Economic Efficiency of Genetic Modification

Genetic modification has many effects on the field of agriculture, on both the macroeconomic and microeconomic levels. Does genetic modification increase costs of production? Does it improve crop yields? How does it affect market availability, especially with consumer opinion and standards in other countries? How does it affect the price of food? How will it affect people in other countries, countries where farming plays a different role in the local economy?

Over the past 100 years, the field of agricultural production has been driven by new technological developments. These technologies have saved costs or increased productively by positively affecting supply curves. However, this traditional analysis must be altered in the case of genetically modified (GM) products. The market power of the innovating firms siphon off some of the benefits (Huffman 2004). Because of consumer resistance, demand may also increase. Between in 1960 and 2000, crop improvements achieved by traditional breeding techniques created modern varieties of many crops. This led to an increase in crop production in developing countries; prices would have been 35% to 66% higher in 2000 and production would have been 20 to 24% lower (Huffman 2004). This had the greatest effect on rice and wheat (this was not consistent among all the crops) and in Asia and Latin America where they were produced. Gains were greater in the 1980s and 1990s than the previous two decades, but this “Green Revolution” was indeed a gradual one (Huffman 2004).

During the 1990s, genetic modification, a process involving the insertion of gene, most often from bacterial vector, arose. Farmers have been modifying the genetic makeup of crops, but this term is now used for seeds derived from techniques using recombinant DNA or gene splicing technology. Cohen and Boyer discovered the basic technique and Stanford then patented the process in 1980 (Huffman 2004). BT technology has been effective in reducing insecticide application rates dramatically in cotton. According to the US Department of Agriculture, farmers find the technological easier to use and RR (Round up Ready) soybeans have seen commercial success in the United States. In fact, these soybeans are planted in 70% of the soybean acreage (Huffman 2004).
Labeling and GM Segregation

In order for labeling to be effective, an "identity preservation system" is required (Huffman 2004). Essentially, this would involve buyers and sellers to specify the exact proportion of GM food products in a shipment, for example. Buyers, in response to varying sensitivities to market aversion to GM food, would vary in the amount of GM food they would buy. New costs and risks would assuredly arise as a result of this differentiation. Two markets could arise, one for GM and one for GM free. A grower of GM crops would declare the presence or absence of Genetic Modification. Segregation could also occur by vertical integration of firms, with GM growers delivering to GM manufacturers and so-on. Segregation could occur amongst grain elevators or within the same elevator (a grain elevator is a complex for grain storage). Segregation, by nature of the science involved is not easy to achieve. Pollen from wild or natural plants could drift onto the GM plot. Volunteer, or non GM plants, could be eliminated at some cost to the farmer(Huffman 2004). Pollen drift is not so much of a concern in wheat, rice, and soybeans, which are self-pollinated, but in corn, an open-pollinated crop, pollen drift is significant. Physical barriers could be established to separate the two varieties (Huffman 2004).

Labeling Strategies and their Effects

The European Union mandated the labeling of genetically modified ingredients in 1997 and since then has included all food products derived from GM crops, regardless of their genetic makeup. Since then, more than fifteen other countries have implemented labeling requirements for GM fods, including Russia (Carter and Gruere 2003). The European Union recognizes that Gm foods are as a safe as conventional foods and the mandatory labeling is justified under the desire to provide informed consumer choice
(Carter and Gruere 2003). David Bryne, the EU Health and Consumer Protection Comissioner stated this as the reason in 2003.

Studies showed that GM products vanished in the EU and in Japan, where similar labeling conditions are present. This labeling has driven GM off the shelves and led to additional costs in testing and increased price of goods
(Carter and Gruere 2003). Food processors formerly working with GM products have changed their ingredients to to consumer pressure. These retailers and food processors made the decision to only produce GM-free products based on perceived consumer aversion to GM-products. For this reason, one could say that it is not the consumer, but consumer perception. It is too expensive and impractical to process GM and non-Gm on the same plant (Carter and Gruere 2003). Perceived consumer aversion, either substantiated or unsubstantiated, is the driving factor in food product in this system and so far has led to a drastic decrease in GM food products. For this reason, "Better education and better information may improve the image of GM food in the minds of cautious consumers - especially if new GM products offer visible consumer benefits ((Carter and Gruere 2003).

There is also another mode of labeling genetically modified foods: voluntary labeling, which is practiced in the United States, Argentina, Canada and Hong Kong (Phillips and McNeill 2000). Canada the United States have initiated efforts to implement a consistent and credible systems. The USDA released a Guide to assistance to manufacturers who wanted to label. In November 1999, the GE Right to Know Act was introduced by only garnered the support of 48 Congressmen 
(Phillips and McNeill 2000). By May 2000, 16 US States had introduced Bills requiring GM labeling.

The United States and Britain do not represent the only two labeling systems; many hybrid systems are present. South Korea, as of 2001, required mandatory labels for food containing more than 3% of GM content for corn, soybean, and bean sprouts. The threshold level and policy for genetic modification varies widely throughout the globe. Governments throughout the world acknowledge that consumer choice needs to be enhanced by Gm labeling (Phillips and McNeill 2000). It is not easy to develop a labeling system for GM foods that provides real consumer choice without interrupting trade and domestic production (Phillips and McNeill 2000).

Cost Effectiveness of Organic Farming

 A recent study by the University of Michigan showed that organic farming can produce up to three times as much food on the same amount of land in developing countries, compared to traditional methods of production (Bailey, 2007). In developed countries, yields were equal. This suggests that organic production does not reduce yields. This increase in yields is accomplished using existing quantities of organic fertilizers and with the same amount of farmland as previously used. This is a crucial aspect. As population continues to grow, this method would enable production increase without monopolizing more land. Developing countries are often not open to outside food; food must be produced from local farmers. Though counterintuitive, this is in part to do lack of access to expensive fertilizers and pesticides. Nitrogen availability is a crucial factor. "Green manures" are planted between growing seasons and help to provide enough nitrogen "to replace synthetic fertilizers" (Bailey, 2007). Though not necessarily exclusive to genetic modification of food, GM production often involves synthetic herbicides, sprayed into fields with herbicide resistant crops. Ivette Perfecto, a professor at University of Michigan, engineered the study amid the suggestion that organic farming is less efficient. She says, "Corporate interest in agriculture and the way agriculture research has been conducted in land grant institutions, with a lot of influence by the chemical companies and pesticide companies as well as fertilizer companies—all have been playing an important role in convincing the public that you need to have these inputs to produce food" (Bailey, 2007). The interest that chemical companies have for farmers to use their products may not necessarily coincide with improved economic efficiency.

Advantageous Mingling of Food Products

In the current market, it standard label and non-GM labeled products would sell at a premium. GM products, if labeled, would have less demand and therefore a lower market price than their counterparts. A recent study by the USDA showed that GM growers and handlers "do not have any incentive to undertake costly identifying and segregating no-GM from GM grains" (Huffman 2004). It is in the best interest of the producers of foodstuffs, in order to keep the price highest, to keep all the crops intermingled. As more GM crops than regular crops flood the market, this becomes even more crucial. Only products destined to be non-GM would need to be tested, but by created a non-GM market, their GM products become less valuable. A so-called "zero tolerance level" would be very costly (Huffman 2004). The science of detection of impurity is improving and a tolerance of a certain percentage of GM products would be most cost efficient. Furthermore, another 2003 study showed that consumers would pay a significant amount for a zero-tolerance level in "vegetable oil, tortilla chips, and russet potatoes," but were indifferent to an impurity rate of between 1% and 5% (Huffman 2004). The possibility of segregation depends on grower segregation. However, growers who buy seeds that may not be 100% non-GM, with the possibility of windblown contamination or produce both crops may be reluctant to declare their delivery to buyers as GM free (Huffman 2004). 

Feeding the World?

We are already producing one and half times the amount of food necessary to provide an adequate and nutritious diet to the entire world yet "one in seven people is suffering from hunger" (Greenpeace). Most hungry people live in countries with food deficits; by some estimations GM food products will have no positive effect on global hunger. Argentina, the number two producer in GE crops and the only developing country to grow them on a large commercial scale, is a case in point. Millions of GM soy are exported for cattle feed while millions of Argentineans go hungry (Greenpeace).Improvements can be made though to improve world hunger through agriculture. Unfair trade regimes and lack of access to resources are two main political culprits. Research often neglects the "development of agricultural techniques that reduce the inputs needed and are easy to control." Too often research is focused on economies of scale and not the marginal farmers. Marginal farmers are important in fighting world hunger. Research needs to focus on them and not necessarily only industrial agriculture (Greenpeace).Nevertheless, varieties of crops are being developed that can grow in more diverse conditions and still survive in less than ideal weather. This would appear economic efficient and a good asset in areas plagued by drought. Engineered crops can withstand droughts or salty soils (Pickrell 2006). Strawberries are being tested that are resistant to frost (Don 2006).

A recent study in India has determined that BT cotton substantially reduces pest damage and increases yields to a greater extent than in developed countries. The yield gains are higher than expected because the small scale farmers are especially vulnerable to large pest-related yield losses. Farmers in India are constrained economically and may not have access to pesticides (Qaim 2003). This suggests that hunger issues may be alleviated and crops like BT cotton might even have unforeseen positive effects on farmers in developing countries.

Technological Protection?

Companies in the business of manufacturing genetically modified seeds have created technology protection systems designed to protect their patented technology. One type prevents GM crops from producing fertile seeds. Seeds from previous yields cannot be put aside for replanting, forcing farmers to buy new seeds every year. As sinister as it may sound could be a real tool in preventing combination of genetically modified genes with wild varieties. If plants don’t produce seeds they would theoretically not be able to contaminate with other plants. A clever variation, called the Exorcist system, would allow the production of fertile seeds but with the foreign GM DNA spliced out and destroyed  (Pickrell 2006). Technological advances like these could help calm many concerns of the environmental effects of GM, but they would need to be incorporated into all the GM and it may be too late.

Closely related to technological protection of seed patents are contracts the GM farmers have to sign with large corporations, like Monsanto. Contracts for farmers in North and Latin America, state that if farmers save seeds to plant again the following year, they are likely to be prosecuted. Farmers have to pay for the privilege to these crops and have no choice; Monsanto has a monopoly (Greenpeace). 

Bailey, Laura. "Organic farming can feed the world, U-M study shows." 10 Jul. 2007. University of Michigan. 17 April 2010. <>

Carter, C.A., & Gruère, G.P. Mandatory labeling of genetically modified foods: Does it really provide consumer choice? (2003) AgBioForum,6(1&2), 68-70. Available on the World Wide Web:
Huffman, Wallace. "Production, Identity Preservation, and Labeling in a Marketplace with Genetically Modified and Non-Genetically Modified Foods." 2004.  Plant Physiology. 134:3-10.

Don, Sarah. "Genetically Modified Food" 2006. "Labeling: Genetically Modified Foods." Recipe for America, 2007. 20 April 2010 < page.php?id=8> 

Phillips, P.W.B. and McNeill, H. (2000). Labeling for GM foods: Theory and practice. AgBioForum3(4), 219-224. Available on the World Wide Web:

Pickrell, John. "Instant Expert: GM Organisms." 4 Sep. 2006. New Scientist. 17 April 2010. <>

Qaim M, and Zilberman D. "Yield Effects of Genetically Modified Crops in Developing Countries." 2003.Science. 299 (5608): 900-902.

"Sustainable Agriculture and Genetic Engineering." 2009. Greenpeace. 17 April 2010. <>