David versus Goliath: the economic pitfalls of GMO food production (Part III)

Issues are like onions.  In this case, a genetically modified onion that won’t excrete syn-propanethial-S-oxide and we won’t tear up about today’s discussion of the economic implications of GMO foods.  I am enthralled by the nuances of economics, though I am far from an expert so I will do my best to cover this with the thoroughness it deserves, but I fear I am only peeling off the top layer of skin.  Here’s to doing this topic justice!

All successful companies have mission statements.  It allows them to set goals, measure their success against those goals and benchmark for future success.  While none of the companies I’ve researched worded their mission statements quite like this, I’ve summarized them for the sake of my illustration.

Mission:  Help Farmers across the globe feed the world and end hunger through the creation of biomechanically advanced seed/crops.  Seeds whose genetic design has been modified to allow farmers to grow more with less, thereby obtaining substantial profits for all while curing a major world issue.

On the face of it, there seems to be no economic downside to producing genetically modified versions of food, in fact, most companies have made it a mission to get profit for everyone.  Profit, profit, profit, is the name of the game these days.  And we’ve got the right stuff….in theory:

The process and the production create jobs, reduce resources use and increase productivity.  All profitable and desirable.    We are making the ultimate product, faster and cheaper – how is that bad?  Well, if I’m a shareholder, I don’t see a downside.

But big business will always find ways to make profit, sometimes at the risk of unbalancing the global economy and definitely without concern for the negative impact on the “little guy”.  No, we aren’t talking about evil oil companies, we are talking about seed companies in this case.  There is no market for seeds beyond farm/agricultural application.  If I’m putting veg garden in my yard, I buy plants or seeds from my local greenhouse, which are most often organic sources.  This means seed companies (such as brands provided by Monsanto, DuPont) have a singular dependency on farmers to use their product.  Without the “little guy” in this case, the gene giants shoot themselves in the foot; no customers, no sales!

So what economic implications does growing genetically modified food have, other than the obvious profits funneling into the coffers of the gene giants in the industry?  What are the negative outcomes?

We learn about supply and demand in Econ 101.  If you never took the course, let me quickly give you the basics:

  • when demand (people to buy the product) is high but supply (people who make the product) is slow/poor – prices are high!  We want it but it’s hard to get so it becomes more valuable.
  • when there’s tons to go around, the abundance naturally reduces demand and prices go down.   In theory, when we have high yield, prices should go down because there is so much to go around.

But, production costs aren’t actually going down or staying firm and that is driving prices up at the grocery store, passed on to us, the consumer.  That is having a negative impact on our micro-economies (household budgets), which will, in turn, affect the larger (macro) economy as there is less “disposable” income.  Our economic growth depend on the influx of consumer spending from disposable income.  GMO food should be reducing our core spending, but it is not.

Here is the point in the cycle where things get weird and costly.  I mean costly in a way that reduces or eliminates a farmer’s portion of the profit, while increasing the corporate profit.  I’m a capitalist.  I am ALL FOR PROFIT!  However, profit that is renewable, sustainable.  I hate fad profit, hate it.  It forces us to constantly be looking for the next hot item, trend, idea; it creates a culture of dissatisfaction.

If I weren’t talking economy here, I’d go off on a tangent about the negative affects of dissatisfaction on the collective conscious and the individual psyche….but this is an economics discussion, so I will just tickle you with that little tidbit of thought to nibble on later.

How does it become costly?  Users of the patented seeds are required to enter into a formal agreement with the company, which specifies that new seed must be purchased every year, the purchase price of which includes a licensing fee to use the patent rights.

  1. Farmers are forced, through intellectual property rights, to buy new seeds every year.  Re-buying seed each year rather than reseeding as they have done for hundreds of years.  Buying seed every year reduces profit.
  2. Farmers are fined or backcharged if they attempt to plant the seeds generated by their initial crop and are “caught”.   A web search of court cases related to this turns out an astonishing number of cases currently being heard as well as the number where courts have found in favour of the corporation. Fines reduce profit.
  3. They must take extra measures to ensure they do not contaminate neighbouring farms from reseeding plants.  The added cost to them, reduces profit.
  4. Then the Farmer finds out that he cannot sell his crop because companies like Gerber Baby** have decided that they will not buy GMO crops because of the social ramifications negatively affecting their top line sales.  So the farmer must reduce his price to sell to the next available buyer, hoping the crop hasn’t spoiled in the meantime.  Reducing his price reduces his profit.
  5. Finally, our Farmer who exports his crop is faced with the added cost of meeting regulatory guidelines and labeling requirements.

In my research, I discovered that Monsanto has “lost” only once in court to a Farmer (Canada) who argued it was his right to reseed his fields*** with seeds he acquired from the the contaminated crop he harvested from his own fields.  In this, I understand the claim was dropped, so not really a loss, but the farmer got away with it. (neighbouring farms were using the seeds and they contaminated his fields; he did not purchase their product, but he used the seeds garnered from that harvest).

In their greed, corporations have created a highly desirable product that should increase yield and reduce consumer costs, but have instead, limited its availability to drive up prices and profits.  Companies have commoditized seeds through intellectual property legislation. 

According to Context Network, the proprietary seed market (that is, brand-name seed that is subject to exclusive monopoly – i.e., intellectual property), now accounts for 82% of the commercial seed market worldwide. In 2007, the global proprietary seed market was US$22,000 million. (The total commercial seed market was valued at $26,700 million in 2007.) The commercial seed market, of course, does not include farmer-saved seed.*

I barely touched on regulatory labeling of GMO foods.  There is added expense in that element also but I think labelling is more an issue of health so I leave it for tomorrow’s post.  Currently there are no labelling requirements in Canada and the US at this time.  Really, only Europe has realized the need for this, and good for them – their consumers are provided the right to choose.

But, their regulatory guidelines and labeling requirements reduce North American opportunities for export….

Yeah.  Farmers must either spend more to sell to Europe or just lose the export opportunities altogether.  That has clear, negative implications on global economies.

So, as we peel back the layers of this onion, we see that the surface shininess is actually a little stinky underneath.  Clearly the only ones growing profit from GMO food production are the seed companies.  I don’t’ know about you, but I’m tired of big corporations getting fatter, while I struggle to feed my family.

Footnotes:

*Source: ETC “Who Owns Nature” report

** In recent news McDonald’s and Gerber rejected GMO apples (Arctic brand/breed) as WashingtonState voted down referendum on labeling GMO foods. (source: GMWatch.org)

***Monsanto Canada v Percy Schmeiser

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3 thoughts on “David versus Goliath: the economic pitfalls of GMO food production (Part III)”

  1. This is a great piece! It isn’t often that I cruise through my notifications and find something this informative. Your research and detail, while still being engaging and interesting, is a good balance for the piece. I am seeing that there are other similar post on the site. I will have to check them out.

    For th econtent, I have had some discussions with farmers that violate the terms of their contract when dealing with these special seeds. Many have lost the farm, no pun intended, because of misunderstands. There is a whole technical field that studies the potential pollination of neighboring fields who are not suppose to have the genetically altered product. If someone is found to have too many or they harvest these seeds, they are engaged in a lawsuit that they cannot win. You have some good material her to think about.

    -jb

    1. Thanks, Jerry! I’m not one for a series, but this struck me and with so many elements, a series of posts was needed for me to truly get my head around it all.

      I’m horrified that farmers have actually lost their livelihoods over this! THAT is criminal! I’ve been reading so much on this the last few days, I’m beginning to be disgusted. I’m still trying to wrap my head around how it is even remotely possible that a corporation can claim rights to future crops from collected seeds.

      I just cannot accept (regardless of the reality) that it has been legislated that the farmer cannot continue to farm the way his family has for generations (i.e. seed collection from crops). FFS isn’t collecting seeds part of a combines job??!!

      (for any readers who don’t know: a Combine is the enormous piece of harvesting equipment that costs around $200,000 that takes the crop, strips the stalk, separating the chaff and grain and the debris, then discards the crap out the back onto the field for bailing, combining three jobs into a one-step pass)

      1. Well said…
        I will take some time to go through your whole series on this and keep an eye out for future post. Growing up in the midwest and having spent some time in the farming communities gives a little different perspective on simple things, such as going to the grocery stores and purchasing produce.

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