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GE Wheat Would Be A Disaster for US Farmers

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1/24/2003
GMO Wheat...A market development-in-reverse program
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(Friday, Jan. 24, 2003 -- CropChoice news) -- The following is the text of
the remarks of Dan McGuire, policy chairman of the American Corn Growers
Association and program director for the American Corn Growers
Foundation's Farmer Choice - Customer First program, to the GE Wheat Forum
of the Montana Winter Fair in Lewiston, Mont. yesterday.

by Dan McGuire

It's good to be back in Montana and part of this panel to discuss the
implications of genetically engineered or GMO wheat as it's commonly
referred to.

GMO wheat has been described as a "solution in search of a problem to
solve." I tend to think of GMO wheat as a problem in search of more
problems to create. In fact, I would describe GMO wheat as a "market
development in reverse" program. But you don't have to accept my
description. European wheat importers have described GMO wheat as a
"market destructor." Asian importers have similar views. Of course I'm
primarily talking about export marketing problems and the negative wheat
price implications that go hand-in-hand with that likely scenario. I will
also mention some other market concentration issues later.

However, before I go into detail on that export market, I want to first
remind the U.S. wheat industry and especially farmers that you have a
distinct advantage over corn and soybean growers as it relates to GMOs.
That advantage is the fact that world buyers have alerted you in advance
and told you in no uncertain terms that they don't want, nor will they buy
GMO (Roundup Ready) wheat if you grow it.. Given the fact that all the
government and industry experts have preached to farmers for years that
you have to be better marketers and not just good producers, it would seem
that the message from your market should be listened to. I like to say it
this way.the customer is always right, even if you don't believe they're
right for the right reasons. I like to make that point because if those
customers have alternative suppliers that are willing to meet their
demands if U.S. farmers are not willing, they can and will buy elsewhere.
That is sure the case with wheat in the world market.

In the case of corn and soybeans, those GMO varieties were introduced in
the U.S. crop production system and sold to farmers without the biotech
companies or U.S. grain promotion agencies having checked with foreign
buyers or consumers at all. There was no market testing or consumer
research done with the customer to determine if this new crop technology,
which is very different from conventional crop breeding, was acceptable.
But, because of the marketing problems caused by GMO corn, GMO soybeans
and GMO canola in world markets some market research has been done now
relative to wheat importer, processor and consumer attitudes regarding GMO
wheat.

You really need to use that information to guide your decisions about
GMO wheat. And, it's not just U.S. market research. The Canadian Wheat
Board has done research that also shows that over 80 percent of their
wheat import customers don't want and won't buy GMO wheat. Since I
mentioned the Canadian Wheat Board, you might like to know that Canadian
CWRS 15.2 percent protein wheat is offered at higher prices than
comparable U.S. spring wheat in Europe this week, which is typical, so
that says something about the value of quality. To those who say that the
Canadian Wheat Board is always underselling U.S. prices I say they need to
take another look at what's going on in the market. The spot price of
14.5% U.S. spring FOB Antwerp was $191 per ton on Tuesday compared to
$194.75 per ton for CWRS, CIF Antwerp/Ghent ports.

My experience in the wheat industry includes carrying out market
development programs on behalf of both the Nebraska Wheat Board and the
Interstate Grain Compact for nearly twenty years. One program that we
launched was a Quality Wheat Initiative to capture the high quality wheat
import market in Europe. It was launched in the mid-1980s and in 1987
with an identity-preserved sale of Nebraska and Wyoming hard red winter
wheat to Finland. Following that we took samples of high quality hard red
spring wheat from an export company at the Port of Duluth, Minnesota and
personally hand-delivered those samples to importers all over Europe.

Many of those buyers were skeptical that they could get the quality
represented in those samples from the U.S. as they knew the blending, etc.
that goes on in the U.S. as a result of U.S.. grain standards but we
assured them that if they would work with us they would get such quality.
Both the exporter from Duluth and those of us leading that initiative had
made a commitment. The first cargo went into Antwerp, Belgium from Duluth
in 1989. It was stored unsold and when the buyers got word of the quality
in store they began buying it. Cargoes have been going back to those
buyers and more buyers all over Europe every year since. Those sales have
all been based on very high quality and top-notch, well-above-average
levels of customer service. That wheat quality initiative set the terms
of trade for other U.S. exporters if they were to compete for those
cash-paying customers. They had to offer similar quality and did in some
cases. The entire U.S. wheat industry was the beneficiary.farmers,
exporters, ship agents, inspectors, truckers, railroads, port authorities,
etc. Other wheat industry groups also took steps to improve wheat quality
in exports to Japan and other Asian markets, where Montana wheat is
shipped.

I relate this information because it reflects the investment made by wheat
farmers with their wheat check-off dollars aimed at creating demand for
what they grow. That investment of farmer money has been going on for
fifty years. Those millions of farmer dollars are combined with millions
of federal tax dollars every year and used to fund and maintain foreign
wheat promotion offices all over the world. Those check-off dollars,
which come right off the check when you get paid for your wheat, are used
to promote your wheat to foreign buyers. It's intended to increase
exports, which then is expected to increase wheat prices at the farm level
for you, the farmer. But even with all that investment, U.S. wheat
exports last year, at 961 million bushels were only 54% of the 1.77
billion bushels the U.S. exported in 1981/82. In this current 2002/03
marketing year, U.S. wheat exports are forecast to drop to 950 million
bushels, or only 53% of the 1981/82 export level. And according to a
USDA-ERS report last March the U.S. share of world wheat trade in MY
2001/02 was the lowest in more than 40 years.
So, without going deeply into the issues of U.S. farm and trade policy I
will just say that the verdict is in and lowering U.S. loan rates and
wheat prices neither makes the U.S. more competitive, nor increases wheat
exports. On the issue of being competitive, there are some market factors
over which farmers have no control. The weather is the obvious one.
Another is the value of the U.S. dollar relative to foreign currencies.
Apparently others are policies like NAFTA and the U.S./Canada Free Trade
Agreement that resulted in massive increases in wheat imports into the
U.S. And, I'm not just talking about Canadian wheat coming across the
border anymore. Within the past few months both U.K feed wheat and French
milling quality wheat cargoes have been imported into U.S. ports on the
east coast. That's an important issue, because given U.S. trade and farm
policy, which eliminated Section 22 from our laws, tariffs or duties are
no longer placed on wheat imports that damage the U.S. domestic market and
domestic wheat price. This is an important issue, because if U.S. farmers
were to grow GMO wheat, U.S. millers might import conventional wheat from
Europe and elsewhere so as not to jeopardize not only their market with
U.S. consumers but also their market for flour and wheat products that
they export from the U.S. to buyers around the world that won't accept
products made from GMO wheat. So, you see GMO wheat has potential far
reaching market implications.

The biggest wake-up call for farmers is the impact on wheat prices that
lost markets and reduced U.S. wheat exports are likely to have. That
economic analysis is certainly open to some speculation and varying views.
I'm going to use a couple of approaches in trying to get a handle on what
might happen, and offer my opinion on what is likely to happen.

First, I'm going to review some conclusions made by USDA's Economic
Research Service in their Wheat Yearbook, published in March of 2002. It
contained a special article with the title, Economic Analysis of Ending
the Issuance of Karnal Bunt Phytosanitary Wheat Export Certificates. I'm
going to use this example because it projects what could happen if the
U.S. were to deregulate the Karnal bunt quarantine system. And while
there's technically no "quarantine" on GMO wheat, I believe that foreign
buyers feel their warnings about it amount to a kind of "quarantine." So,
I see some useful parallels between these two marketing concerns. Karnal
bunt, sometimes called partial bunt, is caused by a fungus that affects
flour quality if more than 3 percent of the grains are bunted because it
produces trimethylamine, which gives a fishy odor. Pasta products made
with flour contaminated with such bunt can have that unacceptable odor.
According to the USDA report, "many U.S. trading partners will not accept
U.S. wheat exports unless the wheat is certified to be from areas where
the bunt is not known to occur. So, consider a similar or worse marketing
problem from GMO wheat as I go over the data. The USDA report suggested
the following market impacts if they ended issuing the certificates:

If even a few important wheat-importing countries maintain prohibitions,
shipping companies may have concerns about shipping wheat from a
deregulated U.S. wheat sector. Ship owners wishing to protect their
interests may insist on a certificate from an authoritative U.S. source
that unequivocally confirms that the cargo is free from the bunt spores.
Shipping vessels that carried contaminated wheat to countries without
prohibitions would have to be sanitized to ensure that later cargoes from
other sources going to countries that continue to have prohibitions will
not be contaminated. Under U.S. deregulation, spores could spread through
the storage and transport equipment to other products like corn and
soybeans. The costs of testing and sanitizing to ensure freedom from the
disease would likely be considerable.

Even though the bunt poses no health risk, many U.S. wheat export markets
have a precautionary stance against the acceptance of wheat without a
certificate thus, if the U.S. were to stop its certification, U.S. wheat
would not meet those importing countries' phytosanitary requirements.
Adverse reactions would first fall on hard red winter and soft red winter
producers in Central and Southern Plains states, but because U.S. wheat is
blended, we also assume that HRW and SRW from northern states that might
not be susceptible to the bunt cannot be certified as free of spores.
While a world wheat model was not available to appropriately estimate
trade flows by wheat class and country, USDA did develop a scenario based
on the expert judgment of USDA analysts which concluded:
About 60 percent of U.S. customers would find about 55 percent of U.S.
exports unacceptable.

In the first year, U.S. exports of HRW and SRW are calculated to increase
to those markets still accepting them, while overall U.S. wheat exports
are calculated to drop nearly 7 million tons (257 million bushels), or 25
percent below baseline levels.
In the second year of the scenario, U.S. wheat exports are estimated down
9.5 million tons (349 million bushels), 35 percent below the baseline.
In the third year, U.S. wheat exports are 20 percent below the baseline
levels. A market results in a small premium for U.S. competitors that are
free of Karnal bunt and reduces long-term U.S. wheat exports by 15 percent
below baseline levels. This long-term decline represents a loss in market
share despite the development of alternative regulatory mechanisms in
markets accounting for 80 percent of U.S. wheat exports.

The decline in exports under the scenario reduces the farmgate price of
wheat. Prices decline from the baseline by 17 and 19 percent, or 45 and
53 cents per bushel, in 2003/04 and 2004/05, respectively.
With domestic prices lower, the U.S. area planted to wheat declines
relative to the baseline, but the response is muted somewhat over the
initial years because of U.S. farm programs that make up part of the
revenue loss from low prices, with marketing loan benefits.

With lower wheat prices, domestic wheat feeding increases sharply, by 32
and 107 percent, or by 88 and 295 million bushels, in 2003/04 and 2004/05,
respectively and wheat feeding remains above the baseline level by about
32 percent in 2007/08.

Cash receipts for wheat are estimated to drop below the baseline by $915
million and $1.293 billion in 2003 and 2004 respectively and by the final
year of the analysis, cash receipts remain below the baseline by $1.167
billion.

Cumulative wheat cash receipts decline by $5.8 billion below the baseline
over the 2003-07 period.

The farm price of corn is estimated to decline below the baseline by 4.5%
in 2003/2004 as livestock producers shift from corn to lower priced wheat
in their feed rations. As a result, cumulative cash receipts for feed
grains decline by $1.2 billion below the baseline.

The total cumulative value of U.S. ag exports is estimated to fall by over
$6.3 billion during the period, including downward adjustments in the
value of exports of commodities other than wheat.

Because prices of all ag commodities decline from the baseline, cumulative
cash receipts from farm marketing's are estimated to be $10..4 billion
below the baseline.

The cumulative total reduction of national net farm income from 2003 to
2007 is $5.3 billion and the cumulative marketing loan payments associated
with all crops increases by $2.0 billion over the 2003-07 period.
Other important issues include contamination of vessels and handling
facilities, regulations for the transshipment of grain through the St.
Lawrence Seaway, and possible trade impacts for other grains such as corn
and soybeans if the bunt quarantine system is deregulated.

The USDA scenario I just reviewed on the bunt issue is mild compared to
what I expect would result from the introduction of GMO wheat. I've done
my own estimate of how wheat exports and wheat prices might be impacted.
I use the USDA baseline projections for wheat ending stocks for the 8
marketing years from 2002/03 to 2009/10 and then increase those ending
stocks numbers by 235 million bushels. That number assumes that 85
percent of U.S. hard red spring (HRS) wheat exports are lost each year if
GMO wheat is introduced. The lost exports of HRS could be less than that
but there could also be losses of HRW, SRW, durum and white wheat exports
that together easily could amount to that level. By using the continuing
higher level of ending wheat stocks and some historical wheat price to
ending stocks relationships, I conclude that wheat prices would drop below
the USDA baseline by at least 25 cents per bushel the first year and will
have fallen by at least $1.55 per bushel by the final year. Actually,
these negative price impacts may be overly conservative. I didn't try to
estimate the impact on farm program payments because of lower wheat prices
but I imagine it would be about three times higher than what USDA
estimated the impact to be in their economic scenario on the bunt issue. I
feel confident projecting serious losses from GMO wheat because I
calculate that GMO corn has cost the U.S. about half a billion bushels in
lost corn exports over the past 7 years and is causing corn prices this
year to be $1.15 per bushel less that they otherwise would have been.

And, of course to offset the damage from GMO-driven lost wheat exports,
you would have to assume that the Administration and Congress keep funding
in place for farm programs that would offset the price damage done by lost
exports. I don't think we can assume that given the hostile nature were
seeing right now on the drought disaster payment legislation that's
attempting to be moved in Washington right now.

In addition to the negative market impact of GMO wheat and given all the
warnings that farmers have received from foreign buyers, I would have to
assume that if farmers plant GMO wheat, they don't really care about the
foreign market anymore and they're willing to abandon the 50-year
investment that they, their parents and grandparents have made in foreign
market development. If that's the case, those same farmers need to be
working to change farm policy in Congress. They need to lobby for
reinstating true price support loans at cost of production plus a return
on investment levels. They need to lobby for a grain reserve and they
need to lobby for reinstatement of Section 22 to protect their domestic
market from imports.

If farmers were to allow GMO wheat seed varieties to be sold and then
actually plant them just to be able to use Roundup herbicide or generic
glyphosate for weed control, thinking that they will simplify their
farming lives, they better do a little more research on that issue. Corn
and soybean farmers were thinking that way, but now their finding out that
a number of weeds have become resistant to Roundup and they are having to
use two and sometimes three applications on their RR soybeans to control
those weeds. They are also finding that they have to go back to using
herbicide mixes as well. As I wrote this speech on Tuesday, I heard a
radio ad on a farm station telling farmers those problems with roundup
resistant velvetleaf and other weeds can be solved by using Dupont's
Authority herbicide in a tank mix. So, if weed resistance to glyphosate
or Roundup that is required for use on GMOs is going to be a problem for
wheat, like it is for soybeans and corn, which I expect it will be, where'
s the big advantage in future? Going back to tank mixes and pre-emergent
applications would seem to negate what were supposed to be the big selling
points and benefits.

And, a wheat farmer from Colorado recently published an article pointing
out that in its new 2003 technology agreement Monsanto has begun
referencing their U.S. patent number PTO #6,239,072 which also covers
premixes of glyphosate with the other herbicides needed to control Roundup
Ready volunteer crops such as volunteer RR corn in RR soybean fields.
That Colorado farmer says that the patent precludes other chemical
companies from selling to farmers any commercial premixes of glyphosate
with the grass specific post emergence herbicides the patent mentions,
even as those herbicides begin to go off patent in a few years.

Consequently, if other chemical companies could sell them at a better
price, they won't because if farmers cannot apply such premixes, they won'
t bother selling them. The wheat farmer also points out that even if
other seed companies gain free access to the RR gene upon expiration of
its patent, or even if farmers regain their right to save seed, Monsanto
can still come after them for spraying glyphosate mixed with other
chemicals to control volunteer RR plants. [That article by David Dechant
is available at http://www.cropchoice.com/leadstry.asp?recid=1299
<http://www.cropchoice.com/leadstry.asp?recid=1299> ]

The issue of seed saving is also a big deal because GMOs and seed patents
prevent farmers from exercising that right that they had for centuries.
And, don't forget, you farmers paid check-off dollars into land grant
university research to help develop much of the wheat variety germplasm
that some biotech companies are now patenting and blocking you from
saving. That will certainly force the price of wheat seed higher in the
future.

In closing, you also have issues of liability and cross-pollination
contamination that could threaten your economic future if you grow GMO
wheat and the pollen contaminates conventional or organic wheat grown by
another farmer.

Where's our state and federal government when a plan for assigning
liability and economic damages should be placed up front on the biotech
companies that are pushing GMO wheat before it is ever introduced? In the
face of world buyers saying they don't want GMO wheat and numerous U.S.
and Canadian farm organizations warning against its introduction, biotechs
continue to push it.

I urge you to raise these issues with your elected and appointed state
and federal representatives. And to those who say we should just file
suit against Europe, Japan and other markets in the WTO to force them to
accept GMOs, I ask where were these folks when the same anti-customer
strategy was tried on the issue of the EU banning hormone fed beef. The
U.S. "won" that WTO suit, but Europe still buys no U.S. beef unless it's
hormone free and very few companies are offering that. I doubt that
Montana or U.S. wheat farmers want to be on the learning side of that
lesson again when it comes to testing the resolve of European or global
consumers and government officials again. Rural America really can't
afford any more of those U.S. experiments with telling the rest of the
world what they have to eat.

It was a pleasure being here and I wish you success in 2003.

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Farm News from Cropchoice
An alternative news service for American farmers
http://www.cropchoice.com <http://www.cropchoice.com>


12/2/2002
Asian grain buyers could impose certification costs on non-biotech wheat
producers
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by Robert Schubert

CropChoice editor

(Monday, Dec. 2, 2002 -- CropChoice commentary) -- Grain buyers in
strategic Asian markets, including Japan and Korea, didn't offer up any
big surprises in a recent U.S. Wheat Associates survey. A majority said
they didn't want genetically engineered Hard Red Spring wheat and would
shop other countries if U.S. farmers were to produce the wheat Monsanto
designed to resist the Roundup herbicide. That could spell trouble for
growers in Montana, which sends about 60 percent of its wheat crop to
Asia.

Whether it's going there or to Europe, the other major market where
biotech wheat is a non-starter, alternative suppliers do exist.

"If gmo wheat comes out, then I have to immediately find another
supplier," says a major European grain buyer. "And that will not be a
problem because I've been in Hungary and Ukraine doing preliminary
arrangements. They and other wheat producing countries say, 'fine, let
the USA produce gmo wheat. We'll take their markets.'"

Not so fast, though. Monsanto's very act of introducing Roundup Ready
wheat in the United States (and Canada) could lead those Asian buying
nations to impose policies with cost implications for all wheat producers.

If Roundup Ready wheat happens, 23 percent of the survey respondents said
they would require certification of the genetic purity of Hard Red Spring
wheat varieties, 24 percent would want assurances of the same in all U.S.
wheat, and 20 percent would request certification from all wheat exporting
countries.

That last answer is striking. It points out the lesson that farmers
attempting to grow non-transgenic soybeans, corn, canola and cotton
already have learned. It is they who bear the responsibility for keeping
the billion-dollar Monsanto's technology out of their fields and harvests.

It'll be no different with wheat. Growers and processors everywhere
"would have to figure out how to provide certificates, which means
[genetic] testing of non-gmo varieties, which means costs," says Dawn
Forsythe, director of public affairs for U.S. Wheat Associates.

Geographically isolated Australia could be the exception, she says. Were
it to disallow transgenic wheat, including seeds, the country might get
away with a one-time, universal certificate. Of course, that would give
its growers a leg up on their counterparts elsewhere.

But there is no issue for the European grain buyer: "It is simple for the
Aussies, Hungary and the Ukraine because they grow only non-gmo. So like
Brazil [with soybeans] the country will guarantee it or they'll get an
certificate from a laboratory that checks and guarantees the merchandise.
In fact, they've already done that."

While it appears that supplying non-transgenic wheat might involve costs,
it also seems that producers outside of North America are ready to step in
should U.S. and Canadian farmers plant Roundup Ready wheat.


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