Biotech Wheat: Buyers Would Benefit From Increased Supply

The failure of the wheat industry to accept biotechnology is costing wheat producers and end users millions of dollars each year, according to Dr. Bill Wilson, professor in the Department of Agribusiness and Applied Economics at North Dakota State University.

In a presentation to U.S. Wheat Associates and North American Wheat Growers Feb. 5 in Washington, D.C., Wilson said the system already is in place to segregate biotech from non-biotech wheat and that customers could have the grain they want if they do some planning, work within the current marketing systems and are willing to pay a little more for specific/special requirements.

Wilson presented data that could help wheat producers convince the milling and baking industry that accepting wheat biotechnology would be beneficial to growers and end users alike.

The most significant benefit for wheat purchasers would be a chance to reverse the decline in wheat acres, which has contributed to a short supply and higher prices for bakers and millers. Wilson illustrated how biotechnology, by adding value to other crops, has caused growers to divert their wheat acres to those crops.

There is so much added valued in biotech corn and soybean that wheat prices will have to increase drastically to win back growers. As an example, Wilson said, the 2008 planting season price for new crop hard winter wheat was $3 more than the price of corn, yet wheat acres declined one percent over the previous year.  A similar decline is expected for hard red spring wheat.

Further investment in corn and soybeans will only exacerbate the differences, creating even more of what Wilson termed “opportunity costs” – the cost to wheat when growers seek opportunity elsewhere.  For example, he cited the expected introduction of a second generation of Roundup Ready soybeans, which projects a 5 to 7 bushel per acre yield increase. That translates into an increased value of up to $70 per acre for soy producers and means that wheat prices would have to increase $1.49 per bushel to keep pace with just that one new biotech product.

The advent of drought tolerant corn is projected to create an opportunity cost of 60 cents per bushel. Furthermore, the ability to produce corn in drier regions is expected to expand the Corn Belt westward, competing for traditional wheat acres.

The greater opportunity in biotech crops explains why wheat acres have been declining steadily for the past decade, Wilson said. He encouraged producers to share their experience with wheat buyers to convince them that they would benefit along with growers if GM wheat were introduced.

Roundup Ready wheat, for example, would add value of an estimated $14 per acre or 48 cents per bushel, because of higher yields and improved efficiency. This would begin to offset the opportunity costs and would create an overall benefit to growers of $197 million per year. It also results in a projected consumer benefit of $163 million, attributable to readily available supplies and lower prices. These projections take into account the expected costs to segregate GM and non-GM grain.

Only the countries that refuse to accept any biotech wheat would pay more. Contrary to the European thought that growers would have to pay for segregation, Wilson says that “buyers imposing onerous requirements ultimately have to compete for supplies and have to induce their suppliers to adopt higher cost alternatives.” The choice, however, would be available to any customers that want to pay more to appeal to a market segment.

 “My message has always been that in a mature market it is expected that there will be segmentation. Wheat is a very mature market and it is expected that there will be an organic segment and a non-GM segment and some that don’t care about it. This is true with any country.”

He cited market research data to show that consumers have very little concern about biotech foods. Fewer than half a percent of people surveyed identified food biotechnology as a concern and fewer than one percent volunteer that they want food labels to disclose biotech ingredients. 

However, if grain buyers want to offer a non-GM product, the infrastructure to facilitate segregation already is in place, Wilson said. His survey of grain elevators found that the average cost for elevators to segregate GM and non-GM is 7 cents per bushel, far less than estimates of USDA. The segregation process, which involves several stages of purity testing, is protective of growers and buyers. The risk that a non-GM grower’s crop might be rejected for exceeding GM tolerances is only 1.75 percent. The risk to the buyer who wants non-GM grain is only about one-fifth of one percent (0.02 percent), Wilson said.

If GM wheat were introduced, the grain handling system would likely further evolve, he said, to include elevators and port facilities that handle only non-GM, further mitigating the risk that terms of a contract might be violated.

The best way to ensure that customers get the product they want is for buyers to initiate contracts with growers, a prospect that Wilson termed the “biggest hurdle.”

“It not only requires buyers to initiate the contract, but it requires buyers to initiate a contract prior to planting.”  He said there is little question that the system is in place to deliver on nearly any type of contract, but it requires that a decision be made at least 14 months before the buyer needs the product. “And I believe that is going to be one of the biggest hurdles in trying to make this happen.”