Dr. Nicholas Kalaitzandonakes. AgJournal staff photo.

September 11, 2001 -- Given time, world markets could adjust to predominantly identity-preserved (IP) grain production, said Dr. Nicholas Kalaitzandonakes, University of Missouri agricultural economist. But government regulations, which may not take into account hidden costs of identity preservation, could put the global food supply system in "deep trouble."

Dr. Kalaitzandonakes, along with other speakers, discussed the ramifications of marketing genetically modifed organisms (GMOs) - or "GMO-free" crops - at a conference cosponsored by the U.S. Department of Agriculture's Economic Research Service and the Pew Initiative on Food and Biotechnology September 11, 2001, in Minneapolis, MN.

Most government regulators and other parties assume that the costs of a shift to identity preservation of grain are significant but manageable, Dr. Kalaitzandonakes said. Premiums for non-GMO corn and soybeans on the Tokyo Stock Exchange, for example, have remained consistent at 40 to 50 cents per bushel.

But the assumption of manageable costs overlooks the fact that markets for IP grain currently are "residual" (small) markets, not large, primary markets. Right now, farmers and grain companies can sell specialty crops at a premium without losing whatever profit they might make from the commodity market. But if the market suddenly had to shift to predominantly IP grain, the cost of "lost opportunities" for commodity sales could be substantial.

Identity-preserving supply chains forego efficiencies currently present in commodity grain production and distribution, and pick up the extra logistical costs of keeping different kinds of grain separate. But the "opportunity cost" of not being able to take advantage of market spreads (because contractual agreements call for grain to be delivered at a set time at a set price) would represent the biggest loss. In a survey of grain elevators, Dr. Kalaitzandonakes found that the impact of identity preservation on grind margins, storage margins and spread margins could represent 75 percent of total costs for small elevators.

Dr. Nicholas Kalaitzandanokes makes a point while fellow panelists, Dr. Dirk Maier of Purdue University and Ruth Kimmelshue of Cargill, listen.

An elevator could eliminate loss of efficiency by dedicating itself to handling only one type of grain. But Dr. Kalaitzandonakes found in his research that even with such "dedicated" facilities, opportunity costs outweighed gains in efficiency.

An example of how government regulation might force change before the industry has had time to adapt is if the European Union required labeling of animal feed that contained genetically modified ingredients, Dr. Kalaitzandonakes said.

Ron Olson, General Mills vice president for grain operations, also emphasized the complexities of identity preservation in his address to the conference. Olson spoke from the perspective of having grown up on a Midwestern corn-and-soybean farm and working in the commodity grain trade before joining a branded food company. In a system that developed to meet the need to move large volumes of grain as quickly as possible, it's all too easy to "dump corn in the bean bin," Olson said.

There will be more demand for IP grain as biotechnology makes possible the incorporation of new traits with perceived value to the end user, Olson said. It will become more important to keep one type of grain separate from another, especially if corn and soybeans are grown for nonfood uses. But Olson does not see a time when there will be "a wall around every field." Rather, more testing will be required at each step of production and distribution.

While acknowledging the difficulties of a transition to an identity-preserving system, Ruth Kimmelshue, team leader, livestock solutions, for Cargill's North American grain and oilseeds division, noted that having such a system in place helped Cargill during the StarLink crisis. Illinois Corn Mills, a Cargill company, had an identity preservation process called InnovaSure in place when traces of StarLink corn were found in taco shells last year. The InnovaSure program is used in supplying food-grade white and yellow corn to customers such as Frito-Lay and Kellogg and its presence saved Cargill from losing business to suppliers outside the United States, Kimmelshue said.

For case studies presented by Dr. Kalaitzandonakes, see this AgBioForum Web site.

For more information on the Pew Initiative on Food and Biotechnology, see the Pew Ag Biotech Web site.