The Economics of the Interaction of GMO and Biofuel Policies in the European Union

The objective of this paper is to analyze the interaction effects of labeling genetically modified organisms (GMOs) on the EU biodiesel market. On the one hand, the EU biofuel mandate reduces the area available for food cultivation. On the other hand, strict GMO regulations hamper the use of GM crops in EU Member States. Our motivation comes from the present political discussion of how to regulate a number of new plant breeding techniques (NPBTs) in the European Union. In case the European Commission considers NPBTs as conventional breeding technique, several agricultural markets will be affected differently than when NPBTs fall under the scope of the genetically modified organism (GMO) regulation. This regulation decision affects labeling (and hence marketing) of NPBTs. We simulate the introduction of oilseed plants produced from NPBTs on the biodiesel market. We assume that rapeseed from NPBTs are more productive than conventional breeding techniques. We consider the case of rapeseed to show the implications of GM labeling on a crop that can be used for food, feed, and fuel. Rapeseed oil obtained from crushing rapeseed can be used for human or biofuel consumption while the byproduct rapeseed extraction meal (henceforth: meal) is mainly used as protein feed for animals (e.g., cows and cattle). We develop a theoretical model that links prices of rapeseed as well as rapeseed oil and meal, and also links the quantities through supply of oil and meal and demand for oil, meal, and biodiesel. Our preliminary results show that regulating NPBTs under the GM regulation reduces the inflationary effects on food prices of the biofuel policy. However, this reduced price effect is not for free. By comparing the welfare effects of the three scenarios, we show which consumers and producers benefit and loose from the GMO policy decision.