 5,361 4,979 5,004Livestock 6,035 5,912 4,712Total 11,397 10,892 9,716

World Stocks-to-Use Ratios Crop Year

2001/02 2000/01 1999/00 (March Projection) (Estimate) (Actual)

(Percent)

Corn 20.95 25.30 28.36Soybeans 15.59 16.62 16.84Wheat 26.20 27.86 28.75

Average Farm PricesReceived by Iowa Farmers

Feb.* Jan. 2002 2002 2001

($/Bushel)Corn 1.85 1.87 1.87Soybeans 4.10 4.11 4.45Oats 1.85 2.13 1.41

($/Ton)Alfalfa 89.00 95.00 88.00All Hay 86.00 93.00 86.00

($/Cwt.)Steers & Heifers 79.90 75.50 79.80Feeder Calves 103.00 96.90 101.00Cows 41.20 37.70 42.70Barrows & Gilts 38.10 38.00 41.00Sows 31.40 29.10 34.50Sheep 35.40 37.40 46.00Lambs 63.10 60.00 78.00

($/Dozen)Eggs 0.26 0.35 0.41

($/Cwt.)All Milk 13.30 13.60 12.60

*Mid-month

Feb.

Iowa Steer and Heifer Price

62

72

77

82

Do

llars

per

Cw

t

67

Iowa Feeder Calf Price

Do

llars

per

Cw

t

115

110

105

100

95

90

85

75

80

Iowa Barrow and Gilt Price

Do

llars

per

Cw

t

55

50

40

35

45

Iowa Sow Price45

Do

llars

per

Cw

t 40

35

25

30

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01 2002 2001 Avg 97-01

Iowa All Milk Price

Do

llars

per

Cw

t

20

18

14

10

16

12

8 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT SPRING 2002

Iowa Ag Review

Constitution: “The Congress shallhave power … to promote theprogress of science and useful arts,by securing for limited times toauthors and inventors the exclusiveright to their respective writings anddiscoveries.” An additional benefitoften attributed to patents is relatedto the disclosure requirement. Bybringing knowledge of the innova-tion to the general public, patentscontribute to a desirable dissemina-tion of scientific and technicalinformation, allowing other inven-tors to avoid duplicating existingdiscoveries and making it easier todevelop further innovations thatbuild on the known state of the art(possibly by “inventing around” apatent as well).

DRAWBACKS OF THE PATENT SYSTEM

The fact that patents affect theincentive to innovate, and are likelyto increase the flow of innovations,clearly is desirable from an economicpoint of view. But by giving thepatentee exclusive rights on theexploitation of a new product orprocess, patents can adversely affectthe efficient use of new knowledgeafter it is generated. In effect, apatent creates a legalized monopoly,a market setting that is notoriouslyinefficient because it brings aboutlower quantities and higher pricesthan are socially optimal. Consider,for example, the case of RoundupReady soybeans and YieldGuard Btcorn. Monsanto invested heavily inthe development of these technolo-gies. Without the prospect of obtain-ing patents on its discoveries, thedevelopment of these efficiency-enhancing technologies in all likeli-hood would not have taken place.But now that Monsanto owns crucialpatents to these technologies, it hasconsiderable market power, asreflected in the price premium of theseed of these improved crops. Thisextra seed cost limits the adoption ofthese new technologies below whatis socially desirable. The fact thatpatents necessarily restrict use ofinnovations actually carries even

more importance when the patentedproduct is used primarily in researchto develop further innovations. It isnow commonplace to hear, especiallyamong university researchers, thatpatents in biotechnology seriouslyaffect researchers’ freedom to operate,which could reduce the future flow ofinnovations.

MORE ON PATENTS AND PLANTS

The strengthening of intellectualproperty rights for plants, whichculminated with the U.S. SupremeCourt opinion discussed earlier, canbe expected to have importantconsequences for the U.S. seedindustry and for U.S. farmers. Patentsgive stronger protection than do thepatent-like “certificates” that breederscan obtain under the Plant VarietyProtection Act (PVPA). Specifically,PVPA certificates and patents havesomewhat different requirements. Toobtain a PVPA certificate, a plantbreeder need only have a varietyexhibiting distinctiveness, uniformity,and stability (as compared to thestandard of novelty and non-obvious-ness required to obtain a patent). But,more importantly, patents and PVPAcertificates differ in the protectionthey provide for two importantattributes. First, harvest from seedprotected by PVPA certificates legallycan be saved by farmers for use inreplanting. Second, varieties protectedby PVPA certificates legally can beused by others for research purposesto develop new crop varieties. Patentsdo not allow these “farmer” and“research” exemptions. The patentholder has exclusive control over theuse of the patented innovation.

Whereas PVPA certificates maycontinue to be used by public andprivate breeders, seed companieslikely will rely more heavily on patentsfor their crucial germplasm andbiotechnology innovations, putting farless importance on the use of PVPAcertificates. This trend is illustrated inthe figure, which reports the numberof new patents for maize and soy-beans issued over the period 1991-2001. While an average of only eightsuch patents per year were issued inthe period 1991-1993, an average of281 patents per year were issued inthe period 1999-2001. The increasedimportance of patents emphasizes aparticular feature of the new environ-ment that is characterizing Americanagriculture in the twenty-first century.Innovations, and the ability to keep upwith innovations, matter more andmore. But innovations are producedincreasingly by a private sector thatrelies heavily on intellectual propertyrights protection. The possibility of“owning” the results of research anddevelopment activities undoubtedlyfosters innovation, but the resultingownership structure of knowledgealso has important impacts on thesize, and distribution, of the economicbenefits that arise from agriculturalinnovations. �

GianCarlo Moschini is professor ofeconomics and Pioneer Hi-BredInternational Chair in Science andTechnology Policy. To learn moreabout the economics of patents, seeCARD papers 01-WP 275 and 02-WP293, available at www.card.iastate.edu.

Patented Agriculturecontinued from page 5

NEW U.S. PATENTS FOR CORN AND SOYBEANS

SPRING 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 9

Iowa Ag Review

The European Union’s ban onhormone-treated beef remainsone of the United States’s

most contentious agricultural tradedisputes. Iowa Ag Review last ad-dressed this dispute in the Summer1999 issue, just after the WorldTrade Organization (WTO) arbitratorhad ruled that the EU ban was incon-sistent with WTO sanitary/phytosanitary principles relating torisk assessment. This article up-dates negotiating activities and is-sues regarding the hormone ban.

On July 29, 1999, the UnitedStates imposed retaliatory dutiesagainst imported EU products valuedat $116.8 million by placing 100 per-cent tariffs on a selected list of prod-ucts. The list includes severalcategories of beef and pork as well asseveral other product categoriessuch as Roquefort cheese, goosepate, Italian tomatoes, and Frenchchocolate. A “carousel” provision al-lowing for scheduled changes in thedutiable product mix has never beenimplemented, and this is one of twocommon complaints against the cur-rent compensation system. The otheris that compensation does not pro-vide any direct benefit to the U.S.beef industry.

Table 1 compares the value andvolume of trade for these productsin 1998 (the last full year before theduties were implemented) with tradein 2001. As shown, Italy, France, Ger-many, and Denmark have been mostaffected by the tariffs, and last year’simports of the listed products wereonly 14 percent of the 1998 value.

In July 1999, the European Uniondiscovered traces of growth-promot-ing hormones in U.S. beef ship-ments. After temporarily suspendingexports of untreated beef to the Eu-ropean Union, the United States re-started exports in September 1999

The EU-U.S. Hormone Dispute: The Negotiations Continueunder stricter controls, with the Eu-ropean Union testing 100 percent ofU.S. shipments. In September 2000,mandatory testing was reduced to a20 percent test-and-release systemthat allowed shipments to be re-leased pending receipt of final test-ing results. In February 2002, the EUStanding Veterinary Committeecleared the way to repeal the 20 per-cent testing requirement for U.S.beef shipments and to return to ran-dom testing.

As negotiations over this issuecontinue, the three major areas nowbeing addressed are the level ofcompensation for damages to theU.S. industry, type of compensationmechanism(s), and product testing.

Roxanne Clemensrclemens@iastate.edu515-294-8842

Alternatives such as labeling are notcurrently on the table.

With regard to the level of com-pensation, EU imports of beef fromCanada and the United States are lim-ited by the Hilton quota for high-qual-ity beef, which allows 11,500 metrictons of untreated beef at a 20 percenttariff. Table 2 shows U.S. beef exportsto the European Union for the pastten years. Given that the quota hasnever been filled, it is unlikely thatincreasing the quota alone would of-fer any benefit to U.S. exporters.

Earlier talks for a larger quotabroke down because there were noguarantees that the larger quotawould be in place long enough tocompensate producers and proces-sors for the additional costs of rais-ing and shipping untreated beef. Inmid-2001, U.S. and EU negotiatorscontinued to discuss increasing theannual quota for hormone-free beef,but the two sides have been unableto agree on the size of the increaseand several related issues. At thattime, however, European AgricultureCommissioner Franz Fischler notedthat reduced consumption in thewake of the BSE and foot-and-mouthdisease (FMD) crises had depressedthe European market to the pointthat increased market access wouldmake no difference to U.S. export-ers. More recently, with FMD undercontrol and many EU markets recov-ering to more normal patterns, EUbeef consumption is gaining ground.

In January 2002, EU Trade Com-missioner Pascal Lamy confirmedthat the European Union is develop-ing protocols for a set of industrial,shipping, and control processes thatwill support an acceptable systemfor segregating untreated beef. Any

TABLE 2. U.S. BEEF EXPORTS TO THE EUROPEAN UNION

TABLE 1. VALUE OF IMPORTED EUPRODUCTS SUBJECTED TO 100PERCENT DUTIES

Continued on page 10

10 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT SPRING 2002

Iowa Ag Review

Nationwide, the split of biotech-nology varieties present in the 2001corn crop was 18 percent Bacillusthuringiensis (Bt) insect-resistantcorn, 7 percent herbicide-resistantcorn, and 1 percent a stacked genevariety having both insect andherbicide resistance. The 2002intentions survey shows nationwidethat corn producers intend to grow4 percent more Bt corn but only 1percent more herbicide-resistantand stacked gene varieties.

Statewide, 32 percent of the2001 Iowa corn crop was geneticallymodified: 25 percent was Bt corn,while 6 percent was herbicideresistant corn, and 1 percent was astacked gene corn variety. Iowaappears to be ahead of the nationaltrend of accelerating biotechnologyadoption; in 2002, Iowa corn grow-ers intend to sow 43 percent of theircrop acreage to genetically modifiedvarieties, increasing use of Bt,herbicide-resistant, and stackedgene corn by 30, 9, and 4 percent,respectively.

In 2001, a majority of thenation’s soybean crop was geneti-cally modified, with 68 percent ofsoybean acres planted to herbicide-resistant varieties. In Iowa, thepercentage was even higher, at 73percent. The intentions for 2002show continued growth for herbi-cide-resistant soybeans. Nationally,producers indicate that 74 percentof the soybean crop will be of abiotechnology variety. Iowa soy-bean producers indicate that 78percent of the new crop will beherbicide resistant.

LIVESTOCK

The March 28 USDA Hogs and Pigsreport raised the inventory on U.S.farms to 58.7 million head of hogs,up 2 percent from a year ago. Whilethe breeding herd is similar to thatof last year, the March inventory ofmarket hogs is up 2.3 percent.Summer and fall pig crops areexpected to stay within last year’slevels, but the winter slaughter isprojected to rise 3 percent. Analystspredict that winter slaughter mayreach 1998 levels because of anincrease in Canadian hogs and pigsin U.S. markets and larger-than-expected increases in spring farrow-ing intentions. A slowing in theincrease of domestic pork supplymay occur later, as farrowingintentions for spring and summerare less than 1 percent higher than ayear ago. In Iowa, the inventory ofmarket hogs was estimated at 14.9million head, up 3.5 percent fromMarch 2001. However, the state’sbreeding herd is the same as lastyear, indicating a higher number ofout-of-state feeder pigs.

According to one estimate, theUnited States exported a record1.563 billion pounds of pork in 2001,which amounts to 8.17 percent ofnational production. Despite dedi-cated efforts to become morecompetitive in international mar-kets, compared to last year, U.S.pork exports are not as strongbecause of the stabilization of thefoot-and-mouth disease outbreaks inEurope and Japan.

Average hog prices fell from$38.5 per hundredweight in Febru-ary to $36.3 in March, down 20percent from a year ago. Falling

prices can be blamed on largesupplies of beef and poultry—pork’simmediate competitors—along withpork stocks fixed at 505.3 millionpounds as of February 28, up 7.9percent from last year. Marketanalysts predict that prices willremain at marginally profitablelevels this spring and summer butwill likely take a dangerous dipduring the winter season.

FARM INCOME

Statewide cash receipts rose in 2001.Total cash receipts of over $11 billionexceeded 1998 levels but have notreached the $12.8 billion received in1997. Unlike last year, most of theincrease came from the crop sector.Crop cash receipts rose by $38million between 2000 and 2001, whilelivestock accounted for only $12million of the total increase. Theincrease in crop cash receipts hasbeen reflected, to a certain extent, inrising cropland cash rental rates thataveraged $117 per acre of Iowacropland, up $2 from last year. Inaddition, government paymentscontinue to increase, as they’ve doneevery year since 1996. Fiscal yeargovernment payments for Iowa rosefrom $2.062 billion in 1999 to $2.302billion in 2000. �

Editor’s Note: Beginning with thisissue, we’re adding a graph for Iowamilk prices (p.7) in response to areader’s suggestion.

Iowa’s Agricultural Situationcontinued from page 6

The EU-U.S. Hormone Disputecontinued from page 9

agreement package will also need toaddress other barriers to U.S. beefsuch as the costs of testing for resi-dues other than hormones and thehigh costs of gaining and retainingplant approval to process beef for

export to the European Union. In themeantime, both U.S. and EU consum-ers will continue to bear the costs of“protecting” the EU consumer frombeef produced with growth-promotinghormones. EU consumers have nochoice but to pay higher prices foruntreated beef at their supermarket

counters. U.S. consumers are the big-gest losers in the dispute because theprice they must pay for a wide vari-ety of imported food products hasincreased dramatically due to the 100percent tariffs. �

SPRING 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 11

Iowa Ag Review

Meet the Staff: Phil Gassman

Recent CARD Publications

Phil Gassman has the distinctionof being one of the few scien-tists who comes to CARD from

outside the economics discipline.Phil is a research agricultural engi-neer. He received his B.A. and M.S.degrees in agricultural engineeringfrom Iowa State University, andjoined CARD’s Resource and Environ-mental Policy (REP) Division in 1987.

Phil’s research efforts supportthe integration of environmental andeconomics models that are used toassess policy scenario impacts forwatersheds and other regions. “Myrole within REP is to apply, or helpothers to apply, agricultural environ-mental models to a wide range ofclimatic, management, soil, live-stock, and cropping system combi-nations,” says Phil.

The modeling results have beenin demand by such agencies as theU.S. Department of Agriculture andthe U.S. Environmental ProtectionAgency, who make use of the inputand data to evaluate agriculturalpolicy. In his fourteen years withCARD, Phil’s research has touchedupon many of the most cantankerousissues in agriculture, including therisks and benefits of herbicide use,soil erosion and soil nitrogen lossstudies, atrazine leaching in theMidwest, the impacts of alternativepractices of livestock operations, andthe nature of hog confinement odor.

The studies often involve assess-ment of water quality, an issue that

looms large for decisionmakerstrying to strike a balance betweenthe demands of agricultural produc-tivity and the integrity of the sur-rounding environment. Phil iscurrently collaborating with ISUExtension and the Texas Institute forApplied Environmental Research(TIAER) on a modeling study for awatershed in the Maquoketa RiverBasin in eastern Iowa. He is alsoworking with several REP research-ers and others at ISU on a watershedstudy of the entire Upper MississippiRiver Basin. These studies willassess both the environmental andthe economic impacts of differentmanagement practices on thewatersheds.

Phil and colleagues from TIAERare reporting the environmentaland economic impacts of threeother watershed studies (two inTexas and one in Iowa) in a forth-coming article in the Journal of theAmerican Water Resources Associa-tion. “Most of the scenarios studiedshowed some environmentalbenefit [of altered managementpractices],” says Phil, “but often atan economic cost to producers.”

“I find doing research onagricultural systems quite interest-ing and challenging,” says Phil. “Ireally enjoy the interdisciplinarynature of the projects I am involvedin, which include both CARDeconomists and other on- and off-campus researchers.” He says the

variety of physical conditions anddifferent crop, livestock, andmanagement-system combinationsalso keep the work interesting.

Phil grew up in Waterloo, wherehis father worked for the JohnDeere company. He met his wifeBrigitte while attending the samechurch service in Ames. She isoriginally from Düsseldorf, Ger-many. The couple has four children:three boys and a girl. “The boys allhave German names,” says Phil.“which tend to be very challengingfor the typical American adult topronounce, but the kids almostalways get them right!” Phil con-ducts a monthly geography club forinterested home schooled studentsand helps organize annual geo-graphic and spelling bees for theAmes Home Based EducationProgram. Phil’s avocation as ageography instructor will come asno surprise to co-workers who areused to seeing Phil’s colorful,detailed maps of monitoring sites.�

WORKING PAPERSHart, Chad E., and Bruce A. Babcock. U.S.

Farm Policy and the World Trade Organiza-tion: How Do They Match Up? WorkingPaper 02-WP 294, February 2002.

Huffman, Sonya Kostova, and MaureenKilkenny. Regional Welfare Programs andLabor Force Participation. Working Paper02-WP 296, March 2002.

Langinier, Corinne, and GianCarlo Moschini.The Economics of Patents: An Overview.Working Paper 02-WP 293, February 2002.

Saak, Alexander E. Identity Preservation andFalse Labeling in the Food Supply Chain.Working Paper 02-WP 295, February 2002.

STAFF REPORTJensen, Helen H., Steven Garasky, Cory

Wessman, and Sarah M. Nusser. A Study ofHouseholds in Iowa that Left the FoodStamp Program. Staff Report 02-SR 97,March 2002.

MATRIC WORKING PAPERSAgarwal, Sanjeev. Assessment by Midwestern

Agricultural Firms of Doing Business inChina and India. MATRIC Working Paper02-MWP 6, On-line only, February 2002.

Park, Hyesun S., and Charles R. Hurburgh, Jr.Improving the U.S. Position in World Soy-bean Meal Trade. MATRIC Working Paper02-MWP 7, On-line only, February 2002.

Phil Gassman

CARDIowa State University578 Heady HallAmes, IA 50011-1070

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www.card.iastate.edu

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