While genetically modified technology has been investigated extensively, few studies have examined the price impact of genetically modified food contamination events. This paper contributes to the literature by examining the price effects of multiple genetically modified contamination events in the U.S. corn market. Using the relative price of substitute method and time-varying cointegration, we identify three structural breaks relevant to the corn contamination events, with the two largest being associated with StarLink and MIR162. Our results support the StarLink’s large effect on corn prices, but the effect attributed to MIR162 is less clear. This more recent break in prices emerged three months prior to China’s import ban, and was influenced by changes in U.S. corn supply, and EPA’s proposed reduction of the ethanol mandate. Expansion of sorghum exports and subsequent increased corn production likely kept pressure on corn prices. While China’s import ban on MIR162 may have influenced prices, evidence suggests the recent downturn in the U.S. corn market has been mainly caused by other domestic supply and demand changes.
Details
Title
GMO Contamination Price Effects in the U.S. Corn Market: StarLink and MIR162
Record Identifier
https://ageconsearch.umn.edu/record/236004
PURL Identifier
http://purl.umn.edu/236004
Language
English
Page Range
Introduction Starting in November 2013, China rejected more than 850,000 metric tons of U.S. corn containing the genetically modified (GM) MIR162. According to a National Grain and Feed Association (NGFA)’s analysis in April 2014, this trade disruption cost the U.S. corn, distiller’s dried grains (DDGS) and soy sectors between $1 billion and $2.9 billion in economic losses. MIR162 is a GM trait developed by Syngenta. The company has been sued by Cargill, American corn farmers, and others citing financial damages due to the import ban. Since China is the third largest U.S. corn importer, the MIR162 event could have significantly affected the U.S corn market. Since 1996, GM corn varieties have been commercially available. The desired traits of genetically modified organisms (GMOs) including time- and cost-efficiency, insect (or bacteria) resistance and herbicide tolerance have stimulated their adoption by producers which has significantly increased supply and lowered production costs. The potential benefits of GMOs to producers, consumers, and the environment are large, although controversy on commercial production and marketing of GM foods has increased, especially in Europe and Asian countries. Several countries have banned or cancelled/rejected U.S. grain exports due to health concerns (Gadsby, 2001, p.5; Global Research News, 13 November 2014; BBC, 20 December 2013), resulting in potential losses to domestic corn producers. The purpose of this paper is to examine the price impacts of multiple GM corn contamination events in the U.S. markets. Contaminations can result from mixing approved and unapproved crops in the market channel and by comingling seeds. To date, at least, ten GM corn contamination events have occurred in the U.S. (see Appendix A). The first, and most well-known, is the StarLink case. StarLink, approved only for feed and non-food industrial uses, - Combining the results of the Bai-Perron test and the time-varying cointegration method, we identified at least three significant structural breaks that occurred near the GM corn contamination events, including StarLink and MIR162. These two events are longer and larger than the other event(s). Another structural break detected in 2002 is near two GM corn contamination events, but is much smaller in magnitude. Using the entire sample, the Bai-Perron test provides strong evidence that StarLink adversely affected corn prices. When we break the sample into two sub-periods to allow for Hurricane Katrina, the Bai-Perron test detects breaks in 2000, 2002 and 2013. The time-varying method also demonstrates sharp breaks in cointegration in 2000, 2002, and 2013, which are near to the GM corn contamination events. With regards to the 2013 MIR162 event, both tests identify a structural break before China rejected U.S. corn shipments. The Bai-Perron test identifies the 2013 break on 9/25/2013. The time-varying cointegration method shows that the two price series became less cointegrated near the middle of 2013. A detailed time-line investigation revealed that multiple major changes in corn and sorghum markets occurred causing corn prices to decline three months before China rejected MIR162 at the end of November 2013. Therefore, we investigated these two markets to identify and confirm the cause of the last structural break. Two record corn harvests and reductions in ethanol mandates put strong downward pressure on corn prices. In contrast, sorghum experienced droughts and record exports increasing prices and putting added downward pressure on the corn to sorghum price ratio used in the analysis. While China may have had an effect on price when exited from the U.S. corn market and rejected DDGS shipments, other buyers entered to absorb U.S. exports and support corn prices. Nevertheless, rumors and official announcements that the MIR162 ban would be lifted did appear to modestly stimulate corn prices. Overall, domestic supply and demand factors appear to be the primary drivers of corn prices.
