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I - BACKGROUND

December 2000

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CONTENTS

INTRODUCTION

I. BACKGROUND

II. THE COMPANIES' RESPONSE

III. CORPORATE GOALS AND STRATEGIES

IV. FUTURE OUTLOOK

APPENDICES

FOOTNOTES

SUPPLEMENTS

CARGILL BRIEFING

ADM BRIEFING

 
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Who wants it? - Demand for GM and non-GM crops

In the UK, public rejection of genetically-modified (GM) foods has been overwhelming. Between spring and autumn 1999, all of the major British supermarkets responded to consumer pressure by removing GM ingredients from their own-brand products. They were quickly joined by the big food manufacturers, such as Unilever and Nestle, and fast food outlets like McDonald's. As a result, almost all food use in Britain of soya and maize - the two main crops of which GM varieties are currently grown - now uses conventional, non-GM varieties of these crops, or has substituted them with other oilseeds or grains. This situation has now spread across much of Europe; similar patterns are being seen in Asia; and even in the USA some food companies have started to remove GM ingredients.

However, food use is just the tip of the GM iceberg. Far greater quantities of soya and maize go into animal feed (see below), and this too is controversial. Surveys conducted by opinion pollsters NOP in June and September 2000 found respectively 63% and 67% of the British public opposed the use of GM crops to feed animals. [3]

 In response to growing consumer concern, British supermarkets have since autumn 1999 been attempting to stop the use of GM feed in the production of their meat and dairy products. Yet they have made very little progress (see table 1). One year on, some of the supermarkets now stock one or two non-GM-fed lines; most claim to be still in discussion with their suppliers.

 The supermarket which has got furthest is Iceland, which from 31st September 2000 guarantees that its chickens (for both meat and egg production) are fed on entirely non-GM diets, and other livestock for primary (non-processed) meat are fed non-GM for the few weeks immediately before slaughter. [4] Yet after Iceland announced its intention to phase out GM animal feed in February 2000, its suppliers said they had difficulty obtaining non-GM feed, and Iceland had to buy 10,000 tonnes of non-GM soyameal itself, to sell to its own meat producers. [5]

Now many of the meat producers are also looking into non-GM feed. They too have had difficulty. At the end of 1999, one of the UK's largest poultry producers complained that "we were strongly considering a total switch a few weeks ago but we were unable to secure non-GM supply for forward cover already on the buying book. The intermediaries who market the soya are unwilling to make the change to wholly non-GM in their crushing plant". [6]

 All this clearly shows that the demand for non-GM crops (for animal feed) far outstrips supply. (See table overleaf)

 Towards the end of 2000, many other companies which sell meat and dairy products - including McDonald's and Unilever - have expressed an intention to use non-GM feed. In fact, the rush to make such declarations has been comparable to that for non-GM food ingredients in summer 1999. However, judging by the supermarket experience on animal feed, this new demand might have difficulty finding adequate non-GM supply.

Table 1 - Top 6 UK supermarkets - policies and practice on GM crops fed to animals for their meat and dairy products, Oct-Dec 1999 and Aug 2000

	Oct - Dec 1999 [7]	Aug 2000 [8]
Tesco	"Our target is the eventual complete elimination of GM ingredients from animal feed... I have therefore asked our suppliers to begin the process as the next Brazilian soya crop becomes available in Spring 2000" [9] (10/12/99)	A small number of meat and dairy lines produced using non-GM feed. "Tesco have been working hard over the last two years to find ways to reduce and ultimately eliminate GM ingredients from the rations fed to our livestock. We are trying to find ways to achieve this without passing on any cost to either our customers or to our farmers" [10]
Sainsbury	"Now that [the elimination of GM ingredients from own-label products] has been completed, it was inevitable that we should turn our attention to the presence of GM constituents in animal feedstuffs"	Planning to introduce a limited range of non-GM-fed meat and dairy products. "We are currently carrying out an extensive investigation into cost and practicalities of GM removal from animal feed for all parts of
Asda / Walmart	"We are aware of moves within the industry, and are working with partners in the industry to see what the opportunities and implications are for removing GM in animal feed" (25/11/99)	"Although it is difficult to commit to timescales and it will prove a challenge, ASDA is committed to removing GM from animal feed. We are working as fast as we can to introduce a range of dairy, meat, poultry and fish fed on non-GM animal feed which, most importantly, doesn't add cost to customers"
Safeway	expanding their organic range and also expanding non-GM options, but won't give specifics	a non-GM-fed chicken has now been introduced; otherwise only organic products.
Somerfield	"We have reviewed the position with regard to animal feedingstuffs with our suppliers and we are looking to see what options may be available for the future. With regard to the particular animals and animal feedstuffs then we believe it will be easier to make changes in some areas than others" (4/10/99)	"Our policy is to currently allow the use of genetically modified crops as animal feed subject to ongoing discussions with our suppliers... We have one supplier of products who is currently avoiding the use of genetically modified ingredients in animal feed"
Marks & Spencer	"In an extremely positive step, we have also become the first high street retailer to start removing genetically modified soya and maize ingredients from our animal feed." (10/9/99)	Free-range product lines use non-GM feed. "We have stated our intention to ensure that diets of our beef, lamb, pork, milk and poultry are non-GM. We are actively working with the feed industry and our suppliers to achieve this and would hope to have made good progress by the end of the year"

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At present almost three quarters of the world's genetically modified (GM) crop acreage is in the USA [11]. The USA is also by far the world's largest grower of both soya (48%) and maize (known in the USA as corn) (40%) as a whole [12] - the two biggest GMO cash crops. The USA is thus the most important country in production of GM crops.

We shall focus in this report on the US crops of soya and maize, which between them account for 64% of the global area planted to GM crops [13]. The piecharts below show that the majority of the crops is used in animal feed. (See pie chart opposite)

 The US agricultural distribution system is geared towards handling maximum quantities of bulk, which give significant economies of scale. When a farmer harvests his crop, he will take the harvest to a local 'elevator' - a storage depot which accumulates goods from several farms until it has enough to be worth transporting (by truck, barge or train). These local elevators then deliver to larger elevators.

The crops may then either be processed in the States (for domestic use or export), or be exported as 'crude' grains / seeds / beans. [See also the Corporate Watch briefing on how the supply chain works - 'From test tube to tummy'].

Where does it go? Chart 1 - US 1998 maize crop [14] Chart 2 - US 1998 soya crop [15]   MAIZE: Feed may be fed either processed or unprocessed. The remainder is put through either wet milling or dry milling, producing food products, sweeteners (such as high-fructose corn syrup) and ethanol (which is used either in industry or in beverages). A further by-product of this process is corn gluten feed, which is fed to animals. SOYA: The majority of the soyameal goes into animal feed, and the majority of the oil into human food. However, the food / feed distinction is less important in soya than in maize. With soya, meal and oil both come out of the same processing process. So if the entire market for oil switched to non-GM, meal would go with it (because both oil and meal would be coming from the same non-GM beans). However, moves in this direction are limited by the fact that oil doesn't contain protein / DNA (that is all contained in the meal), so it can't be detected (other than through monitoring supply channels) whether oil is from GM source or not. Much of the GM labelling legislation around the world has excluded oil produced from GM beans. EXPORTS: By far the most important country for food use of soya protein is Japan, which accounts for 6% of the US crop [16]. A survey by Dow Jones in October 1999 found that 65% of Japanese food processors were planning to switch to non-GM grains [17]. Most of the USA's major export destinations for both soya and maize are quite strongly anti-GMO, or at least moving in that direction: Japan, Mexico, the EU, Korea. This relates mainly to food use, although there are the beginnings of a rejection of GM animal feed. Similarly, the USA is just beginning to reject GMOs in food use. But since the markets for non-GM soya and maize are almost entirely the non-US food markets, they as yet are quite small (up to about 5% of the US crop), but have the potential to grow considerably bigger if the animal feeds market and the US food market switch to non-GM.

 But before we explore this further, let us first introduce two concepts reflecting different ways of keeping non-GM crops separate from GM [19]:

• One option is segregation, which involves creating two entirely distinct distribution and marketing channels - using different storage silos, processing plants, trucks, ships etc. This is essentially how two different crops are kept apart (eg maize from soya). In this approach, the economics of the separate streams are independent, and prices are determined for each by supply of and demand for that product.

• The alternative is identity preservation, which is used to deal with crops for specialist markets - ie in relatively small quantities. This uses the existing infrastructure for the specialist crops, but cleans out storage, transportation and processing equipment in between uses for the bulk and specialist crops. Usually the specialist crop is containerised for export (rather than being carried in the ship's hold). The batch can be traced through the supply chain to ensure that that particular crop, with its particular qualities, reaches its market. The specialist crop (in this case, non-GM) incurs extra costs from cleaning and monitoring, and there are no economies of scale; distribution is thus necessarily more expensive than that of the bulk crop.

 The differing costs of these two approaches are analysed in Appendix 2.

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Two corporate giants - Cargill and ADM - dominate distribution and primary processing of crops. No sector of the food supply chain is more concentrated than this middle link, between farmer and food manufacturer.

Cargill is the largest privately-owned corporation in the world. Its interests range from supplying seeds to farmers, to receiving the harvests, to transport, processing, export, animal feed manufacture, rearing and processing animals for meat, and producing and marketing packaged food products, not to mention its consultancy, financial and professional services.

ADM is involved in these same stages of the supply chain, but with more of a focus on processing than Cargill. It is a smaller company than its rival, lacking both Cargill's sprawling interests in steel, salt, petroleum etc and Cargill's presence in Asia and Africa, but in its core commodities of soya and maize, and in the Americas and Europe, it matches Cargill in scale.

 Cargill's and ADM's shares of the different stages of the supply chain are shown in detail in Appendix 3.

 The elevator market (i.e. storage immediately after leaving the farm) in the USA is actually quite decentralised, with most facilities owned by small local companies, co-operatives and families. Thus Cargill only directly owns 10-13% of that market, and ADM a similar proportion. However, these local elevators sell on to larger elevators and primary processing plants, where Cargill and ADM have a far greater share. ADM is America's largest processor of soya and maize, and a major player in transporting the commodities across the country. In 1998/1999 Cargill vastly expanded its empire by buying out its second largest competitor, Continental Grain [20].

Export is the most concentrated of all, with Cargill accounting for 42% of US maize export volume and 31% of soyabeans. The top 3 companies, Cargill, ADM and Zen Noh, now control 81% of maize exports and 65% of soyabean exports [21].

With such a large share of world supply of the commodities passing through the hands of Cargill and ADM, the two companies have a substantial degree of control over whether that supply is genetically modified or not. In contrast to a farmer, who really has to accept the market as it is, Cargill and ADM have a large amount of influence over the nature and direction of the market. For example, Cargill has guaranteed that it will accept GMOs from the 2000 harvest: this announcement reassured farmers that they could sell what they planted, and so much of the crop is indeed GMO. Conversely, in 1999 when ADM called on suppliers to separate GM from non-GM harvests, the resulting uncertainty led farmers to decrease the amount of GM crops they planted, after four years of strong increase.

 
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