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Market and Welfare Effects of Trade Disruptions from Unapproved Biotech Crops

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  • Magnier, Alexandre
  • Konduru, Srinivasa
  • Kalaitzandonakes, Nicholas G.
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    Abstract

    Genetically modified (GM) crops have been largely adopted in major exporting countries thereby representing a dominant share of a few key agricultural commodities that are traded in international markets. Regulatory reviews and approvals for the cultivation and marketing of GM crops, however, are country-specific and significant discrepancies in the amount of time required to review and approve new GM crops between importing and exporting countries has led to “asynchronous approvals”. Trade disruptions created by asynchronous approvals of GM crops are expected and can quickly deteriorate into effective trade bans because perfect segregation between approved and unapproved GM crops is difficult. The issues we examine in this paper are the potential market and welfare impacts from trade disruptions that might be caused by asynchronous regulatory approvals of new GM crops. We develop a trade model consisting of two composite importing countries and one exporting country. We first derive a baseline equilibrium where no unapproved events exists. When then derive a second equilibrium so that the market and welfare impacts of asynchronous approval on consumers and producers in each composite country can be analyze and discussed. We found that asynchronous approvals tend to increase prices, reduce consumer surplus and increase profits of producers of identity preserved commodities in all countries. However, we found that the aggregate quantities consumed and the profits of commodity producers are depend on the relative size of the export market in the countries where event are not approved.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49592.

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    Date of creation: 2009
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    Handle: RePEc:ags:aaea09:49592

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    Keywords: Crop Production/Industries; International Relations/Trade; Research and Development/Tech Change/Emerging Technologies;

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    1. José Benjamin Falck-Zepeda & Greg Traxler & Robert G. Nelson, 2000. "Surplus Distribution from the Introduction of a Biotechnology Innovation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 360-369.
    2. Carter, Colin A. & Smith, Aaron D., 2004. "The Market Effect of a Food Scare: The Case of Genetically Modified StarLink Corn," Working Papers 11997, University of California, Davis, Department of Agricultural and Resource Economics.
    3. Schmitz Troy G. & Schmitz Andrew & Moss Charles B., 2004. "Did StarLink Reduce Import Demand for Corn?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(2), pages 1-16, May.
    4. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
    5. Harvey E. Lapan & GianCarlo Moschini, 2002. "Innovation and Trade with Endogenous Market Failure: The Case of Genetically Modified Products," Center for Agricultural and Rural Development (CARD) Publications 02-wp302, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    6. Andrei Sobolevsky & GianCarlo Moschini & Harvey Lapan, 2005. "Genetically Modified Crops and Product Differentiation: Trade and Welfare Effects in the Soybean Complex," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 621-644.
    7. Lin, William W. & Price, Gregory K. & Allen, Edward W., 2002. "Starlink: Impacts On The U.S. Corn Market And World Trade," 2002 Annual meeting, July 28-31, Long Beach, CA 19715, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Giannakas, Konstantinos & Fulton, Murray, 2002. "Consumption effects of genetic modification: what if consumers are right?," Agricultural Economics, Blackwell, vol. 27(2), pages 97-109, August.
    9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    10. Troy G. Schmitz & Andrew Schmitz & Charles B. Moss, 2005. "The economic impact of StarLink corn," Agribusiness, John Wiley & Sons, Ltd., vol. 21(3), pages 391-407.
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