European Genetically Modified Food Row
Could Lead To Bankruptcies & Even A Global Trade War, Argues Mark Barnekow,
International Product Marketing Manager for the Food & Beverage Industry, JBA
Europe’s vociferous row over
genetically modified (GM) food is likely to infect public confidence in GM foods around
the globe. The knock-on effects for the food industry could cost billions and,
politically, could result in worldwide trade wars.
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By GlobalDataEurope’s concern over GM foods follows
a string of health scares in the region, from the UK’s BSE (mad-cow disease) to
Belgium’s cancer-causing dioxins in meat and contaminated Coca-Cola.
The consumer outcry surrounding GM foods
has forced politicians into action, but that, in turn, has only increased feelings of
unease. Europeans have come to suspect their governments of either incompetence or
cover-ups in matters of food safety.
The public perception is that the vast
majority of European food scares have been exacerbated by governmental mistakes on either
policy, mis-judging the public mood and/or failing to act quickly. Consequently
governmental assurances over GM food simply raises Europeans’ fears, fueling a spiral
of concern.
The large supermarket chains are far more
adept at responding to consumer demand. As a result, while governments are talking policy,
the large retailers are setting the agenda through their own actions.
Grocery retailers in Austria, Belgium,
France, Germany, Ireland, Italy, Spain, Switzerland and the UK are at various stages
between aiming to make their own-brand goods ‘GM-Free’, and simply not stocking
any goods containing GM ingredients. Even fast-food retailers such as Prêt a Manger have
declared themselves ‘GM-Free’. In response, several European food manufacturers,
including big names such as Unilever and Nestlé, have pledged to supply
‘GM-Free’ products.
The ramifications of Western Europe’s
rejection of GM food are significant. For example, soya, a commodity that is now more
commonly GM than non-GM, has historically been imported to Europe. America, Argentina,
Australia, Brazil, Canada, China and Mexico are all converts to GM soya crops and
consequently face a downturn in their export revenue to Europe as a result.
Turning the tide back
In 1990 there were no GM crops in
commercial cultivation. Now 55% of America’s soya and 40% of its maize are
genetically modified. About 5% of America’s maize consists of GM varieties outside of
the nine approved by the EU in 1994. Current production methods mean that the 5% of
non-exportable maize mixes with exportable maize, therefore impacting maize exports to
Europe.
Keeping varieties of crop – non-GM, export
GM and non-export GM – is feasible but expensive. It’s estimated that the final price
of non-GM US soya and maize would add a 25% premium to final retail prices.
Health-conscious consumers pay a premium
for organic goods – where consumers perceive a clear benefit – but their
willingness to pay a premium for a non-GM food is questionable. The benefits of GM foods
go to farmers as they save money on pesticides though disease resistant crops, so it is
doubtful that consumers will see a price rise in non-GM food as a fair result of GM
farming. The cost, therefore, is likely to be absorbed by the supply chain.
The deciding factor surrounding the outcome
of the GM saga could rest with the reaction of the American public. While European
governments, businesses, pressure groups and consumers slug it out in acres of newsprint,
the debate in America – where 75% of the world’s GM crops are produced – has been
muted. Even where reporting has occurred in America, it is often as international news
rather than domestic. This is even reflected in Greenpeace’s websites. Its European
sites often lead with GM food stories on the welcome page. Its US site carries GM
information, but not nearly as forcefully.
One school of thought is that the American
general public is simply less fearful of such innovations. However, according to a 1999
poll by the International Food Information Council in Washington DC, close to half of
those questioned thought their groceries were free from biotechnology. In fact, nearly 60%
of America’s processed food is affected.
It is possible that as the GM issue gains
more US media coverage, the consumer pressure for better GM labeling, last set by
America’s Food & Drug Administration in 1992, will mount and then the issue could
snowball to European levels. No amount of marketing can make a label highlighting the
contents of GM ingredients seem like anything other than a health warning.
Consumer power or government
wrangling?
To date, the GM issue has remained in the
context of consumer preference, but it is increasingly a political issue. Under pressure
from consumer groups, and perhaps fuelled by economic pragmatism, governments are taking
positions on GM and forming policy. France, Austria and Luxembourg have all exercised
legislative rights to reject some types of GM maize and oilseed.
Another point of legislative contention is
labeling laws, where Europe is far more stringent than the rest of the world. Aggrieved
parties are considering complaints to the World Trade Organization on the basis that
barriers to trade are being erected. In other words, that GM is a socially-acceptable
façade for old-fashioned protectionism.
If the US public does reject GM foods, a
potential scenario is that consumers across the globe avoid a trade war by unanimously
rejecting GM foods; if it won’t sell in Europe or America, it is unlikely to be
produced. However, that sort of an extreme is unlikely and the level of US consumer
concern over GM food is yet to be assessed.
It could be that there is enough demand for
non-GM food in the US to justify the cost of changing production methods. Large domestic
demand, combined with exports to Europe and elsewhere that is reluctant towards GM foods,
could create attractive economies of scale.
A more acute scenario is that US consumers
remain unconcerned about GM food. That leads to a far more difficult situation where crops
are likely to continue down the GM route and get increasingly frustrated at not being able
to export to Europe. If a pragmatic solution cannot be found between governments, a
tit-for-tat trade war is likely to ensue.
Regardless of the political solution,
modern business is demand-led and will offer consumers a choice, albeit at a price
differentiation. However, the predicted 25% price premium for non-GM food may be rejected
by consumers. This leaves the supply chain having to absorb the extra cost, which results
in mid-market companies having to become more efficient.
With both GM and non-GM foods likely to be
supplied to market, food supply chains will have to be able to guarantee product
ingredients and with as little impact on operating costs as possible. That means devoting
a company to either GM or non-GM products, or using technology to deal with the issue of
traceability. Technology will also be the solution to ridding the supply chain of the 25%
excess charge on non-GM food products.
The GM foods saga, whichever way it turns
out, is going to require a change in farming practices and in the supply chain that
processes farm crops. The majority of that burden will fall on the shoulders of the
mid-market – companies that already aim for minimal operating costs.
The final GM foods side-effect, it seems,
will be a boom for the mid-market food technology providers.
About JBA
JBA, a division of Geac, is a leading worldwide supplier of business solutions to the
highly competitive mid-market sector. Typically JBA customers gain competitive advantage
from our leading edge technology, resources, services and knowledge. Our people, together
with our @ctive Enterprise strategy, continuously help organizations to improve the way
they operate – reducing costs, improving quality and efficiency, and innovating new
ways of doing business.
JBA industry focused solutions meet the
exact need of selected target industries by incorporating industry best practice
functionality integrated with best of breed products and services. Solutions designed for
the Food & Beverage, Apparel, Footwear & Textiles, Automotive Supplier and
Electronics sectors, build on the ongoing success of JBA System 21 – the core,
cross-industry, manufacturing, financials, and customer service & logistics product
set. JBA product and service information is available on the World Wide Web at http://www.jbaworld.com.
About Geac
Geac Computer Corporation Limited (Toronto Stock Exchange Symbol: GAC) is a provider of
mission critical software and systems solutions to corporations around the world. Geac
solutions include cross-industry enterprise business applications for financial
administration and human resources functions, and enterprise resource planning
applications for manufacturing, distribution, and supply chain management. In addition,
Geac provides several industry-specific mission critical business applications to the
hospitality, property, banking, and publishing marketplaces, as well as a wide range of
applications for libraries and public safety administration. Headquartered in Toronto,
Canada, Geac’s 5,700 employees support more than 30,000 customers around the globe.
With annualized revenues now approaching C$1.3 billion, Geac ranks as one of the
world’s largest software companies. Further information is available on the World
Wide Web at http://www.geac.com, or through e-mail at info@geac.com.
