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II - THE COMPANIES' RESPONSE

Cargill knows that consumers in Europe are reluctant to pay extra for their food to be non-GM. The company also believes that public concern over GMOs will calm down within a few years. Thus the company can weather the storm of the GMO controversy without giving ground on non-GM availability; all it needs to do is be patient. According to Dan Dye, Vice President of Cargill's North American Grain Group,

"The biotech debate has made the job ... more challenging and more complex in the short term. But I believe the market ultimately will sort out the signals. We just need to keep our heads" [24].

Brewster Kneen, Cargill's unofficial biographer, opens his ground-breaking 'Invisible Giant' with the observation "Patience is characteristic of the Cargill culture. As a private transnational corporation with very deep pockets, Cargill can not only afford to take a long view, it can make it a key strategic concept"[25].

 Even after ADM asked its suppliers to keep their GM harvests separate (see below - p.9), Cargill maintained that non-GM supply was impossible for the 1999 harvest [26]. It later emerged that Cargill had supplied non-GM to some Japanese customers in 1999; and now the company openly advertises the availability of non-GM through its identity-preserved channels. This story lends further weight to the interpretation that Cargill wanted opponents of GM technology (especially in Europe) to believe there was no alternative.

In autumn 2000, Cargill launched its Innovasure brand of non-GM maize products. As its website (www.innovasure.com) shows, the system is very much one of identity preservation rather than segregation, and is very much targeted at a specialist niche market: crops are traced in individual batches from the farm to the final consumer; facilities are all cleaned in between batches. As the website boasts, "We go to excruciating lengths to ensure that the identity of our corn products remains intact from the time the seed is selected, until InnovaSure products arrive at your door". And, no doubt, excruciating costs too...

European food manufacturers have largely accepted the extra cost of non-GM, as in most products soya and maize make up only a tiny fraction of the ingredients (whether oil, lecithin, thickeners etc). Animal feed is different: feeds are heavily based on soya and maize and form a significant proportion of total input costs for rearing animals. Furthermore, margins are far tighter in meat production than in food processing. Now in the UK, supermarkets have mostly been unable to find affordable supplies of meat and dairy products produced using non-GM feed. Cargill can take much of the blame for this situation.

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"Segregation often appears to imply a separation of the normal bulk commodity flow, perhaps government imposed, which is not end-user specific. It suggests two or more supply chains in place, each with unspecified volumes, and with additional costs somehow integrated into both chains, without any clarity as to who bears such costs... A separation requirement would seem absurd for genetically modified crops which have been authorised as safe to consume".

But this description of segregation doesn't stand up to scrutiny. Segregation is a market-based solution, in which GM soya and non-GM soya are treated as two distinct markets (and so are GM and non-GM maize); suppliers attempt to meet customer demand in each. In fact, under segregation the non-GM stream would become more responsive to the laws of supply and demand than through IP - as the economics would operate freely, rather than being tied to another commodity (GM or mixed crop).

Looking beneath the surface, Cargill is trying to argue two things here:

1) that the decision as to how to supply non-GM crops should be left to the likes of Cargill: that Cargill is a market player, so its method must be a market-based one, and anyone else's idea of the best method could only be achieved by an intervention in the operation of the market;

2) that large-scale handling of undifferentiated bulk commodities maximises economic efficiency, and segregating crops into GM and non-GM streams would increase prices for the consumer.

The fallacy in the first argument lies in neglecting Cargill's oligopolistic position. Cargill is not fully subject to economic forces, because it controls such a large share of the market - so its preference for identity preservation does not necessarily mean 'the market' prefers that solution. The second argument focuses only on the supply side of the equation (indeed it is true that economies of scale make it cheaper to produce in larger quantities), but ignores demand economics (that consumers make decisions based on what they want, as well as on price).

The Select Committee asked Cargill officers how it's possible to segregate maize from soya, for example, but not GM soya from non-GM soya. They argued that in the former case [28],

 "they have a different functional use, whereas, for the soyabean market, whether genetically modified or not, the functional use is the same, and a large number of customers of those soyabeans will accept both because they have equivalent function, whereas some people are concerned, that they do not want genetically modified soyabeans, but it is only a part of the market".

 This concept of "functional use" is rather contrived. If Cargill were genuinely responsive to market forces, it would be more consistent for the company to treat two goods differently if there are separate markets for them (ie they have different equilibrium prices, and are wanted by different consumers), as in the case of GM and non-GM. This definition is not undermined by the two goods being substitutable by some consumers or for some uses - indeed, maize and soya are substitutable for each other in some animal feeds. PG Economics, an agricultural economics consultancy, points out that [29]:

"there may be a tendency for those who are unconvinced of the need to undertake segregation to overstate the magnitude of the costs. This was evident in the case of herbicide resistant soyabeans where in 1997-98 the initial pronouncements of global traders and suppliers of soyabeans (mainly from North America) was that at first it was simply not possible to segregate. Later this changed so it was possible but extremely expensive and more recently in mid 1999 there can now be found large scale traders and crushers of soyabeans offering to supply segregated (non GM) soyabeans, if required".

Cargill's perverse economics are also illustrated by the fact that in 1999 and 2000, most of Cargill's elevators will accept GM maize varieties that have been given regulatory approval in the USA but not the EU [30], so cannot be exported. These varieties will obviously have to be kept separate (with cleaning of facilities after handling them). While segregation obviously incurs fewer costs if the produce stays in the USA rather than being exported, it will still incur some costs due to loss of economies of scale. So Cargill is prepared to handle GM crops at some extra cost, but when it comes to non-GM, the company claims it can only do what the market allows....

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In spring 1999, ADM said it would pay a premium price for harvests of DuPont's STS soyabeans, which are not genetically modified [31]. Then in April 1999, ADM and fellow processor AE Staley announced that they would not accept GM maize varieties not yet approved for sale in the European Union (EU) [32]. A few farmer organisations commented that this sent the wrong signals, but it only affected an estimated 3-7% of the maize crop [33]. Most analysts and said the move was expected, and it was very clearly motivated by marketability, rather than casting doubt on the technology as a whole. 25% of ADM's sales are in Europe [34], so the company did not want to risk this market. Cargill did not follow the move [35].

ADM gave the industry a far bigger shake-up on 31st August 1999, when it asked its suppliers to separate GM from non-GM harvests. It explained:

"While ADM remains supportive of the science and safety of both biotech development and traditional plant breeding methods,... as a key link in the food system we must produce products that our customers will purchase. Some of our customers are requesting and making their purchases based upon the genetic origin of the crops used to manufacture their products. If we are unable to satisfy their requests, they do have alternative sources for their ingredients." [36]

This announcement had a significant influence on US farmers' decisions on what varieties to plant. The following year, the popularity of GM crops among US farmers started to fall for the first time. Prior to ADM's announcement, GM crops had achieved record speed for the uptake of a new technology. With farmers attracted by cost-saving and yield-boosting advantages from herbicide tolerance and insect resistance [37], by 1999 57% of soya planted in the USA was GM, and 33% of maize [38] (the crops were first introduced in 1996). In 2000 the proportions of GM fell to 52% for soya and 25% for maize.

There are three strategic reasons behind ADM's announcement:

 • it is useful for ADM to expand its experience and expertise in segregated distribution channels and identity preservation, primarily for ADM's future niche in a food market where each crop needs to be separated into many varieties for different uses (see below - p.13);

 • ADM may be concerned about the risk of suffering the same fate as Monsanto, in terms of being seen as a public villain; ADM has vegetarian food brands which could be impacted, and needs to be seen as progressive. Having under former CEO Dwayne Andreas' 30-year reign (see supplement) had no regular public relations agency or even internal staff, his replacement Allen Andreas has appointed a PR officer, and also an external agency (BSMG), to modernise ADM's image⁴¹. The company devotes much attention in its website and annual report to discussing how its operations benefit consumer choice, health, the environment and the world's poor and starving.

Despite the call for separation, ADM still accepts GMOs at all of its elevators [42]. It is not clear whether it is employing an identity-preservation (IP) type of approach to non-GM supply (ie only accepting non-GM crops at particular times) or whether it is a limited form of segregation (accepting non-GM only at its larger elevators, and putting them in different bins from GM - indeed, ADM does possess a number of large elevators). A full form of segregation would create lower add-on costs for non-GM than either of these approaches, but cost the company flexibility in terms of which farms it could source from, and possibly even lose it some of its suppliers. The IP approach is geared towards small levels of supply of non-GM, and uses the same mechanisms as ADM has used for several years for (non-GM) speciality crops (see below - p.15).

The industry has been constantly talking about ADM's announcement ever since, including in agricultural press, financial press and newspapers within the American corn belt, and in the statements of companies, analysts and agricultural consultants and academics. It seems perhaps the biggest impact of the statement was more psychological than economic: for the first time a big player strayed from the industry's united position of 'GMO=normal; non-GMO=expensive niche product', and talks about them as equal. And it woke up farmers to how big the issue is outside the US.

In January 2000, there were press reports that ADM had backtracked on its position. In fact however, ADM did not change its policy, rather it changed its public opinion (of the future success of first generation GM crops). It noted that less than 5% of its customers asked whether its product was genetically modified. ADM still asks its suppliers to keep GM and non-GM harvests separate [43]. Again, the impact was psychological - despite no actual concrete changes, ADM sent a message of reassurance to farmers.

The IP / segregation policy should not be seen as more than short-term opportunism. In the long-term, ADM is as committed as Cargill to the GMO project, and is investing significantly in developing a number of products and processes that depend on GM technology (see below - p.15).

At ADM's annual general meeting in 2000, a shareholder resolution calling on the company to stop accepting GM crops was strongly resisted, and only got 2% of the vote. Senior vice president Martin Andreas commented, "The problem is when you ask a company like ADM to stop using GMOs, it's like stopping progress" [44].
 
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