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 Knowledge for the CommonWealth

Government Supports and GMOs' Future in the World Marketplace

Farm Business Management Update, October 1999

By David M. Kohl

I just returned from Australia where I was the keynote speaker at the Australian Agribusiness Conference in Melbourne. The theme of the conference was "The Change in Agribusiness Food and Fiber Systems Brought about by the Advent and Adoption of Biotechnology." Imperative in these changes will be the United States and Europe's positions on farm program payments. These payments create inefficiencies in the marketplace, slowing the adoption of technology.

The most common question asked of me at the conference was what was the future of farm subsidies in the United States? The answer is extremely important to a country such as Australia, with a land mass the size of the USA and 18 million people exporting 80 percent of their agricultural products. In contrast to Australia is the United States which exports one-third of its product and produces half of the world's food.

My response was that freedom to farm has actually increased our producers' dependence on farm program payments. In 1995 and 1996, approximately 13 percent of net farm income was received through government support. In 1998 and 1999, that percentage increased to 22 and nearly 40 percent, respectively (August 24, USA Today).

Five components suggest this support will continue in the future. The national elections, a strong general economy, and a philosophy of cheap food policy in the United States are strong arguments. Saving the family farm and political sanctions where food, food safety, and environmental issues are used as negotiating tools indicates that support may be in the future beyond 2002. A strong general economic downturn creating change in public attitude toward farm supports could be the catalyst to turn the tide. It's interesting to note that when Australia and New Zealand eliminated government supports that a short-run decrease in farm numbers occurred. However, in the long run, agriculture in this section of the world has emerged as much more competitive in the international marketplace. Heavy farm supports in the USA and Europe, however, place many of their producers at a competitive disadvantage, which plays havoc with bottom line profits for a niche player like Australia.

GMOs: "To Use Or Not To Use"

In the next five years, Virginia producers and those around the world have critical decisions to make on whether to use biotechnology to genetically modify food and fiber. In the view of the Australians, it is a "wait and see" attitude concerning the adoption of biogenetically altered agricultural products. The general consensus of the conference speakers and attendees was the larger agribusiness firms failed to educate the vital end of the food chain: the consumer. For example, products were developed and large sums of money were used to encourage producers to integrate them into the management systems. However, similar resources were not used to educate the consumer.

Resistance to genetically modified products is now being experienced in smaller markets such as Europe, but could spread to the larger export potential marketplace of Asia. For example, Brazil has taken a stance of not producing Round-up Ready soybeans this growing season, which has been favorably received by the European consumer, relegating the United States to a second position.

In the next five years, consumer demands for safety, convenience, nutrition, variety, and what is perceived as value will continue to escalate. These consumer demands will break the marketplace into three distinct areas.

First, the view of conference speakers was that the industrialized contract-driven sector will increase dramatically, utilizing GMOs. The agribusiness will coordinate production to deliver. Low cost of production or product-specific attributes will be a selling point. The value-added sectors not utilizing GMOs will emerge and possibly double. Finally, the traditional commodity marketplace where the producer takes responsibility for marketing will see the biggest decline. Many of these producers will become contract growers or attempt to provide value added through cooperatives or local markets.

The implications of GMOs and either the continuation of or reduction of farm supports will mean greater volatility in risk in agricultural incomes worldwide; consolidation and concentration of agriculture; increasing potential profits but risk increased focus on value by the consumer; and a renewed commitment to the public to inform them of agriculture and change.

To Virginia agriculture, which has had a historically low dependence on government support, the GMO issue will probably be a bigger challenge. In light of this, four questions a producer must ask are

  1. Does management have the knowledge and skills to implement their use?
  2. Are they economical and cost effective?
  3. What are the social and political implications?
  4. What are the impacts on the consumer?

The latter, however, may be the major determinant of success of producers' profit equation in the future.

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