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CARD: Center for Agricultural and Rural Development

Winter 2001, Vol. 7 No. 1

pdf for printing Iowa's Agricultural Situation

Phil Kaus

The StarLink controversy and the spread of Bovine spongiform encephalopathy (BSE), or Mad Cow Disease, in the European Union have resulted in shocks to demand that are affecting our exports, one negatively and the other positively. Let's examine these incidents to better understand why and how events like these potentially can impact trade.
StarLink Corn Effect
Bt corn is a genetically modified (GM) variety of corn bred to produce the Bacillus thuringiensis (Bt) protein that makes the plant resistant to the corn borer. StarLink is a brand of Bt corn developed and distributed by Aventis CropScience. For various reasons, the Environmental Protection Agency requires registration of GM crops and then grants usage approval guidelines for each variety. Because of concerns about possible allergic reactions in humans to a certain protein, CRY9C, StarLink was granted a partial registration, which allows animal feed use but excludes food or export use.
In September of 2000, StarLink corn was found in the U.S. food supply. This led to a massive recall of products found to contain traces of the unapproved protein in the United States. By October, the Japanese claimed they too had detected CRY9C�not approved for import�in snack foods and animal feed products, resulting in recalls there. The U.S. Department of Agriculture quickly granted export approval for shipments that contained traces of StarLink corn. This prompted Japanese officials to formally request that the United States take all necessary precautions to ensure against StarLink's presence in all Japanese purchases. Consequently, there has been widespread testing of inbound shipments, such as those from giant food processors like Archer Daniels Midland, as well as testing of outbound vessels from the United States, as many as three times for a single load bound for Japan and other customers. These tests are designed to register positive for a sample at the rate of 1 or more in 400 kernels containing the CRY9C protein and to register negative for a sample that has amounts of less than 1 kernel containing the protein. An official 10-pound sample of approximately 13,000 kernels will test positive if 33 or more kernels contain CRY9C. However, the CRY9C-containing kernels in any shipment may not be uniformly distributed throughout the load. Therefore, there still exists an uncertainty as to the purity even if a load tests negative. This uncertainty of purity is having a negative impact on U.S. corn exports.
Table 1 shows the cumulative weekly exports and outstanding sales of corn for the week ending December 28 for this marketing year compared to levels a year ago. Total exports are down 10 percent from last year's levels. Japan and South Korea generally account for close to 50 percent of corn exports; currently, exports to these two destinations show declines of 10 and 55 percent respectively when compared to last year. What is even more telling is the rate of decline in outstanding sales: down 21 and 72 percent for Japan and South Korea and down 15 percent overall when compared to last year. It is interesting to note that as of October 5, before StarLink was detected in export supplies, exports were running 8 percent above the previous year. The point is pretty clear: although we make no attempt to measure the decline attributed to StarLink, our major customers are steering clear of U.S. corn and will not forward-book corn of U.S. origin until the uncertainty of purity is removed.
BSE Effect
The Europeans have been battling BSE for some time now. However, late in 2000 the European Union (EU) experienced an increase in the number of new cases reported in France, as well as verified cases in Germany and Spain, where previously no confirmed cases had been diagnosed. BSE is a chronic wasting disease that is characterized by a slow deterioration of the brain that ultimately leads to death. Experts believe that BSE is related to a similar disease that can be found in humans. They suspect that BSE can be transmitted to humans, in the form of the human variant, by the consumption of certain bone-in beef cuts that contain the prion, or protein particle, responsible for the disease. They also surmise that the disease is transferred within the cattle herd through the practice of feeding meat and bone meal of infected animals.
Feeding meat and bone meal has been a common practice in the EU for years and the meal is a primary source of protein for livestock. Since the latest BSE scare, the EU has banned the practice of feeding livestock certain animal by-products for six months, effective January 1, 2001. This measure is an attempt to curb the spread of the disease and to ensure food safety. It is likely the ban will be extended for an undetermined amount of time. The banning of feeding meat and bone meal has the potential to increase U.S. soybean and meal exports as livestock producers are forced to replace their primary protein source. Historically, the EU has relied on Brazil for soybean meal. It will be difficult for the United States to tap into this demand because of environmental groups' strong opposition to imports containing genetically modified soybeans. It will be interesting to see if, over the long term, feed demands outweigh the environmental groups' lobbying power.
However, as more of the Brazilian supply is directed toward the EU, opportunities are opened for U.S. soybeans and soybean products elsewhere. Table 2 shows cumulative weekly soybean exports for the marketing year through December 28, 2000, compared to last year. Here we see that cumulative sales to the EU are down 10 percent compared to last year, and overall sales are relatively unchanged. The most dramatic change is in the amount of outstanding sales to the EU, which is currently 250 percent ahead of last year. Increased forward booking by the EU has helped increase the total amount of outstanding sales to 35 percent above last year's total.
Food Safety on Ongoing Export Concern
Concerns over food safety, whether science based or perceived, can have significant impacts on exports. In order to maximize our export potential, we have to be sensitive to these concerns, now more than ever.