Recent moves by China could mean tougher choices for U.S. farmers and higher food prices for consumers.
In May, China announced that it would consider approval of all eight pending U.S. genetically modified corn and soybean products, as a part of the U.S.-China Economic Cooperation 100-Day Plan. Big U.S. agribusiness companies Dow, DuPont and Monsanto had been waiting for approval of their products for an average of five years.
These companies sell corn and soybean seeds, most of which are genetically modified, to farmers to grow. The traits are unique features in the seeds that are designed to prevent damage from drought, insects and weeds, as well as help maximize yield.
Now, three months into the 100-day action plan, China has approved just four of the eight traits, and it’s unclear whether the next four will be considered, causing the major U.S. seed corn companies – which each have at least one trait pending – to express concern about the process and its effect on the market.
This delay in approval means farmers must choose between these new traits that will boost yield on razor thin profit margins or access to these markets, said Andrew Conner, manager of global biotechnology for the U.S. Grains Council.
“Delays, such as what we have seen in China and the European Union, ultimately hurt farmers globally, who are forced to choose between having greater access to innovation or greater access to markets,” Conner said. “No matter the choice, the farmers pay the cost.”
And ultimately, so could consumers.
The United States exports one of every four rows of soybeans to China for a value of $14 billion annually, according to the American Soybean Association. China, which represents the largest export market for U.S. agricultural products, had not approved a single corn trait since December 2014.
Chinese corn imports are hard to predict, though these fluctuations have a large impact on the market, and China also imports distilled grain used for ethanol.
China is only considering the traits for import into the country, not to grow the crops themselves.
The country’s inconsistent approval process has cost U.S. farmers billions of dollars in the past.
In November 2013, China rejected shipments of corn and corn products after a trace amount of unapproved genetically modified corn was detected.
Syngenta, the Swiss seed and crop protection company, had sold two types of genetically modified corn, promising farmers that China would approve the seeds for import by harvest, but they were not.
China decided that because low levels of this unapproved corn was present in shipments, they would not accept any corn from the U.S.
The move cost U.S. corn farmers millions of dollars in losses and created an excess of corn supplies, propelling the market downward.
This summer, Syngenta was ordered to pay Kansas farmers who filed a class-action lawsuit $218 million in losses they incurred. Syngenta is appealing the decision, but similar sized settlements in seven other states would increase the projected settlements to more than $1 billion.
U.S. Secretary of Agriculture Sonny Perdue, speaking at an event in Chenoa, Illinois, on Monday, said that inconsistent trade practices on China’s end can create issues for the U.S. ag community.
“I think China wants a relationship. It makes it somewhat difficult with some of the unfair trade practices they’re using,” Perdue said. “We in agriculture fear that sometimes agricultural products are used as retaliatory measures. My message among the White House, our U.S. Trade Representative, the Secretary of Commerce is do no harm and don’t use agriculture as a sacrificial lamb.”
The cost of the delay
Asynchronous approval, or inconsistent approval from market to market, of seeds harms everyone from the seed company to the farmer to the importer, said Nicholas Kalaitzandonakes, an agricultural economics professor at the University of Missouri.
In 2016, Kalaitzandonakes published a study about the different issues created by asynchronous approval of seeds, including increased cost, delays leading to less money for research and development, trade issues and impacts on other farmers.
In a 2015 study, Kalaitzandonakes modeled the cost of a three-year delay of a single type of herbicide-tolerant soybean and estimated it would cost $20 billion over a 10-year period because of supply decreases, price increases and other social costs.
But the people involved in the manufacturing and planting of a certain new type of seed aren’t the only ones impacted.
When China rejected the shipments from Syngenta, China was also harmed, Kalaitzandonakes pointed out. He said that, in general, countries tend to have import-export relationships because they are the best partner for that country.
“Both sides get harmed by it,” Kalaitzandonakes said. “You’re trading with them because they’re the best exporter.”
He pointed out that longer hauls, higher transportation costs and other issues can occur.
“It shifts prices for the importer up and for the exporter down,” he said.
Because of issues like this, Dow, DuPont and Monsanto all list regulatory approval of biotechnology products as a risk factor on their annual reports filed with the Securities and Exchange Commission.
Kalaitzandonakes said ideally, there would be an international body that would regulate approval of genetically modified crops. However, he said that in the meantime, policies like that of Vietnam – which accepts shipments of U.S. crops with non-approved GM products as long as the product has been approved by at least five other countries – would help smooth over many of these issues.
Batra, of the Biotechnology Innovation Organization, said they are hopeful the new traits are approved soon.
“This is something we’re watching very closely. We continue to hope for approval, but it’s been a long time coming,” she said.
Seed companies express concern
Major American agribusiness companies are signaling that the 100-day trade agreement with China, which was supposed to relieve a bottleneck of genetically modified crop approvals, is not living up to its billing.
“While we welcome news that China has issued two new product import approvals, including one Monsanto trait approval that had been pending for approximately 60 months, it is disappointing that not all six of the industry products in the late stage of review received approvals,” Monsanto spokeswoman Charla Lord said in a statement. “This is inconsistent with numerous scientific conclusions around the world on these same products, as well as with the spirit of the U.S.-China 100-day plan.”
Dow Chemical, which has had its Enlist corn approved but not yet its Enlist soybeans, was told that the soybeans were supposed to be included in the import approval but said China’s Ministry of Agriculture is indicating it might not have been included in the 100-day action plan.
“We are seeking to clarify MOA’s position related to Enlist soybeans, and we will continue to work cooperatively with MOA to ensure this much needed new technology will soon be available to farmers located in the U.S. and throughout the Americas,” said Dow spokeswoman Christy Wright in a statement.
The U.S. Department of Commerce, which Dow said had indicated the trait would be included in the review, did not respond to a request for clarification from the Midwest Center for Investigative Reporting.
Perdue praised the deal on Monday.
“China is a complex market. We’ve had good results after the 100-day plan that President Trump and President Xi agreed to at Mar-A-Lago,” Perdue said.
Conner, of the U.S. Grains Council, said that, in context, the new approval process has improved.
“The approval process in China was, for several years, unpredictable and lacked transparency,” Conner said.
“The past few weeks have demonstrated that the Chinese approval process can work with relative efficiency, and we are hopeful that the recent activity by the Ministry of Agriculture signals a permanent shift toward a better-functioning regulatory system in which product approvals are a regular occurrence,” he said.
Karen Batra, a spokeswoman for the Biotechnology Innovation Organization, said any time government officials meet, there is initial progress, but it’s not always sustained.
“China has a very arduous and not very transparent process,” Batra said. “We continue to hope we’ll see some action. Every time our government officials meet with their government officials, it’s hurry up and wait.”
How China compares
The Chinese approval process is not very transparent, said Kalaitzandonakes.
In other places, like the United States, scientists have regular contact with regulators to receive feedback on their applications, sometimes even before they submit a new technology for approval. This allows the company to know what regulators are looking for.
But in China, there is no communication. The National Biosafety Committee also only considers approval at a few different times throughout the year, rather than all year long.
“There’s a fair amount of delay that can happen throughout the process,” Kalaitzandonakes said.
A less transparent process raises concerns about the impact of politics versus science on regulatory approvals, Kalaitzandonakes said.
“The biosafety assessment is more or less similar in most countries,” Kalaitzandonakes said.
China isn’t alone in having a process that causes issues, he said. Different approval processes with different requirements and timelines creates a number of issues.
“The European Union continues to have an unpredictable approval process that is subject to undue political interference,” said Conner, of the U.S. Grains Council.
The three major seed companies in the United States — Dow, DuPont and Monsanto — all list regulatory approval, especially uncertainty in countries outside of the United States, as risk factors in their annual reports filed with the Securities and Exchange Commission. Here’s snippets of what each company wrote about the issue in their most 2016 annual reports:
Sales of the Company’s products are also subject to extensive federal, state, local and foreign laws and regulations, trade agreements, import and export controls, and duties and tariffs. The imposition of additional regulations, controls and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume which could negatively impact the Company’s results of operations.
Sales into and use of seeds with biotechnology traits in jurisdictions where cultivation has been approved could be affected if key import markets have not approved the import of grains, food and food ingredients and other products derived from those seeds. If import of grains, food and food ingredients and other products derived from those seeds containing such biotechnology traits occurs in these markets, it could lead to disruption in trade and potential liability for the company.
In addition, the company’s regulatory compliance could be affected by the detection of low level presence of biotechnology traits in conventional seed or products produced from such seed. Furthermore, the detection of biotechnology traits not approved in the country of cultivation may affect the company’s ability to supply product and could affect exports of products produced from such seeds and even result in crop destruction or product recalls.
DuPont’s ability to obtain and maintain regulatory approval for some of its products in the Agriculture segment could limit sales or affect profitability in certain markets.
The regulatory environment is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. The regulatory environment may be impacted by the activities of non-governmental organizations and special interest groups and stakeholder reaction to actual or perceived impacts of new technology, products or processes on safety, health and the environment.
Sales of our traits without having approval for the import of crops containing such biotechnology traits by an import market could lead to disruption of that market, and we may face claims of potential liability. Concern about unintended but unavoidable trace amounts (sometimes called “low-level presence”) of commercial biotechnology traits in conventional (non-biotechnology) seed, or in the grain or products produced from conventional or organic crops, among other things, could lead to export disruption and increased regulation or legislation, which may include: liability transfer mechanisms that may include financial protection insurance; possible restrictions or moratoria on testing, planting or use of biotechnology traits; and requirements for labeling and traceability, which requirements may cause food processors and food companies to avoid biotechnology and select non-biotechnology crop sources and can affect farmer seed purchase decisions and the sale of our products. Further, the detection of the presence of biotech traits not approved in the country of planting (sometimes called “adventitious presence”) may affect seed availability or result in export disruption and compliance actions, such as crop destruction or product recalls.