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GM Rice: Will This Lead the Way for GlobalAcceptance of GM Crop Technology?

by

Graham Brookes and Peter BarfootPG Economics, UK

No. 28 - 2003

Abridged version of the June 2002 PG Economics Reportmade available to ISAAA for publication

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NOTE TO READERSThe reader should note that this report, published in 2003 is an abridged version of the original PG Economicsreport, completed in June 2002. This version has not been updated since 2002 and therefore some of theinformation presented (e.g., relating to biotechnology developments in rice) may not be fully representative ofthe current state of developments.

GM Rice: Will This Lead the Way for GlobalAcceptance of GM Crop Technology?

by

Graham Brookes and Peter BarfootPG Economics, UK

No. 28 - 2003

Abridged version of the June 2002 PG Economics Reportmade available to ISAAA for publication

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INTRODUCTION ...................................................................................................

1 GLOBAL IMPORTANCE OF RICE ...................................................................1.1 Global Rice Plantings .............................................................................................1.2 Global Rice Production ..........................................................................................1.3 Trade and Consumption .........................................................................................1.5 Global Use of Rice ...................................................................................................1.6 Rice Versus Other Cereals .......................................................................................1.7 Rice Prices .............................................................................................................

2 RICE BIOTECHNOLOGY DEVELOPMENT .........................................................2.1 Patent Review ........................................................................................................2.2 Field Trial Review ...................................................................................................2.3 International Programmes .....................................................................................2.4 Company Profiles ..................................................................................................2.5 IRRI .......................................................................................................................2.6 China: Rice Biotechnology and Breeding ...............................................................2.7 Summary of Traits Under Development .....................................................................

3 THE FUTURE: ECONOMIC AND STRATEGIC ISSUESAND MARKET DYNAMICS ...........................................................................3.1 General Market Environment ................................................................................

3.1.1 The current baseline and driving forces .....................................................3.1.2 The future general environment ................................................................

3.2 Impact of GM Technology .......................................................................................3.2.1 Assumptions relating to GM technology adoption in rice to 2012 .............3.2.2 Impact of GM technology on rice production ...........................................3.2.3 Impact on prices .......................................................................................3.2.4 Impact on trade patterns and requirements for traceability,

segregation and identity preservation ........................................................3.2.5 Nature and size of market differences: GM derived and

non GM derived rice .................................................................................3.2.6 Future nature and size of market differences .............................................

CONTENTS

i

1

3345888

1010101010101516

17171722

26272930

32

3637

3.3 Effects on Relative Cereal Ingredient Usage/Competitiveness ...................................

3.4 GM Derived Versus Non GM Derived International CompetitivenessImplications ...........................................................................................................3.4.1 Users/consumers of rice in markets where the demand for

non GM derived material is greatest (e.g., the EU) ....................................3.4.2 Suppliers of rice in the main rice producing countries ..............................

4 SUMMARY AND CONCLUSIONS ..................................................................4.1 Global Importance of Rice .....................................................................................4.2 Rice Biotechnology Development ..........................................................................4.3 General Market Development ................................................................................4.4 Impact of GM Technology .....................................................................................4.5 Impact of GM Technology on Rice Production .......................................................4.6 Impact on Prices ...................................................................................................4.7 GM Versus Non GM Markets: Segregation/IP and Trade Patterns ............................4.8 Winners and Losers ................................................................................................4.9 Concluding Comments ..........................................................................................

CONTENTS

39

41

4143

44444445464848495252

ii

LIST OF TABLES

Table 1. World Rice Areas Planted 1997/98 to 2001/02 (Million Hectares) ........................Table 2. World Rice Production 1991/92 to 2001/02 (Paddy: Million Tonnes) ....................Table 3. World Rice Exports 1991-2001 (Milled: ‘000 Tonnes) ...........................................Table 4. World Rice Imports 1991-2001 (Milled: ‘000 Tonnes) ...........................................Table 5. Global Imports and Consumption of Rice by Main Regions

of the World (‘000 Tonnes) ....................................................................................Table 6. Global Supply Balances and Usage: Main Cereals 1999/2000 (Million Tonnes) ....Table 7. Indicative World Milled Rice Prices: 1993-94 to 2001/02 ($ Per Tonne Bagged) ....Table 8. GM Rice Field Trials by Territory ...........................................................................Table 9. Company Profiles on Lead Commercial Organizations .........................................Table 10. Projected Release of Trait in GM Rice (2003-2012) ...............................................Table 11. Forecast World Rice Demand/Consumption 2000-2012

(Million Tonnes Paddy Equivalent): Key Players ....................................................Table 12. World Supply and Demand for Rice 2012: Sensitivity Analysis

(Million Tonnes Paddy Equivalent) ........................................................................Table 13. Projected Time Periods for the Probable Farm Level Use

of GM Rice to 2002-2012 .....................................................................................Table 14. World Supply and Demand for Rice 2012: Sensitivity Analysis

with Adoption of Some Key GM Traits (Million Tonnes Paddy Equivalent) .............Table 15. Summary of Nature and Size of Key Market Developments ..................................Table 16. Projected Time Periods for the Probable Farm Level

Use of GM Rice 2002-2012 ..................................................................................Table 17. Winners and Losers ...............................................................................................

iii

3457

799

111216

25

26

27

2936

4651

INTRODUCTION

Rice is the most important cereal crop grownglobally and is of paramount importance as astaple human food source in many areas of theworld.

The use of GM technology in global agricultureis, however, currently controversial. This islargely a result of the expression of strong anti-GM technology sentiment by interest groupsconcerned about possible health andenvironmental effects. This has resulted in theuse of ingredients, derived from plantscontaining GMOs, being largely eliminatedfrom foods manufactured for direct humanconsumption in some developed economies,notably in Europe. This anti-GMO sentimenthas also more recently focused attention on theuse of GM ingredients in livestock productionsystems via incorporation of GM derivedoilseeds and cereals in animal feed. This raisesquestions about how international markets forGM and non-GM derived crops will developand has contributed to a slow down in theapplication of GM technology per se. This hasimplications for crops like rice, which are ofvital importance to many developingeconomies.

Key drivers for the application and adoption ofrice GM technology come from two mainsources: the delivery of higher yielding, diseaseresistant and lower cost rice production andthe provision of nutritionally enhanced rice.This points to the technology potentiallyplaying a major role in improving nutrition andenhancing food security in developing

GM Rice: Will This Lead the Way for Global Acceptance of GM Technology?

countries. It will also influence rice cropproduction and price competitiveness vis-a-visthe global cereals sector.

Due to the importance of rice in the developingworld and the significant part played by thepublic sector in providing new rice croptechnology, the drive to apply GM technologyto rice may well result in faster acceptance ofthe technology in rice than would be the casefor other crops. Rice, therefore has the potentialto act as a catalyst to the wider adoption andacceptance of GM crop technology.

The report is divided into four key partscovering the global importance of rice, ricebiotechnology developments, current andfuture economic, strategic issues, marketdynamics and conclusions.

Part 1: Global importance of riceThis part provides a description and analysisof global rice production, trade andconsumption. It also places the importance ofrice in the global context relative to othercereals.

Part 2: Rice biotechnology developmentsThis part focuses on the likely future role (andinfluence) of new GM technology. It coversgenetically modified traits being developed.

Part 3: The future: economic and strategic issuesand market dynamicsThis part covers global production,consumption/demand and trade to 2012, GM

1

technology adoption by 2012, impact of GMtechnology on production, prices, tradepatterns, the nature and size of GM versus nonGM derived rice market segmentation,requirements for traceability and identitypreservation and competitiveness implicationsfor developing country versus developedcountry producers and exporters.

Part 4: Summary and conclusionsThis part focuses on bringing parts one to threetogether to analyse and draw conclusions aboutthe consequences of the introduction of GMrice on international markets.


2

1. GLOBAL IMPORTANCE OF RICE

1.1 Global Rice Plantings

World plantings of rice are estimated to be justover 151 million hectares in 2001/02 (Table1). This is broadly similar to plantings over thelast five years and is 3% higher than the globalarea planted 10 years ago. Whilst the globalarea has been relatively stable in recent years,there have been some significant changes inareas planted in some of the main riceproducing countries. By far the largest singlechange has been, a 4 million hectare fall inplantings in China since 1991/92. Othercountries experiencing important decreases in

Source: USDA, FAO

Table 1. World Rice Areas Planted 1997/98 to 2001/02 (Million Hectares)

1991/92

BangladeshChinaIndiaIndonesiaJapanSouth KoreaPakistanPhilippinesMyanmarThailandVietnamUSAOthers

10.2032.7642.2110.692.081.182.033.334.819.116.391.20

20.96

1997/98 1998/99 1999/00 2000/01 2001/02

10.2632.1343.4711.141.951.052.323.845.419.917.101.26

21.46

10.1231.5744.8011.721.801.062.423.175.469.517.361.32

21.99

10.7131.6444.9711.961.791.072.514.006.219.987.651.42

20.99

10.9030.3044.7911.611.771.062.384.046.309.767.671.23

20.39

10.9028.5944.5011.701.701.062.254.096.509.807.501.33

21.38

Total 146.95 151.30 152.30 154.90 152.20 151.30

the area planted to rice over the last 5-10 yearshave been Japan and South Korea where therice areas have decreased by 0.38 millionhectares and 0.12 million hectares respectively.Counter balancing these declines, have beenadditional plantings of over 2.3 million hectaresin India (the country with the largest areadevoted to rice: 44.5 million hectares) and 1.7million hectares in Myanmar1 . Other countrieswhere there have been significant increases inthe areas planted to rice since 1991/92 areVietnam, Bangladesh, Indonesia, Thailand andthe Philippines.

1 Formerly Burma


3

1.2 Global Rice Production

World rice production was forecast to be about586 million tonnes in 2001/2002. This isbroadly stable relative to production levels inthe last few years although it represents a 2%increase (+12 million tonnes), relative toproduction levels in 1997/98 (but a slight fallon production in 1999/00 and 2000/01).Global production, is however, about 12%higher than levels about 10 years ago2 .

Across the main rice producing countries therehave been some important changes over thelast 5-10 year period. Production hasincreased in some of the leading riceproducers. In India, the world’s second largestproducer, output has increased by 19% (nearly

Source: USDA, FAO

Table 2. World Rice Production 1991/92 to 2001/02 (Paddy: Million Tonnes)

1991/92

BangladeshChinaIndiaIndonesiaJapanSouth KoreaPakistanPhilippinesMyanmarThailandVietnamUSAOthers

27.40183.80112.0048.2012.00

7.404.909.10

12.6020.4022.20

7.2057.90

1997/98 1998/99 1999/00 2000/01 2001/02

28.30200.70123.82

49.2412.53

7.376.509.98

15.3423.5028.93

8.3059.69

29.78198.71129.01

50.4011.206.807.01

10.2716.0023.6230.47

8.3763.96

34.60198.48134.56

52.9211.477.077.74

11.9617.0025.0031.71

9.3465.45

37.63187.91127.32

51.9011.867.207.05

12.5218.5725.6131.02

8.6661.95

38.25180.00133.51

52.3911.337.455.61

13.2617.0025.0031.21

9.6661.13

Total 525.10 574.20 585.60 607.30 589.20 585.80

21.5 million tonnes) since 1991/92. Therehave also been significant increases inproduction over the same period recorded inBangladesh, Vietnam, Thailand, Myanmar,Philippines and Indonesia since 1991/92(Table 2). In contrast, production levels havefluctuated in China and fallen in Japan overthe same period.

In most of the countries where production hasincreased, the rate of production increase hasbeen higher than the rate of increase in areasplanted. This points to production increasesbeing due to a combination of increasedplantings and yield improvements, although

2 The annual average global production level for thethree years 1990/91-1992/93 was 524 million tonnes.


4

yield improvements have been responsible formost of the increases.

1.3 Trade and Consumption

Table 3 summarises the global export marketfor rice over the last ten years. In 2001, about24 million tonnes of milled rice were exported,equivalent to 6% of global production3 of rice.The volume of rice exported onto world marketshas been fairly stable over the last 2-3 yearsalthough relative to ten years ago, there hasbeen almost a 90% increase4 . This increase inexports reflects the underlying increases inproduction and hence, export availability, inmany of the leading rice producing countries.

For example, the two largest rice producingcountries China and India exported respectively1.17 million tonnes and 0.89 million tonnesmore in 2001 than in 19915 . The largestexporters of rice in 2001 were, nevertheless,not the largest rice producing countries but

Source: USDA

Table 3. World Rice Exports 1991-2001 (Milled: ‘000 Tonnes)

1991

ArgentinaAustraliaChinaEgyptEUGuyanaIndiaMyanmarPakistanThailandUruguayVietnamUSAOthers

75450689159391

54711176

1,2973,988

2601,0482,199

703

1997 1998 1999 2000 2001

530641938201372286

1,95415

1,9825,216

6403,3272,304

412

559547

3,734426346249

4,66694

1,9946,367

6283,7763,1741,088

674667

2,708320348252

2,75257

1,8386,679

6814,5552,644

766

332617

2,951500308167

1,449159

2,0266,549

6423,3702,847

929

350613

1,859725350175

1,600668

2,4007,521

7503,5602,6401,330

Total 12,200 18,818 27,648 24,941 22,846 24,541

3 The global production of about 585 million tonnespaddy is equivalent to about 393 million tonnes ofmilled rice (source USDA Rice Situation & Outlook,November 2001)

4 1998 also proved to be a high point for trade, mainlyas a result of production shortfalls (El Nino effect) insome important rice producing countries (eg,Indonesia).

5 It is, however, relevant to note that export volumesfrom China have widely fluctuated over the last 10years. No underlying trend is apparent other thanvariability of both export availability and production.


5

Thailand, Vietnam, the USA and Pakistan,which exported 7.52. 3.56, 2.64 and 2.4million tonnes respectively in 2001. Exportsfrom all of these leading export nationsincreased over the last ten years. Exports fromVietnam have increased three-fold and exportsfrom Thailand and Pakistan have virtuallydoubled. US exports rose by about 20% overthe ten year period. In addition, a number ofsignificant new export players have entered theglobal rice market since the early 1990s. Ofparticular note has been the rise in exportvolumes from Egypt, Myanmar and Uruguayall of which exported 0.5-0.7 million tonnesmore rice in 2001 than they exported in 1991.

On the import side, the number of countriesimporting significant quantities of rice is farhigher the number of mainstream exporters.Table 4 summarises the most important globalimporters of rice over the last ten years. Themain importing countries are in South East Asia(Indonesia and the Philippines, Malaysia), theMiddle East (Iran, Iraq, Saudi Arabia) and Africa(Nigeria, Senegal and Ivory Coast). In almostall of these countries the volume of riceimported has risen significantly over the lastten years.

Table 5 highlights that:• 88% of global rice consumption is in

Asian countries;• Asian countries account for about a

third of global rice imports;• African countries account for only 4%

of rice consumption but 29% of riceimports;

• North America (the USA, Canada andMexico) account for 1% of riceconsumption and 5% of imports;

• The EU (and EFTA6 countries) accountsfor 0.5% of consumption and 3% ofimports;

• The significant increase in the volumeof rice traded globally during the 1990shas been due to several factors. Theseinclude weather-related productionshortfalls in some major rice consumingcountries such as China, the Philippinesand Bangladesh, increasingpopulations in most SE Asian countries,rising income levels7 , greater politicalstability in some traditional riceimporting countries (e.g., Iran) and theimpact of trade policy reforms (notablythe Uruguay Round WTO Agreementand the Mercosur trade agreement inSouth America) which has begun toopen up some previously highlyprotected markets.

Overall, developing countries, especially inAsia dominate the consumption of rice, withdeveloped economies accounting for a verysmall share (no more than 5% of totalconsumption or less than 10% if Middle

6 European Free Trade Area: Norway, Switzerland, Iceland, Cyprus and Malta7 In countries where rice is not considered to be a staple food (eg, the USA, EU), increased rice consumption is generally

associated with increased income levels. In contrast, in countries where rice has traditionally been considered as astaple food product (many developing countries and all countries in South East Asia), rice consumption tends to decreaseas income levels rise (as wealthier consumers increasingly consume alternatives).


6

Source: USDA, Eurostat

Table 4. World Rice Exports 1991-2001 (Milled: ‘000 Tonnes)

1991

IndonesiaNigeriaIraqSaudi ArabiaPhilippinesIran

SenegalJapanMalaysiaIvory CoastBrazilNorth KoreaSouth AfricaOthers

192296268559

91599434

34367169772194360

7,865

1997 1998 1999 2000 2001

808731744660814973575546645470845272573

10,162

5,765900630775

2,185844600468630520

1,555250529

12,290

3,729950779750

1,0001,313

700633617600781159514

12,416

1,5001,2001,274

992900

1,100637656596450700400525

11,916

1,3001,6001,000

9001,1701,000

850700600700500550500

13,171

Total 12,200 18,818 27,648 24,941 22,846 24,541

Source: USDA, FAO, University of Arkansas

Table 5. Global Imports and Consumption of Rice by Main Regions of the World (‘000Tonnes Milled Equivalent) 1999/2000

North AmericaLatin AmericaEU & EFTAFormer Soviet UnionCentral/Eastern European countriesMiddle EastAfricaSouth AsiaOther AsiaOceania

Imports Consumption

1,0981,952

650475352

4,0256,394

8555,720

400

4,48614,913

2,1301,293

3866,435

15,807116,797238,039

706

Total 21,921 400,992

Region


7

Eastern, Central/Eastern Europe and the formerSoviet Union are included). On the import side,developed countries have a greater relativeimportance accounting for about 10% of globalimports (if the Middle East, Central/EasternEurope and the former Soviet Union areincluded this share rises to about 30%).

1.5 Global Use of Rice

As indicated above, trade accounts for theequivalent of 6% of global rice production. Interms of usage, direct consumption as a staplehuman food product is by far the main use ofrice, accounting for 88% of total usage. Use inanimal feed accounts for only 3% of total globalusage, the same share as seed use (Table 6).

1.6 Rice Versus Other Cereals

Table 6 summarises the supply balances anduses of the main cereal crops grown globallyin 1999. The key points to note are:

• Trade accounts for the lowest shareequivalent of production in rice relativeto other cereals –6% for rice relative to22% for wheat and barley respectively

and 13% for maize and sorghumrespectively;

• Animal feed usage accounts for thegreatest share of usage of barley, maizeand sorghum (66%, 64% and 50%respectively);

• Wheat is the nearest cereal to rice interms of usage profile, with 72% ofsupplies used as a direct human foodresource. An important proportion ofsorghum is also used as staple foodproduct (40% of total usage);

• The use of cereals as an industrial(including food manufacturing)feedstock is greatest for barley andmaize and lowest for rice and wheat.

1.7 Rice Prices

Table 7 shows trends in some of the main,globally traded milled rices over the last 9 years.The main feature of note has been the 30%-40% decrease in price since 1998/99 that hasbeen experienced by all of the three primarysources of globally traded rice. Despite thesesignificant decreases in price, global production(and trade) has been maintained at a fairlyconsistent level since 1998.


8

Source: FAONote: rice figures are in milled equivalents

Table 6. World Supply Balances and Usage: Main Cereals 1999/2000 (Million Tonnes)

ProductionImportsExportsStock changeTotal supplyFeed useSeed useFood manufacturingFood useWaste & other uses

Rice Wheat Barley Maize Sorghum

4032727-11

3921212

4344

20

585130134

-2579

9234

6416

31

1282829

6133

879

2287

6067982

4607387

654

11347

60871

6231

12

253

Source: USDANotes: 2001-02 is for the 9 month period August 2001-March 2002N/a= not available

Table 7. Indicative World Milled Rice Prices: 1003-94 to 2001/02 ($ Per Tonne Bagged)

1993/941994/951995/961996/971997/981998/991999/002000/012001/02

US long grain(Texas)

439314414450415369284272232

451375445415396470454313273

US mediumgrain

(California)

294290362338302284231184184

Thailand100% B

243270335303275261185167159

Thailand15%

brokens

n/an/an/an/a

269257202165184

Vietnam5%

brokens


9

2 RICE BIOTECHNOLOGYDEVELOPMENT

This part reviews who is active in ricebiotechnology and presents our forecasts for thepossible availability of GM rice traits to Asianfarmers.

2.1 Patent Review

A review of patents identified 307 ricebiotechnology patents from 404 differentorganisations listed as patent assignees.DuPont/Pioneer has by far the greatest numberof patents at 68, twice the number of bothMonsanto and Syngenta at 33 and 32 patentsrespectively. Other important patent assigneesinclude Aventis Crop Science (now Bayer CropScience with 19 patents), the Japanese publicsector, under the NORQ grouping of ninedifferent organisations, and Japan Tobacco.

2.2 Field Trial Review

In terms of field trials Table 8 summarisesdevelopments up to early 2002.

2.3 International Programmes

There have been a number of internationalprogrammes that have underpinned ricebiotechnology. These include the Asian RiceBiotechnology Network (ARBN) (two corefunding sources, the Asian Development Bank(ADB) and the German governments (BMZ)),the Rockefeller Foundation supported projectsand training, Rice Genome Projects and the

Golden Rice initiative. The latter initiative is anexample of how the public and private sectorhave perceived the market for transgenic riceand the wider market opportunities andconstraints of developed and developingcountry markets.

Scientists, based at the Swiss Federal Instituteof Technology, inserted three genes into rice thatmake the plant produce beta-carotene (pro-vitamin A). However, Syngenta holds the rightsto golden rice for commercialisation inappropriate markets and is helping theHumanitarian Board of the Golden Rice Projectto transfer the technology to developingcountries by complying with the existing bio-safety assessment and environmental riskassessment laws and regulations. The GM ricewill be crossed with local varieties usingtraditional breeding methods, and health andsafety tests will be conducted. The target is tomake the technology available free to farmersearning less than $10,000 a year from the crop,a figure far exceeding the average income ofpoor farmers. Farmers will also be able to saveseeds from their crop for future plantingsbecause rice is a self-pollinating plant.

2.4 Company Profiles

Details on the lead commercial organisationsactive in rice biotechnology are given in Table 9.

2.5 IRRI

IRRI is a non-profit agricultural research andtraining centre established to improve the well-being of rice farmers and consumers,


10

Table 8. GM Rice Field Trials by Territory

United States

Europe

Japan

South America

India

Australia

SE Asia

Country

Over the period 1997 to 2002 there were 173 notifications for GM Rice field trialsin the USA (notifications do not necessarily mean that a field trial took place itindicates intention and potential availability of GM rice seed). Monsanto and Aventisdominated notifications/evaluations, accounting for over 80% of all trialsnotifications. Both companies have concentrated on herbicide tolerance butMonsanto has also evaluated technology to enhance crop yields.

Only 8 trials of GM rice have been conducted in Europe, the majority in Italy andtargeted at glufosinate tolerance - the lead organisation has been Aventis (nowBayer). The European Commission is also funding a collaborative project involving8 leading plant biotechnology public institutions aimed at developing transgenicEuropean rice varieties resistant to rice blast and other fungal diseases.

The first trials on GM rice in Japan were in 1993 on isolated trial plots. Trial numbershave increased to 11 isolated field trials in 2001 and 7 in open field trials in 2000.The lead developers have been the National Agricultural Research Center (NARC)(Rice Blast Resistance), Monsanto (Glyphosate Tolerance) and Japan Tobacco (Lowprotein for sake brewing).

The only trials of GM rice in South America have been in Brazil and Argentina byAventis in 1998 and 1999 targeted at glufosinate tolerance.

Four organisations are reported to have undertaken GM rice trials (they may havebeen in controlled environments) indicating ability to transform and regenerateGM rice plants. Several Indian organisations are part of the Asian Rice BiotechnologyNetwork and will be initiating GM rice field trials.

Three organisations undertook GM rice trials in 2001 across a range of traits -CSIRO (5 trials), University of Southern Cross (4) and Charles Stuart University (1).

In the Philippines the Philippine Rice Research Institute (PhilRice) is planning toconduct three field trials in Barangay Maligaya, Nueva Ecija and IRRI to evaluateXa-21 resistance to nine types of bacterial blight disease.In China hybrid Bt rice was field tested in Wuhan in 1999 and 2000. A review ofthe published papers and participation in international programmes indicates thatmore field trials have been undertaken covering a range of traits - Bt-genes, Xa-21-gene and Rice Dwarf Virus coat-protein.

Field trials


11

Table 9. Company Profiles on Lead Commercial Organisations

Aventis

Bayer

BASF PlantScienceGmbH

DowAgroScience

Company

First company to develop GM ricevarieties ready for commercialisation.Started in the mid-90s using the PATgene to confer tolerance to glufosinateammonium. Since 1997/98 Aventisconducted 60 GM rice field trials inthe US, 6 in South America, 5 in Europeand 2 in Japan. APHIS has de-regulatedglufosinate tolerant rice based on fieldtrial data, feeding trial data and otherscientific data. FDA review of theAventis CropScience food safety datawas completed in 2000. Aventis ispursuing the necessary governmentalreviews in the key importing countries.

Has also conducted field trials in theUS in 2000 (1 acre) and 2001 (5 acres)on altered carbohydrate metabolism.

Bayer has had no specific projectsdirected at rice biotechnology (seeAventis CropSciences above).

ExSeed Genetics undertook a GM ricefield trial in the US in 2001 with alteredstarch quality and content. ExSeed areusing rice mostly as a proxy for maize.Rice is not a key crop for BASF.

Has capabilities to genetically engineerrice, as well as at least one gene indevelopment to improve rice yields.However, Dow’s focus is primarily oncorn, cotton, sunflower and canola.

Aventis has put in place the followingresources to breed and market transgenicrice:

• In 1999, AgrEvo acquiredBrazil’s ‘leading rice breedingprogramme’ from Granja 4Irmaos S.A., the country’s largestrice seed producer;

• In 2000 it was reported thatAventis CropScience wasevaluating the rice and corn seedbusiness in the Philippines;

• In February 1999, AventisCropScience expanded intoIndia, with the acquisition of theProagro Group of seedcompanies (the second largestseed group in the country),which produces hybrid corn,rice, oilseed rape, cotton,sunflower, grain and foddersorghum, millet and vegetables.

Bayer has not seen the acquisition of seedcompanies as a vital precursor forderiving added value from GM crops. Itsacquisition of Aventis CropSciences willgive it access to rice breedingprogrammes.

No direct rice-breeding expertiseidentified.

Dow does not appear to have any in-house capability or activity in ricebreeding.

continued ...


12

Table 9. Cont’d. Company Profiles on Lead Commercial Organisations

Dupont(Pioneer)

Monsanto

Company

DuPont was reported to have originallyplaced a fairly high priority on wheatand rice GM product developmentbefore the Pioneer takeover. TheDuPont rice biotechnology group wasresearching rice genomics and ricediseases resistance (rice blast). Thisresearch is now reported to have beenlargely “put-on-the-shelf” althoughPioneer is continuing to use rice as amodel/proxy for maize in its genomicsprogramme.

Rice is now considered a “secondary”crop compared with maize (theprimary crop for research andcommercial development).

Monsanto has made the greatestnumber of notifications to field trial GMrice in the USA (68), the majority (50),targeted at glyphosate tolerance with11 specific to agronomic traits, 2 tofungal resistance, 2 to product qualitytraits and 3 specific to markers.However, in 1999 to 2001 all their GMrice trials have been on glyphosatetolerance, which is in pre-commercialtesting.

Has conducted several GM rice(herbicide tolerance) field trials inJapan (1999-2001) and developed itsown rice genome map.

Pioneer began breeding hybrid rice inIndia in 1988. The principal target beingthe high yielding, predominately irrigatedareas of India. The main breedingobjectives are improved yield, foodquality, straw strength and diseaseresistance. Pioneer was the firstorganisation to commercialise ricehybrids in India in 1993 and it has anactive programme of new hybrids basedon proprietary inbreds. We understandthat Pioneer is not conducting any ricebiotechnology research in India.

In 1992 Pioneer’s India production, salesand marketing operation became part ofa 50:50 joint venture with the SouthernPetroleum Industries Corporation (SPIC)as SPIC PHI Seeds Ltd. In January 2001Pioneer purchased SPIC’s share of the JVand now wholly owns the operation.

In the US Monsanto has no rice breedingcapability. In the US market there areseveral small rice breeders, co-operativeand semi-public/university rice breeders,with the leading independent ricebreeder being RiceTec.

Following Monsanto’s acquisition ofCargill, it has access to rice breedinggermplasm and capabilities in thePhilippines (it also has rice seed marketpresence).

Monsanto’s acquisition of Mahyco inIndia, a leading rice breeding company,has also given the company a rice seedmarket presence here.

continued ...


13


Monsanto

Syngenta

AppliedPhytologicsInc.

Crop Design

Company

The Syngenta/Myriad Genome mapprovides a clear indication ofSyngenta’s genomic activities and itspolicy towards collaborations.

The Syngenta/Myriad Genome mapprovides a clear indication ofSyngenta’s genomic activities and itspolicy towards collaborations.

In January 2001, the Torrey MesaResearch Institute and Myriad Geneticsannounced the completion of the RiceGenome sequence. The Syngenta RiceGenome Map is the first virtuallycomplete map of a crop plant andcontains information that determinesthe makeup of rice.

API has the capability to produce arange of GM rice lines expressingtherapeutic proteins (e.g., humanlysozyme, human lactoferrin). It hasselected rice for such development andlocated in central California (one of themain rice growing region in the USA).

CropDesign is using rice extensively forits screening programme for rapid traitdevelopment. It can readily transformrice and modulate expression of genesto produce transgenic rice plants within11 months.

The Asian rice seed market is of interestto Monsanto as it is reported to view theintroduction of hybrid seed (and itsassociated move towards direct seedingrather than transplantation), as a marketopportunity for its herbicide business inkey markets (notably Japan).

Syngenta has discussed the availability ofits rice genome map with IRRI.

Rice germplasm development has beenundertaken in both Syngenta predecessorcompanies. Orynova is a joint venturebetween Zeneca Ltd. and Japan Tobaccofor the development of rice seeds andtraits, which operates independently fromSyngenta.

A rice germplasm development programis also underway in India.

The company is perceived to have noplans to develop its technology outsidethe USA.

The company has no rice breedingcapability or facilities. The company isreported to have stated that in 80% of therice growing territories intellectualproperty rights will be virtuallyunenforceable.

continued ...


14


Ceres

Orynova NV

ParadigmGenetics

Company

Extensive genomics work in rice - usedas a proxy for corn and wheat.

As part of the Orynova joint ventureJapan Tobacco contributed its propri-etary Agrobacterium-mediated genetransformation technology for rice,transgenic low-glutelin rice and inbredrice varieties. Research programmesfocuses on improved quality and yield,and on input traits such as disease andinsect resistance.

Has worked on rice transformation andregeneration. Also analysing genes thatconfer disease and nutritionalcharacteristics.

No direct capability

Orynova has well-establishedrelationships with public and privatebreeders in Japan. It is involved withthe Golden Rice initiative coordinatedthrough the Humanitarian Board andunder development at IRRI.

It has no internal interest in ricebreeding and perceives rice to be acrop with very limited opportunity forthe development of commercialproducts.

particularly those with low incomes. It isdedicated to helping farmers in developingcountries and undertakes research, breedingand information/technology dissemination.IRRI is part of the Asian Rice BiotechnologyNetwork (ARBN) and sees the ARBN as apipeline for disseminating information andresources to the NARS. Through trainingworkshops and shuttle research, ARBN and IRRIprovide experience in high-throughputtechnologies, microarray, and bioinformaticsthat can enhance breeding programmes,including those using GM technology. IRRI isalso well positioned to take advantage of theopportunities in GM rice given its uniquecollection of “introgression lines” (that carry awide range of unique chromosome segmentsimplanted from commercial varieties and wild

rice) and its collection of rice germplasm – itcan supply material to other researchinstitutions to assist them in their GM riceresearch and breeding programmes.

2.6 China: Rice Biotechnology andBreeding

China has three major national-level researchinstitutes focusing on breeding andbiotechnology in the rice crop. These are theChina National Rice Research Institute (CNRRI)in Zhejiang, the National Hybrid RiceEngineering Technical Centre (NHRETC) inHunan and the Institute of Genetics andDevelopmental Biology (IGDB) in Beijing.These institutes are at the leading edge of


15

China’s rice research activities. Their activitiesare often mirrored at a provincial level withinagricultural universities or plant breedingcompanies, although the three nationalinstitutes lead the way and have the mostcapability in terms of resources and scientificexpertise.

“*” = 30-50% likelihood“**” = 50-80% likelihood“***” = >80% likelihood

Table 10. Projected Release of Traits in GM Rice (2203-2012)

Herbicide resistance

Disease resistance

Virus resistance

Insect resistance

Nutrition

Abiotic Stress

Yield

GlyphosateGluphosinate

Bacterial Leaf Blight (Xa21)Rice Blast (Chitinase)Rice Blast (PR5)

RHBV (Rice hoja blanca virus)RTSV (Rice tungro spherical virus)RYMV (Rice Yellow Mottle virus)RRSV (Rice ragged stunt virus)

Brown Plant HopperYellow Stem Borer/Lepidopteran

insects (Bt)

Vitamin A (psy, crtI, lyc)Iron bioavailability (ferritin,

phytase and metallothionin)Iron bioavailability (IRT1, NAS)High quality protein (Asp1)

SubmergenceSalt and drought tolerance

NMS/Novel hybridsCarbohydrate quality/contentPanicle development/numbers

******

*****

**

***

**

2003-2005

****

******

**

******

****

****

*****

2006-2008

****

*********

***

******

******

*********

2009-2012

2.7 Summary of Traits UnderDevelopment

Table 10 summarises our forecasts for thepossible availability of GM rice traits reachingthe Asian farmer.


16

3 THE FUTURE: ECONOMIC ANDSTRATEGIC ISSUES AND MARKETDYNAMICS

In this Part of the report, we focus on the future– for the period 2002 to 2012.

3.1 General Market Environment

In order to place the future development of themarkets for GM rice within the context of theglobal market, this sub-section briefly considersthe future general direction of global riceproduction and some of its key factors ofinfluence.

3.1.1 The current baseline and drivingforces

3.1.1.1 Factors affecting riceconsumption: population andincome levels & relative prices

As rice is primarily consumed as a direct humanfood, changes in global rice consumption arelargely determined by changes in populationand income levels and to some extent the priceof rice relative to the main global alternative‘cereal staple food’ source of wheat.

Global consumption of rice is currently about405 million tonnes (milled equivalent) per yearand has been increasing at an average annualrate of over 2% for the last 20 years (global

consumption about 20 years ago was 280million tonnes, milled equivalent). However,this rate of increase has slowed to about 1.5%per year over the last 5 years. The main reasonsfor this continued, but slowing rate of increasein global consumption are associated withpopulation and income changes in Asiancountries. In almost all of the countries in theAsian region, the population has continued togrow, albeit at a decreasing growth rate andhence the demand for rice has increased in linewith population expansion. This rate ofconsumption growth has, however beenpartially offset by decreases in the consumptionper head as average income levels have risen.Thus in many of the economies of the Asianregion rice consumption per head falls asincome levels rise (i.e., in economic parlancerice is an inferior good in these countries)8 . Thisfeature of market development probably appliesto countries such as Thailand, Japan, SouthKorea and Taiwan. Overall, the interaction ofpopulation and income changes has resultedin different forces for changes to consumptionlevels. On the one hand population increaseshave contributed to increases in the level of totalconsumption whilst positive income changeshave contributed negatively to consumption.Lastly the economic recession that hit manyAsian economies in the late 1990s will havecontributed to slowing the rate of decline inconsumption per head that would otherwisehave occurred.

Looking at the possible impact of the global30% plus decrease in the average price of

8 In contrast in non Asian countries such the USA and the EU where rice consumption has traditionally not been high(relative to Asian countries), rice consumption tends to increase as income levels rise.


17

milled rice since 1998, this may havecontributed positively to global riceconsumption levels. As rice and wheat are themain cereals consumed directly for human foodit is reasonable to assume that the two grainscompete to some extent in some markets. Ricetended to trade at a ratio of 2.5 or 3 to 1 relativeto wheat in the period 1996-98 but since 1998the ratio has fallen to under 1.5 to 1 (ie, whilstboth global rice and wheat prices have fallensince 1998, the fall in the price of rice has beengreatest). Despite this improvement in thecompetitiveness of rice relative to wheat, thereappears to be only limited evidence of riceconsumption having increased because ofpositive substitution for wheat. In countrieswhere the vast majority of rice consumptionoccurs, wheat has not generally been madeavailable by the governments of countries withimport requirements and there is/has been onlylimited tradition of wheat being regarded as astaple food. Only in sub-Saharan Africa hasthe relative cheapness of rice (relative to wheat)possibly contributed to higher consumptionlevels (and imports) since 19989 . It is alsoimportant to recognize that whilst world pricesof rice have fallen relative to wheat prices onglobal markets, in many traditional riceconsuming countries, the retail prices ofdifferent cereals have only limited relationshipswith world prices. Prices are affected bynational producer support mechanisms fordifferent crops, consumer subsidies, importduties, transport costs and processing costs, allof which can mask/offset global pricemovements.

3.1.1.2 Government policies

Government policies in many of the major riceproducing and trading nations have andcontinue to play important roles in influencingthe level of rice production. Some of the keyproducing and exporting countries areexamined further below.

USUS policy has been driven by the 1996 FarmAct. In respect of rice, there are a number ofpolicy support mechanisms including acommodity loan (US rice farmers can take outsuch a loan and at the end of the marketingseason (or during) can repay the loan or keepthe loan and surrender the rice commodity inlieu of taking the $127.95/tonne loan rate). Inaddition, farmers receive payments known asproduction flexibility contracts (PFCs) and‘market loss assistance’. Farmers can also(alternatively) receive a loan deficiencypayment (LDPs) that is equal to the differencebetween the above $127.95/tonne commodityloan rate and the prevailing county level marketprice (assuming it is lower). The idea behindLDPs is to provide an equivalent to thealternative of placing the crop under loan andthen repaying it at a lower repayment rate basedon market prices (when market prices are belowloan rates).

Overall, these payments received accounted for46% of total farmer revenue in 2000/01. Thesesupport payments are widely perceived to havemade rice an attractive crop for many

9 In countries such as Nigeria there has been greater historic use and import of wheat and wheat flour for feeding thepopulation.


18

producers, during a period of relatively lowmarket prices. Consequently this support hasprobably played an important role incontributing to the increase in plantings andproduction of rice over the last five years. The2002 Farm Bill will broadly maintain the levelof support for rice at pre 2002 levels and is notexpected to result in significant changes in riceplantings over the next 10 years (relative to thearea planted forecast by the USDA).

ThailandThere has been no major policy factor ofsignificance in Thailand where the level ofsupport for agriculture is generally very low.Decision taking on planting at the farm level isvery much influenced by the market. Thegovernment has generally provided some formof floor price to the market for rice at which itwill buy up produce in times of low prices. Thissupport mechanism has, however been ofgreater relevance in the last 2-3 year (times ofsignificant reductions in world prices) and in2001 government ‘support’ (known asmortgage) prices have been set at between $16and $30/tonne above prevailing domesticprices of about $105-$109/tonne.

ChinaChinese government policies have had animportant impact on rice production.Government intervention in the mid 1990sresulted in expansion of grain production(including rice) up to 1999 (for rice from about183 million tonnes in the early 1990s to about200 million tonnes by 1999). There has alsobeen control of volumes of grain and rice indomestic markets.

Chinese recent policy has, however been toallow domestic prices to fall towards worldlevels so as to facilitate enhanced globalcompetitiveness on accession to the WTO in2001. This has contributed to the recentdecreases in rice plantings and productionhighlighted in Part 1. Policy has also focusedon encouraging farmers to plant rices withhigher quality characteristics.

IndiaPolicy has played a major role in influencingthe level of production in India. Thegovernment regulates the (retail) prices ofessential foods including food grains like rice(and energy, fertiliser and water). It usesprocurement prices and has open market salesprogrammes as measures that try to stabilizedomestic prices. For rice, a procurement orbuying in price is set every year as a floor tothe market for farmers and in 2002 the supportprice for rice varieties was between $108.8/tonne for common varieties rising to $115/tonnefor grade A varieties. Farmers are not requiredto sell their paddy rice to the government atthe ‘support’ price but may well do so if marketprices fall below the support price levels. In2000/01 for example 19.1 million tonnes weresold to the government.

The Indian government also exercises somecontrol over the domestic market for rice byrequiring rice millers to sell a proportion of theiroutput to the government (agency) at set ‘levy’prices. These levy prices vary by state and arelinked to the support price for paddy rice andmilling costs. For 2002 the levy price (inPunjab) is $192.8/tonne for common varietiesand $203.1/tonne for grade A rice. This rice is


19

then made available to domestic consumers atsignificantly lower (subsidized) prices.

Overall, government support for rice growinghas contributed significantly to the expansionin the area planted and production of rice inIndia over the last ten years.

PakistanPakistan government policy towards rice isessentially to encourage increases in productionthrough yield improvement and to provide afloor or support price to farmers for both ‘IRRI’and basmati varieties. These support prices areadjusted annually in line with perceived costsof production. Despite the setting of thesesupport prices they have been well belowprevailing market prices because since the mid1990s, no rice has been bought up by thegovernment.

The support prices in 2001 were 425 rupees/40kgs and 350 rupees/40kgs paddy respectivelyfor Super and 385 varieties (equal to about $212and $175 per tonne equivalent).

MyanmarDuring the 1990s the Myanmar governmenttargeted significant expansion of its riceproduction sector through both area expansion(e.g., encouraging all rice areas to grow tworice crops per year) and improvement in yields.Support is provided via the setting of minimumprocurement prices and a requirement forfarmers and millers to sell a proportion of theoutput to the government. The procurementprices are widely perceived to be below the

cost of production although this has beensomewhat offset by the provision of subsidizedinputs. Whilst this policy has probablycontributed negatively to expansion of thesector, the attraction of market prices for rice(rice farmers can sell the majority of their cropon the open market rather than to thegovernment) has been the main driving forcefor expansion in the sector10 . In addition, therequirement to sell a proportion of each farmer’scrop to the government has fallen and by thelate 1990s it was equal to only about 12% ofoutput.

VietnamRice production has increased rapidly over thelast ten years in Vietnam mainly as a result ofeconomic reforms initiated by the governmentduring this period. Liberalisation of theagricultural sector began in the 1980s with theprovision of security of tenure to farmers andthe freedom of farmers to sell their output onopen markets (rather than to the government atprices below market levels). There has alsobeen considerable investment in infrastructureand development projects.

Within the rice market, the governmentannually sets a base price at which it will buyrice off the market (to support market prices).This was about $85/tonne in 2001. Thegovernment also provides assistance for privatetemporary storage of rice during times ofsurplus. In 2001 the government bought in over1 million tonnes of rice to support domesticprices.

10 In 1995 the free market price was reported to be three times the cost of production.


20

JapanThe Japanese agricultural sector hastraditionally operated within a highly protectedand supported environment where agriculturalsupport prices for commodities such as ricewere considerably higher than comparable,external world price levels. However, facedwith a rising cost of agricultural support, surplusproduction of some commodities and WTOcommitments made in the Uruguay Round, theJapanese government has initiated reforms toits agricultural support programme in recentyears. In the rice sector a Rice Farming IncomeStabilisation Programme was introduced in1998. Within this rice farmers receive somesupport if market prices fall below a standardprice (average of last 3 years prices), equal to80% of the difference between the standardprice and prevailing market prices. A ricediversion programme also operates wherebyfarmers can receive additional ‘diversion’payments for transferring land out of ricecultivation and into other crops such as fruittrees, vegetables, fodder or fallow.

Overall, this change of policy initiated in thelate 1990s has contributed to the decline in areaplanted and production of rice during the lastfew years in Japan.

3.1.1.3 Investment in new technology

This has played a significant role in contributingto the increase in global production in all ofthe main producing regions. This includes theadoption of newer, higher yielding varieties,improved agro-chemicals and greater use offertilisers in some growing regions. Adoption

of new technology, in particular newer, higheryielding hybrid, rice varieties has been andcontinues to be an important component ofgovernment policies towards the riceproduction sectors in most of the countries.IRRI, the Chinese government and researchbodies in Pakistan and India are all heavilyinvolved in plant breeding programmes todeliver higher yielding rice varieties (such as‘Super rice’ varieties at IRRI and in China thatare targeting commercial yields of 10 tonnes/ha minimum together with improved diseaseresistance).

3.1.1.4 WTO

The Uruguay Round Agreement of the WTO in1994 marked a watershed for global trade inagricultural produce and has started the processof liberalization of global markets. This is ofparticular relevance to the rice sector becauseof the historic high levels of support andprotection afforded to a number of the majorrice producing nations in countries.Commitments to limit the level of AggregateMonetary Support (AMS) provided to domesticagriculture, on minimum market access and toreduce import protection have begun to playimportant roles in shaping the environmentwithin rice is produced and marketed acrossthe world. The main contribution of the WTOto date to changes in the rice sector has beenthrough the pressure it has exerted on domesticpolicy orientation in countries such as China,Japan and South Korea. As indicated above(sub-section 3.1.1.2) the WTO has acted as acatalyst to policy reform that has favoured lowerlevels of support to the sector in these countries


21

and hence contributed to decreased plantingsand production. The minimum accesscommitments have also begun to open somemarkets up to limited import competition thatwere previously largely excluded by theimposition of prohibitive import duties. Forexample, Japan, where rice imports weresubject to import duties of nearly 800% andinto which there is now a duty-free import quotafor 683,000 tonnes of milled rice. Althoughthese minimum access commitments11 are notsignificant in the context of the volumes of riceproduced and globally traded, they are set tobecome of greater importance in the future,especially when China’s accession to WTOmembership is taken into consideration – Chinawill after the first five years of accession berequired to permit 5.3 million tonnes of riceimports at an import duty level of 1%, ascompared to the prevailing import duty rate of71%.

3.1.2 The future general environment

3.1.2.1 General and underlyingeconomic environment

Drawing on USDA long term forecastassumptions about the world economy, theoutlook for the world economy over the next10 years is one of initial continued slow downfollowed by strong growth in almost all regionsof the world. World real GDP growth isprojected to average about 2.7 percent annuallyin 2001-2005, compared with 2.6 percent in

the previous decade and then increase to anannual growth rate of 3.3% between 2006 and2011. Global economic growth will be drivenby a recovery from the Asia financial crisis aswell as strong and sustained growth in theformer Soviet Union, Africa, and Latin America.There will also be a significant narrowing ofthe differential between the high growth regionssuch as Asia and the lower growth regions ofLatin America, Africa, and the transitioneconomies.

UN forecasts for world population growth arefor a projected increase of 1.2 percent a yearover the next ten years, a slight (0.2%) declinefrom the previous decade. Almost all of this isexpected to occur in developing countries withgrowth rates in developed countries at less than0.4 percent per year. The highest growth ratesare expected in Sub-Saharan Africa at 2 percentper year. Populations in developed economiesare projected to grow by less than 0.5 percentper year, with the slowest rates in Japan andthe European Union. Overall, the number ofpeople in the world is expected to increase at adeclining rate, to 6.9 billion in 2011.

Because of differing rates of population growth,GDP gains translate into per capita incomegrowth at differing rates. The highest forecastgrowth rate in per capita income is in China,which has both very high GDP growth ratesand also low population growth rates. Thelowest per capita income growth rates are inAfrica and the Middle East. This pattern towarda slowing of population growth rates and

11 These are commitments to allow duty-free or reduced duty imports within a quantitative limit into countries like Japan.There are, however, not requirements to import.


22

increasing per capita income growth rates islikely to have an important impact onagricultural trade over the coming decade asrising income leads to demand for more highvalue products (notably livestock products) andless demand for basic products – rice being abasic staple commodity in most countries andtherefore likely to experience a decrease inconsumption per head (counterbalanced byincreases in absolute consumption levelsthrough population increases).

3.1.2.2 Policy effects

This influence is likely to continue to play animportant role on the global area andproduction of rice mainly because of theimportance of rice to domestic food security inmany countries. Essentially existing policytrends can be expected to continue over thenext ten years in countries such as India,Pakistan, Thailand, Vietnam and China. In thesecountries underlying support to the sector willcontinue to be provided via some form ofsupport or ‘floor’ pricing and varying degreesof involvement in government procurement.However, underlying moves to freer trade andmore market orientation in countries likeVietnam and Myanmar are to be expected. InChina WTO membership has already triggeredless state involvement and support to the sectorand this is likely to expose the rice sector togreater reliance on market influences,especially as the Chinese market is opened upto greater import competition. Similarly thepolicies of reduced levels of support in Japanand South Korea will continue and should resultin a continued trend to reduced planted areas(see section 3.1.2.5). In the US, existing policies

based on the 1996 Farm Bill will continue toshape US support to the sector. The 2002 FarmBill will probably result in a broadly similar levelof support for rice relative to the pre 2002 level.Lastly in the EU, the policy environment in 10years time is likely to be one of significantlylower levels of support to the rice productionsector. The main trigger for this has been the‘Everything but Arms’ Agreement with the leastdeveloped countries that will allow duty-freeaccess to the EU market for developing countryorigin rice by 2009.

In the sub-sections below these policydirections are taken into consideration whenlooking at the likely future direction ofproduction and demand for rice.

3.1.2.3 Prices

As indicated in sub-section 3.1.1 global riceprices have been weak since 1998 and fell byabout 30%, mainly because of a combinationof additional production volumes coming ontoworld markets at a time of weakening globaldemand (economic downturns, especially inSouth East Asia and improved productionvolumes in some of the main importingcountries like Indonesia). Over the next ten-year period, the environment of low prices(relative to historic trends) is expected to persistfor most of the period, even though a slow andsteady recovery in price levels is forecast. Thusit is likely to take to the latter half of the decadebefore world rice prices recover to levels thatprevailed in the mid/late 1990s. The rationalefor the expected recovery in prices, is based onlevels of demand (see sub-section 3.1.2.4below) in key consuming and importing


23

countries rising (in line with populationincreases) and driving prices upwards. TheUSDA, for example, forecasts a world price forpaddy rice in 2011 of $79.52/tonne relative tothe world average paddy price of $60.63/tonnein 2001/02. Even with continued output andproductivity gains in exporting countries,commodity prices and export earnings areprojected to strengthen in the baseline becauseof steady growth in import demand.

3.1.2.4 Global demand

Drawing mainly on the forecasts in sub-section3.1.2.1 above relating to population and GDPgrowth projections, the level of global demandfor rice is expected to increase, but at a slowerrate than which occurred during the 1990s.Global demand for/consumption of rice isexpected to increase from about 580 milliontonnes (paddy equivalent) in 1999 to 660million tonnes (paddy equivalent) in 201212 .Over this period the level of global trade in riceis also expected to increase from about 34million tonnes (paddy equivalent) in 2001 to45-50 million tonnes in 2012.

Table 11 provides a summary of the likelydemand/consumption requirements over thenext ten years in some of the key consumingcountries. It highlights a continued increase indemand for (and consumption of) rice in all ofthe main rice producing and consumingcountries, with the exception of Japan and SouthKorea. In all of the main ‘developing’ countries,where consumption is forecast to increase this

largely reflects expected increases in thepopulations of these countries. Although thelevel of rice consumption per head is expectedto decrease in line with improvements in thelevel of income in these countries the rate ofincrease in population will more than offset thistrend. In contrast in Japan and South Korea,where the population is not expected toincrease at the rates in other SE countries, theincreasing trend away from consumption of thestaple rice, will result in a net decrease in thelevel of demand for rice by 2012.

3.1.2.5 Production and supplyavailability on world markets

The production and availability of the necessaryvolumes of rice required to meet the levels ofdemand projected above are forecast to comefrom continued expansion in production inmost of the primary producing countries.

The primary source of increased production isexpected to come from yield improvementsrather than any increase in the global areaplanted to rice, with the total area planted torice expected to remain at about the 152 millionhectares level (any increase in the area plantedin countries like Vietnam will be offset bydecreases elsewhere). Global rice productionis therefore forecast to increase to about 672million tonnes (paddy equivalent), relative tocurrent levels of about 585 million tonnes(paddy equivalent). In terms of trade, about44-45 million tonnes (paddy equivalent) of riceare likely to be traded in 2012, an increase of

12 These forecasts have been made by PG Economics using forecasts made by the USDA and the University of Arkansas aspoints of reference.


24

Source: PG Economics forecasts using USDA and University of Arkansas base comparisons

Table 11. Forecast World Rice Demand/Consumption 2000-2012 (Million Tonnes PaddyEquivalent): Key Players

BangladeshChinaEgyptIndiaIndonesiaJapanSouth KoreaPakistanPhilippinesMyanmarThailandVietnam USAOthers

1999 2012

38.5203.4

4.0121.152.813.6

7.53.9

12.513.813.323.3

5.367

44.5217.05.35

149.262.811.96.94.7

15.615.514.128.3

7.277

Global Total 580 660

about 10-12 million tonnes (+30%) whencompared to recent levels. Relative toproduction, the volume of trade will be 6.7%of global production in 2012 compared to 6%currently.

3.1.2.6 Forecasts 2012: summary of keyfeatures

The forecasts presented above point to theworld market for rice being broadly in balancein 2012 (a small surplus of production relativeto demand of 12 million tonnes paddy

equivalent). However, in using these forecastsit is important to recognise that the forecastsare heavily dependent upon the assumptionsused for a) demand/consumption changes andb) production changes. In summary, theforecasts assume the following:

• The global area planted to rice willremain fairly stable - given the lack ofsignificant amounts of additional,suitable land available for ricecultivation in the main producingcountries, and limited availability ofadditional water;


25

• Global demand/consumption willincrease at a compound rate ofmarginally under 1% per year to 2012;

• Global production will increase at acompound rate of marginally over 1%per year to 2012. This will come fromyield increases.

What is vital to recognise from theseassumptions is the sensitivity of the globalsupply and demand balance for rice to smallchanges in these assumptions. Table 12provides some indications of the sensitivity ofthese assumption changes and highlights thatonly small positive changes to the rate ofconsumption increase relative to the baseline

Table 12. World Supply and Demand for Rice 2012: Sensitivity Analysis (Million TonnesPaddy Equivalent)

1999/20002012: 1% pa increase in

consumption and 1% paincrease in production

2012: 1% pa increase inconsumption and 0.5% paincrease in production

2012: 1.5% pa increase inconsumption and 1% paincrease in production

2012: 2% pa increase inconsumption and 1% paincrease in production

2012: 2% pa increase inconsumption and 0.5% paincrease in production

Worlddemand

584660

660

708

755

755

Shortfall (-)/surplus (+)

+1+12

-35

-36

-83

-130

Worldproduction

585672

625

672

672

625

assumptions (largely driven by small increasesin the rate of population growth in developingcountries) may potentially result in significantglobal shortfalls in production. In addition,possible shortfalls between demand and supplycould result from lower than the baselineprojected increase in yield (e.g., if the historicrate of increase in rice yields were to slowdown).

3.2 Impact of GM Technology

In sub-section 3.1 above, the forecasts relatingto global rice production do not take intoconsideration the potential impact of GM


26

technology. The forecasts effectively assume acontinuation of past trends in yieldimprovements, based on developments inconventional technology. However, GMtechnology represents a fundamental changeto the technology change issue and may providescope for important (and above trend) advancesto rice production husbandry and productivity.This sub-section examines some of these issuesin more detail.

3.2.1 Assumptions relating to GMtechnology adoption in rice to 2012

Drawing on Part 2 (our assessments ofprobabilities for the release of GM rice traits,based on scientific and technical parameters),Table 13 refines these forecasts for the leadingtraits, after taking into consideration, political,economic and intellectual property right factorsof influence.

Table 13. Projected Time Periods for the Probable Farm Level Use of GM Rice to 2003-2012

Herbicidetolerance

Disease (fungal)resistance

Company

2004-05

2005-06

Ready for release in 2002 but held back largely by political/regulatory approval processes. Availability for use is assumedto start from 2004-2005.

It is assumed that the technology will reach the farm level inChina and India first by the biotechnology companies(Monsanto & Aventis) seeking collaborations with breeders andobtain approval from national authorities. The technology willbecome available at the farm level and its cost effectivenesswill then drive uptake. This will then act as a catalyst forregulatory approval and uptake in other important rice growingcountries in the region. It is also assumed that no licence feesor premia on seed costs are charged and hence this will not actas a barrier to adoption - a similar scenario to the release ofherbicide tolerant soybeans in Argentina.

Bacteria leaf blight is a major problem for growers. Theresearch of the Xa21 gene is well advanced, shows broadspectrum resistance to all races and is endogenous to rice.

Period inwhich greater

than 80%probability ofavailability to

growers

Comments/Assumption

continued ...


27


28

Table 13. Cont’d. Projected Time Periods for the Probable Farm Level Use of GM Rice to2003-2012

Insect resistance

Nutritionallyenhancement

2005-06

2007-08

It is assumed that IP rights can be agreed and IRRI, through thenetwork of international breeding stations disseminates parentaltransgenic material to breeders. Regulatory approval is firstgranted in China and widespread adoption in China occurs. Itsefficacy and positive yield impact will then drive uptake acrossChina and into other countries. Wider regulatory approvalmay not be initially forthcoming in some countries (e.g.,possibly Thailand) but the clear benefits of the technology willdrive uptake (which may include unapproved plantings in somecountries where the regulatory approval process moves slowly).

Insect resistance using Bt genes is a well established/provenmethod of insect control. The introduction of Yellow StemBorer/Lepidopteran pest resistance will result in more secureand higher yields and reduced use of insecticides.

It is assumed that, through a combination of gene discoveryand collaboration, breeders in China and India will release Bttransgenics in rice to growers. The technology will becomeavailable at the farm level in these countries and its costeffectiveness will then drive uptake. This will then act as acatalyst to uptake in other important rice growing countries inthe region. It is also assumed that no licence fees or premia onseed costs will occur in China but that there will be some roomfor commercial incentives in more market oriented economies.

The portfolio of ‘Golden Rice’ genes provides a combination ofenhanced vitamin A and improved iron bio-availability, both ofwhich are important to improving the nutrition and well beingof populations in many developing countries.

It is assumed that through a co-ordinated approach by theGolden Rice Humanitarian Board, regulatory approval andinteraction with national breeding programmes will result in thematerial being made available through the CGIAR and nationalbreeding programmes.

Period inwhich greater

than 80%probability ofavailability to

growers

Comments/Assumption

3.2.2 Impact of GM technology on riceproduction

Drawing on the earlier assumptions for GMadoption, Table 14 illustrates the potentialimpact of the mainstream (agronomic) GM ricetraits on global production of rice.

Key points to note from Table 14 (plus someadditional analysis) are:

• Assuming the equivalent of 40% globaladoption and a 10% net positive effect

Table 14. World Supply and Demand for Rice 2012: Sensitivity Analysis with Adoption ofSome Key GM Traits (Million Tonnes Paddy Equivalent)

1999/20002012: 1% pa increase in

consumption and 1% paincrease in production

2012: 1.5% pa increase inconsumption and 1% paincrease in production

Application of GM technology:positive impact on yields+10%

2012: baseline 1% pa increase inconsumption and 1% paincrease in production

2012: baseline 1.5% pa increasein consumption and 1% paincrease in production

Worlddemand

584660

708

660

708

Shortfall (-)/surplus (+)

+1+12

-36

+41

-7

Worldproduction

585672

672

701

701

No application of GMtechnology

Notes/assumptions1. Adoption levels in 2012. It is assumed that a global average adoption level of 40% occurs in 2012. This is

broadly based on 50% adoption in mainstream producing countries such as China, Vietnam, India, Indonesia,Philippines and lower levels of adoption (20-30%) in Thailand, USA, Japan, and South Korea.

2. Positive yield assumptions include net effect on production of herbicide tolerance, insect and fungal resistancegenes. The assumed 10% yield improvement is in addition to the forecast yield increases using conventionaltechnology

on yields by 2012 this would result inan additional 23-29 million tonnes ofrice production relative to baseline (nonGM adoption) production forecasts.This is equivalent to about 5.86 millionhectares of rice (3.9% of forecast 2012plantings). If adoption levels were 50%then the production increase would bean additional 25-33 million tonnes;

• If the positive yield impact wasextended to an average of +15% (at40% adoption levels) the positive


29

impact on global production would be+42 million tonnes, the equivalent of8.41 million hectares or 5.5% of theforecast global planting area in 2012;

• If current baseline assumptions forgrowth in demand for rice by 2012 areused, a 40% adoption rate for the GMrices examined above would result inthe potential for reductions in the globalarea planted to rice of 4% (+10% yieldresponses assumed), freeing up this areafor alternative uses and reducingpressures on demand for theincreasingly scarce resource of water inmany rice producing countries;

• If the more pessimistic assumption forgrowth in demand for rice is assumed(+1.5% compound increase in demandpa over the next 10 years), then theadoption of the GM rices referred toabove would largely eliminate theglobal supply deficit at a 10% positiveyield impact.

3.2.3 Impact on prices

In seeking to assess the impact of a newtechnology such as biotechnology on the priceof rice, it is important to recognise that theimpact depends on the nature of the GMtechnology: whether you are assessing theimpact of a cost reducing trait like herbicidetolerance or fungal resistance or a quality (valueenhancing) trait.

a) Quality traitsWhere the trait is a quality one, the primaryaim of the technology is to create a new and

improved product, which has added value topurchasers down the supply chain. As such,the intention is to produce and sell a better,differentiated rice than can be derived fromconventional seed, for which purchasers willbe willing to pay a premia. To date there arevery few examples of GM quality traitscommercially available (only high oleicsoybeans in the US), although it is likely thatby 2012, a number of others, both in oilseedsand other crops, possibly including rice can beexpected to be commercially available and inproduction.

The effect of this category of GM rice becomingcommercially increasingly available by 2012will be to create additional segments within thetotal rice market, which are distinct frommainstream ‘commodity’ rice. In each of thesesegments, the likely price premia that the ricecontaining a quality trait will command, relativeto ‘commodity’ rice, will be directly related tothe degree of value added created plus theadditional costs of initiating the identitypreservation systems required. Where suchquality traits are developed and commercialisedby the private sector, examination of existingquality segments of cereal and oilseed markets(based on non GM technology) suggests thatthe price premia will be within a range of +5%to +20% over commodity-traded rice.Nevertheless, it is important to acknowledgethat the only GM quality trait rice that willprobably be commercially available by 2012(e.g., nutritionally enhanced rices) are beingdeveloped to meet human dietary deficienciesin developing countries. Such developmentsare likely to be bought to the production basein countries by international institutions and


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governments in order to improve the welfareof domestic populations. As such, thecommercial pressures to derive a return on theR&D investment will be less than those if aprivate company were bringing the trait to themarket place and the ‘new quality trait’ rice isunlikely to trade at any premia up to the farmlevel (ie, in the seed market). Additional costswill, however exist in the post harvest (on-farmand downstream) distribution chain because ofthe need to segregate/identity preserve thequality trait rice from mainstream rices. Theseadditional costs will ultimately have to be borneby some part of the supply chain and re-coupedvia the charging of higher prices for the quality-traited rice. The likely price premia relative tomainstream rices will ultimately depend uponthe level of costs associated with segregation.Existing examples of these costs in grain cropsupply chains suggest that a price premia of 5%-10% may develop. This assumes thatnutritionally enhanced rices are not moreexpensive to grow or are lower yielding thanconventional varieties. If they are then higherpremia than this range will be required.

b) Agronomic traitsAssessing the impact of agronomic, cost savingtechnology such as herbicide tolerance orfungal resistance on rice prices is difficult.Current and past prices reflect a multitude offactors including the introduction and adoptionof new, cost saving technologies. However,disaggregating the effect of different variableson prices is far from easy, and in the case of theimpact of a single example of cost savingtechnology, it is virtually impossible. Whilstthis means that it is not possible to be preciseabout the likely future impact of agronomically

improved GM rice that will be available in thenext 10 years, the following comments andassessments can be made.

a) The real price of food products has fallenconsistently over the last 50 years. This hasnot come about ‘out of the blue’ but fromenormous improvements in productivity byproducers. These productivityimprovements have arisen from theadoption of new technologies andtechniques.

b) Cost reducing GM technology has beencommercially available for over five yearsin crops like soybeans. Whilst suchexamples are not directly comparable withthe hypothetical impact of the technologyon rice, they do offer some pointers to thepossible magnitude of impact. Themagnitude of the benefits accruing fromGM herbicide tolerant soybean adoption inthe US were broadly estimated to be withina range of $28-$40/ha ($15-$25/haadditional profitability to the farmer net oftechnology fee). Against this background,in 2002, GM (herbicide tolerant) soybeansaccounted for nearly three-quarters ofproduction in the US and nearly 90% ofthe Argentine crop. This means that GMsoybeans now effectively influence and setthe baseline price for commodity tradedsoybeans in each country. Also, as bothare two of the leading three exporters onglobal markets, it is also reasonable to inferthat GM soybeans also play a significantrole in setting the world price for soybeans(and derivatives). Given that GM (herbicidetolerant) soybean varieties offer significant


31

cost savings to growers (see above), it islikely that some of the benefits of the costsaving will be passed on down the supplychain in the form of lower real prices forcommodity traded soybeans. Thus, thecurrent baseline price for all soybeans,including non-GM soya is probably at alower real level than it would otherwise (inthe absence of adoption of the technology)have been.

Building on this theme of the impact of thetechnology to lower real soybean prices,Moschini et al (2000) estimated that in 1999the global post farm ‘consumer’ benefit ofthe technology was about $318 million andthe impact on global prices was between–0.5% and –1%. Also under varyingassumptions about whether there are yieldbenefits to be derived from herbicidetolerant soybeans, this work estimated that:

• Under the assumption of globaladoption of the technology and no yieldbenefit to farmers, the total consumerbenefit rises to about $900 million andsoy/derivative prices falls by between2% and 2.6%;

• Under the assumption of globaladoption of the technology and a 5%yield benefit to farmers, the totalconsumer benefit rises to about $1,350million and soy/derivative prices fall bybetween 5.6% and 6.1%.

The reader should note the simplifyingnature of some of the assumptions used inthe analysis and therefore extreme cautionshould be used in drawing conclusions from

this analysis. What the analysis does show,however, is that some of the benefit of thecost reducing technology has probablyalready resulted in lower real prices forcommodity soybeans, meal and oil. Theeffect has probably been greatest on theglobal price of soybeans but has alsoaffected meal and oil prices. It alsohighlights the impact of increasing adoptionlevels for herbicide tolerant soybeans (andother cost reducing GM advances that willbe commercialised over the next ten years).As the level of adoption rises, then the valueof the total post farm ‘consumer’ benefit willincrease further, and hence contribute tofurther real reductions in the commoditytraded price of GM derived soybeans, mealand oil.

In respect of GM cost reducing rice, it isreasonable to assume that significantadoption of herbicide tolerant, fungal andinsect resistant rice should result in somereal reductions in the price of commoditytraded rice in the main producing countriesand on global markets.

3.2.4 Impact on trade patterns andrequirements for traceability,segregation and identitypreservation

Leaving aside the impact of GM quality traits(see c) below), the widespread adoption of GMagronomic traits has already, in the case of GMherbicide tolerant soybeans, added a newdimension to global trade. In 2002 it is possibleto group the major soybean, meal and oil


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exporting countries into GM derived and nonGM derived sources. The GM derived countriescomprise those major exporting countrieswhere herbicide tolerant soybeans have beenpermitted for commercial planting (the US andArgentina). The non GM exporting countriescomprise the other exporting countries, whereGM soybeans are currently not legally permittedfor planting and essentially comprise Brazil plusIndia. On the demand side the main importmarkets where demand for non GM derivedmaterial has become a distinct part of themarkets are in the EU and Japan (alsodeveloping in other parts of Asia like SouthKorea). The rest of the global market caneffectively be classified as largely indifferent tothe technological origin of the soybeans orderivatives used.

The key question to ask as applied to the ricesector is whether similar developments mayoccur in the rice sector once GM agronomictraits become available ? Providing an answerto this question requires two important tasks a)looking briefly at how existing GM crop marketslike soya may develop over the next ten yearsand then b) examining the extent to which theseare likely to develop in the rice sector.

a) The benchmark: future developmentsin trade patterns for existing GM(agronomic) crops- the case of soybeans

In 2002 the balance of global available suppliestraded on world markets (beans and meal addedtogether and converted to bean equivalents)

was about 75 million tonnes GM derived and30 million tonnes non GM derived13 . On thedemand side, the current, total annualrequirements (beans and meal added togetherand converted to bean equivalent) in the maincountries where there is a distinct demand fornon GM derived material are about 45 milliontonnes14 (the EU 37.5 million tonnes and Japan7.5 million tonnes).

The level of demand for non GM derivedmaterial will probably increase in the short tomedium term and as a result, may push globalprices for non GM derived material upwards.This would potentially make the non GMmarket more attractive to some producing andexporting countries. It could lead to somecountries that currently do not permit theplanting of GM (herbicide tolerant) soybeanspursuing a deliberate policy of non approval inorder to encourage their domestic productionsector to service global demand for non GMderived material. The most likely candidatesfor such a policy are Brazil and India. However,as the act by some governments of not grantingapproval for planting GM (herbicide tolerant)soybeans, has not stopped a significantproportion of producers in countries like Braziland Paraguay accessing the technologyillegally, it is more likely that the only way inwhich the market segment demanding non GMderived soybeans, meal and oil can be servicedis via the active policy of a number of individualproducers or traders (in specific regions withinthe main soybean producing and exportingcountries) to focus on this market segment. If

13 Assuming no IP of non GM supplies in GM growing countries.14 This relates to total demand, not the sub-demand where non GM derived material is required.


33

this ‘scenario’ were to develop then the newlydeveloping trade patterns will be region (withincountries) specific rather than country specific.Thus rather than, for example Brazil and Indiafocusing mainly on servicing global demandfor non GM derived soybeans, there will bespecific regions of Brazil (e.g., the Northernhalf), India, the US and Argentina that servicethis market.

Although the market for non GM derivedsoybeans is currently expanding in the globalmarket, the majority of global demand forsoybeans, meal and oil is likely to remain largelyindifferent to method of production (GMderived or non GM derived). As such, thismarket will continue to be serviced by thecurrent, traditional main exporters of the US,Argentina and Brazil.

Overall, we expect that this distinct market forGM versus non GM derived material (based onagronomic traits) to peak in terms of size in thenext 1-2 years and will then probably declinein size, as consumer acceptance levels of GMtechnology per se increase15 . It will,nevertheless continue to represent a nichemarket by 2012. Within this increasinglysegmented global market, we expect theemergence of new players in the marketplace,mostly to service the non GM market. Theseare likely to be new traders or groups based inspecific regions of the main soybean andderivative producing and exporting countries(notably the US, Brazil and Argentina).

b) Possible trade developments in themarkets for GM (agronomic) rice

The following points are of importance ininfluencing possible trade developments in therice sector:

• The nature of the global market for ricehas some important differences to thecurrent market for soybeans (andmaize). These include i) the majorityof soybeans and maize are used asanimal feed ingredients whilst themajority of rice is consumed directly ashuman food, ii) rice is mainly producedand consumed in lower incomecountries in Asia, with consumption indeveloped countries accounting for asmall minority of total production, iii)trade is a less important part of globaluse of rice (the equivalent of 6% ofproduction relative to over 20% forwheat, 13% for maize and 30% forsoybeans), iv) a greater number of sub-markets and segments (e.g., japonicarices relative to indica rices, aromaticrices (e.g., Basmati, jasmine) than is thecase for a crop like soybeans;

• Those with strong anti-GM technologysentiment and the requirement toconsume food not derived from GMcrops tend to be mostly in higher socio-economic groups and found in thehighest income, developed countries;

• In 10 years time, a demand and market

15 Largely as a result of a) greater familiarity and objective information about the technology, b) the increasing onset of GMvalue adding traits for which consumers can more easily associate with the (personal) benefits of the technology and c)more relaxed specifications relating to non GM origin and presence amongst retail groups because of the additionaland rising costs of supply and the lack of scope for re-couping these costs.


34

for non GM derived material is likelyto exist but probably at a small level. Itwill be like the current organic market,servicing a niche market in which someconsumers have strong views and adesire to avoid any consumption ofproducts derived from GM materials.

Given these factors we do not expect anysignificant development of any GM versus nonGM markets in the rice sector. A non GMmarket will probably develop when the firstagronomic traits are commercialised from2004/05 but this will be concentrated in theEU and possibly Japan. It is also likely to affectsome of the higher quality indica rices likeBasmati and jasmine and will mainly impacton the regions/countries that traditionally supplyrice to the EU/Japan markets. As both basmatiand jasmine rices are currently subject tosegregation through the supply chain, anyadditional requirements about being derivedfrom non GM rice is unlikely to add significantlyto the way in which these rices are producedand supplied to markets although additional(probably marginal) costs will be incurred inproviding certification (and testing) that theserices have no adventitious contamination withGM rices. It should also be noted that the highervalue rices are likely to be less attractive to plantbreeders developing GM rice germplasm thanmainstream ‘IRRI’ rices because of the muchsmaller size of the respective markets.

Thus, the main rice producing countries inwhich requirements for segregation/IdentityPreservation of GM from non GM derived riceis likely to be initiated are:

• The US - an important source of indicarice to the EU market, especially to theNorthern EU states where anti-GMsentiment is strongest;

• Thailand – notably because of theimportance of jasmine rices (the mainrice exported to the EU) and a need toensure no mixing of GM varieties withrices exported to the EU;

• India and Pakistan, because of theimportance of Basmati, which hassignificant sales into the EU, and theneed to ensure no mixing of GM riceswith the Basmati.

Nevertheless, no significant change in ricetrading patterns is to be expected. Some newplayers may enter the market specifically toservice the non GM market, but this will be asmall, niche part of the overall market. We donot foresee the non GM rice market being anygreater than 1% of the global market in 2012.

c) Quality traits

We do not expect any commercialdevelopment of added value quality traits inrice by the private sector by 2012. Rice is nota priority crop for the development of thesetraits.

The only development of GM quality traits inrice will probably be the adoption of ricescontaining nutritional benefits like improvedvitamin levels, improved iron availability andhigher protein rices. These traits will probablybe available from 2007-2008. Production islikely to be largely within countries, with limited


35

trade. Where trade may develop will bebetween some ‘surplus’ rice producingcountries, with traditional rice importingcountries. Such trade, if it develops will alsoprobably be driven by national governmentimport/export contracts and within food aidprogrammes.

3.2.5 Nature and size of marketdifferences: GM derived and nonGM derived rice

A summary of the possible key marketdifferences is shown in Table 15.

Table 15. Summary of Nature and Size of Key Market Developments

Agronomic cost saving technology

Mainstream part of global rice production thatfocuses on maximizing production relative tolimited availability of additional land and waterand continued population

Global trade expanding relative to 2002 but stilla low share of production compared to othercereals & oilseeds

Mostly commodity based trading butcontinuation of segregation along lines ofjaponica and indica rices and higher valuearomatic rices

World price of japonica and indica rices = GMderived price

Nature of demand: global human food usesFocus of supply: Asia

GM Derived Non GM Derived

Agronomic cost saving technology

Small part of global market as GM traits come tomarket in the next 2-3 years, declining inimportance to a niche (under 1% of globalmarket by 2012).

Main focus on supplies: EU domesticproduction, US, Japan plus India/Pakistan andThailand (the latter regions because of the needto ensure separation from their importantaromatic rice exports)

Nature of demand: some in higher incomegroups in developed countries – mainconcentration in EU and Japan

Segregated/identity preserved supply lines2 levels of IP used:• soft IP (mainly for aromatic rices and based

on existing distribution systems supplyingthese rices, limited to existing certificationprocedures plus some testing)

• harder IP (applicable to indica and japonicarices, strict tolerances, assurances oncontamination levels, traceability to originand testing. Operating in conjunction with/part of organic market)

continued ...


36

Table 15. Cont’d. Summary of Nature and Size of Key Market Developments

GM value added quality traitsUnlikely to be developed by private sectorwhose efforts being focused on other crops(notably oilseeds)

Main development will be nutritionallyenhanced rices grown and segregated frommainstream rices

Price premia to farmers +5% to +10% of farmgate price for mainstream rices (ultimatelydependent upon the cost of growing relative tomainstream rices plus segregation/IP costs)Strict IP from farm to mill

GM Derived Non GM Derived

Prices vary according to type of IP, uses etc:+3%-5% for the softer IP systems (relative toexisting aromatic rice price differentials withconventional rices) to +10%-20% for harder IPsystems applied to non aromatic rices (relativeto the world price of GM derived rice)

Non GM value added quality productsSee above with reference to aromatic rices

3.2.6 Future nature and size of marketdifferences

3.2.6.1 Agronomic (cost saving) GMtraits

We see the potential market for GM versus nonGM (agronomic traits) rice developing asfollows:

• Using the assumptions for GMagronomic trait rices becomingcommercially available in mainstream

rice producing countries: section 3.2.1,some GM versus non GM rice marketwill begin to develop in the following2-3 years (from 2004-05) as fungal andinsect resistant varieties are adopted.However, this market is likely to bemuch smaller and less significant in therice sector than in other crops (notablysoybeans and maize) because of thelimited proportion of global riceproduction that is globally traded andthe minor proportion of global riceproduction and trade accounted for by


37

developed (relative to developing)countries. The market for non GM ricewill be initially concentrated in the EUand Japan (plus possibly in some otherparts of SE Asia like South Korea,Singapore, Hong Kong). The non GMmarket will probably be no more than2%-2.5% of global consumption (about9.5-10 million tonnes inclusive ofaromatic rices which will not be targetsof GM technology) and accounting forabout 4% of global rice trade in 2004;about 1 million tonnes). On theproduction side, GM rice will beslowest to be adopted in the mainproducing regions that have importantcustomer bases in developed countrymarkets and hence reluctance to takeup GM technology will probably beconcentrated in the Basmati growingregions of India and Pakistan, thefragrant rice growing regions ofThailand, amongst US farmersproducing long grain rice (e.g.,Arkansas region) that traditionally hasa good market in Northern Europe, withEU rice farmers and some elements ofthe Japanese sector. In contrast, GM(agronomic trait) rices are likely to besubject to greatest adoption rates in themainstream rice producing (andconsuming) countries of Asia –countries where the GM versus non GMissue will be of minor importancerelative to issues of food security andwelfare of rising populations;

• In the developed economies where a

distinct GM versus non GM rice marketsegment develops, price premia for nonGM rice will initially be low becausethe level of demand relative to supplywill be small. Price premia of 2%-5%only will probably appear, reflectingmostly certification and IP systemsintroduced to provide re-assurance tobuyers. In the aromatic rice marketsminor additional costs are likely due torequirements for certification that therice has no adventitious contaminationwith GM rices;

• These additional costs of servicing thenon GM market segments will beabsorbed by the supply chain, mostlyat the milling part of the chain;

• If GM (agronomic trait) rice is adoptedat similar rates to the uptake of GM(herbicide tolerant) soybeans16 , thenGM rice will, by 2007-08 be setting thebenchmark for world rice prices. Asthe agronomic traits are cost reducingtechnology this will effectively createdownward pressure on world rice pricesand contribute to a widening of any GMversus non GM rice price differential;

• Downward pressure on world riceprices (based on GM rices and theirrevenue benefits derived from lowercosts and higher yields) will placeadditional pressures on rice growersgrowing non GM varieties to switch toGM adoption or will require thosedemanding non GM rices to increasethe level of premia paid for non GMrices. This pressure to switch to growing

16 From zero to 40% adoption of global plantings in five years.


38

GM varieties is likely to be greatest inJapan and South Korea, where ricefarmers will be increasingly faced withcompetition from imports as WTOmarket access commitments open these(traditionally highly protected) markets.In the USA the downward pressure onworld prices will also place additionalpressure on farmers to switch to GMvarieties, in order to maintaincompetitiveness in important exportmarkets (the EU, whilst an importantmarket, accounts for only a small totalshare of exports), unless buyers arewilling to pay more for their non GMrice. Even in the EU pressure to adoptGM rice is likely to build by 2008/09,as import competition intensifies,putting a squeeze on domesticprofitability17 ;

• Any widening of the GM versus nonGM price differential will probablycontribute to reducing some of thedemand for non GM rice (a reluctanceof the supply chain downstream offarmers to pay more for the rice unlessthey can pass on the additional costs toretailers and ultimately consumers), itwill probably lead to re-appraisal bysome retail groups as to the real levelof demand for such products. Some willthen probably drop their demands fornon GM origin and be more willing toaccept ‘any technology origin’ rice;

• By 2012, the market for non GM ricewill probably have decreased in size,

to a very small niche relative to globalproduction and trade. It will mostlyimpinge on the market segments foraromatic rices and, for mainstreamindica and japonica rices, may wellbecome part of the organic segment ofthe rice market. The size of thesemarkets in total will probably be 0.5%-1% of global production and no morethan 1%-1.5% of global trade. Non GMrice will probably trade at 5%-10%premia relative to GM rice.

3.2.6.2 GM quality traits

Likely developments in markets for GM qualitytrait rices have been discussed in sub-section3.2.1.

3.3 Effects on Relative Cereal IngredientUsage/Competitiveness

As rice is a cereal, it faces some competitionfrom other cereals in some markets where it isutilised. This means that the relativecompetitive position of rice with other cerealscan play a role in influencing usage. Morespecifically:

• Rice is primarily used as a staple fooditem for large populations in manycountries – 88% of total usage is as ahuman food source, with only 3% usedfor feed purposes and 1% subject to

17 The Everything but Arms trade agreement will allow the duty-free import of rice into the EU from least developedcountries from 2009.


39

further processing ‘as human foods’.This contrasts sharply with othercereals. Feed use is the most importantuse for maize and barley (64% and69% of total usage respectively) andrepresents significant usage markets forwheat (16%) and sorghum (50%). Theonly other cereal for which the mainuse is as a human food is wheat (72%).Like rice, wheat use as a source ofhuman food is mainly found incountries where wheat is most suitablefor growing – temperate climaticregions;

• This importance of rice as a food sourcelargely reflects its suitability for growingin the SE Asian region where no othercereal can grow as well or under suchhigh rainfall conditions. In addition, ifthe countries of Asia attempted to feedtheir populations by other cereal means,they would probably fail – populationdensities would probably besignificantly lower than they currentlyare if rice was not widely available;

• The importance of rice (and wheat) assources of staple human foods meansthat in each country where either riceor wheat is mainly grown, the cropscompete as a source of human food,only at the margin (rather than as directcompetitors). Rice tends to competewith wheat as a source of human foodonly once basic human foodrequirements have been met andincomes rise above subsistence levels.Thus rice competes with a variety ofother cereals (eg, wheat, durum wheatbased products like couscous and pasta)

as a human food source in developedeconomies, although as income rise indeveloping countries some shifts inconsumption patterns away from ricehave already been occurred and areforecast to continue - see sub section 3.1;

• In the feed sector, cereals are primarilya source of carbohydrate and fibre,although protein content is also relevant(the primary source of protein being fromprotein crops/oilseeds). Consequently,most cereal sources are considered tobe largely interchangeable from thepoint of view of feed manufacturers andhence, price tends to be the keydeterminant influencing which cerealsare used. The relatively low level of riceuse in animal feed globally largelyreflects a) its primary role as a source ofhuman food in countries wherealternatives are limited, b) globalproduction of livestock products is moreheavily concentrated in temperateclimatic regions where other cereals aremore readily available to the local feedindustries – in SE Asia rice bran is usedin the animal feed sector, c) feedstandard wheat, barley and maize tendto trade at a discount to rice on worldmarkets. For example the respectiveaverage prices for a tonne of feed wheat,maize and milled rice in 2001 wererespectively $105/tonne, $84/tonne and$220/tonne.

The application of new technology and newtechniques to rice (and other cereal) productionsystems essentially results in improvements tothe competitive position of the beneficiary crop.


40

The most common way in which crops such asrice have traditionally benefited from technologyadvances is through yield improvements (e.g.,from traditional plant breeding of higher yieldingvarieties). These technology advances havecontributed to increases in the ratio of returns toinput costs and have been the major objectiveof traditional breeding of new varieties for manyyears. Also in this context, are breedingcharacteristics such as GM herbicide toleranceand GM fungal resistance, which reduce thecosts of growing crops, and hence also improvethe ratio of returns to costs.

The key point to note here is that the widespreadadoption of a new cost reducing technologysuch as GM herbicide tolerant or GM fungalresistant rice is contributing to improving thecompetitive position of rice relative to othercereals. This means that unless the rate ofintroduction and commercialisation of GM (orconventional) cost saving (agronomic traits)technology to other cereals matches that of rice,over the next ten years, the relative competitiveposition of rice will improve. Although thisreport does not cover the adoption and potentialcommercial availability of similar technologydevelopments for other cereal crops, it doesappear that rice will be an important foci forGM agronomic trait development in the next10 years, with the introduction of herbicidetolerant, fungal resistant and insect resistant traits.This largely reflects the size and importance ofthe global rice crop to many developingcountries. This points to reasonably widespreadadoption of GM agronomic traits in rice by 2012and to the competitive position of rice improvinga little relative to other (temperate) cereals thatare currently faced with greater levels of public

hostility to GM technology adoption (forexample, it is probable that herbicide tolerantand fungal resistant rice will be commerciallyavailable earlier and adopted more widely thanany GM agronomic trait wheat). As a result riceuse may increase relative to other cereals insome developing countries largely dependenton imported cereals to feed their populationsand in the feed user sectors.

3.4 GM Derived Versus Non GMDerived InternationalCompetitiveness Implications

The development of any GM derived versus nonGM derived rice markets over the next 10 years(see sub-section 3.2.4 above) is likely to havesome impact on different countries and groupswhich trade in the global marketplace. Thissub-section briefly considers some of the mainimplications.

3.4.1 Users/consumers of rice in marketswhere the demand for non GMderived material is greatest (e.g., theEU)

3.4.1.1 The rice milling and rice usingelements of the food industry

In sub-section 3.2.4 it was emphasised that theprice differential between GM derived and nonGM derived rice will be borne through thesupply chain back from retailers and hence willprobably fall on rice millers and foodprocessors/manufacturers.


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The net effect of this development, should itoccur, will be reduced margins to foodmanufacturers and rice millers. Where riceingredient use is small relative to total ingredientuse this is unlikely to represent any significantproblem to food manufacturers. However, forrice millers, where rice accounts for animportant cost component, the implications arepossibly more negative, especially as from 2009EU rice millers will be faced with duty-freeimport competition from rice originating in leastdeveloped countries (countries which may wellalso have access to and use GM cost reducingtechnology).

Overall, it is factors other than GM issues (i.e.,trade mechanism and policy changes) that arethe primary concerns of the competitiveness ofthe rice milling sector in the EU, although theGM versus non GM issue may constitute asmall, additional negative on industryprofitability, income generation andemployment.

3.4.1.2 Exporters of rice based in countries withmarkets for non GM derived riceSuccess in exporting agricultural and foodproducts onto world markets is heavilydependent on being price competitive. As such,a key element of export competitiveness ishaving access to raw materials at the lowestpossible cost.

The sector of greatest relevance here is the ricemilling and exporting industries. This meansthat where countries have well developed ricemilling sectors that are export oriented (e.g.,japonica rices from Italy), their ability tocompete on global markets is significantly

influenced by their ability to access the lowestpriced japonica paddy rice available or,alternatively access to export subsidies thatoffset the difference between uncompetitivelocal raw material prices and world prices. Inthe case of rice millers located in the ricegrowing countries of the EU, the scope foraccess to and use of export subsidies has alreadybeen reduced by the Uruguay Round WTOAgreement and this will be further eroded inthe next ‘Doha’ Round (likely to beimplemented from 2005/06 onwards). Couplethis with the opening of EU markets to duty-free rice imports from the least developedcountries in 2009, it will become vital for EU-based rice mills to have access to the mostcompetitively priced (paddy rice) raw material.As rice derived from GM (agronomic traits) ricewill be cheaper to produce than rice derivedfrom non GM rices, it (GM derived) will becomethe favoured source of paddy rice for millerscompeting in a highly competitive marketplace,provided markets for (EU milled) rice do notactively show preferences in favour of non GMderived rice. As indicated earlier, the EU iscurrently developing a market segment thatwishes to avoid consuming GM derivedproducts and this is also likely to develop withinthe rice sector from about 2004/05 when thefirst GM rices are likely to be growncommercially. This development of a non GMelement to the market will push EU-based ricemillers, which service the EU market, to sourcethe less competitively priced non GM rice,adding cost to their production systems that theywill not easily be able to re-coup (even in theEU market where demand for non GM materialwill be greatest). If this category of (non GM)rice is also the base material used for milled


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rice exported (out of the EU) this could adverselyaffect export competitiveness in markets whereconsumers are less sensitive or indifferent to theGM versus non GM derived food issue.

The only alternatives available for rice millersand exporters faced with these potential marketcircumstances will be to a) concentrate onexporting to markets where the demand for nonGM rice is strong or b) source GM derivedpaddy rice for milling. The first of thesealternatives is faced with the problem that themarket will be a small and largely EU onlymarket and the second alternative leaves EUmillers with a problem of being located a longway from the production regions. This will addcost and reduce competitiveness relative tomillers based in the main producing regions ofthese rices – the EU is also unlikely to haveapproved GM rice for planting when GM ricebecomes commercially available in other partsof the world. The most cost effective action forEU millers would therefore be to get local (EU)growers to plant GM varieties and then tosegregate the two categories of rice for milling:GM for export and indifferent consumers in theEU and non GM for discriminating EUcustomers. Inevitably this will add some costsand contribute to some reduced (export)competitiveness.

3.4.2 Suppliers of rice in the main riceproducing countries

3.4.2.1 Growers and millers of GM rice

This category of producer/user in countries suchas China, India, Thailand, Indonesia, Vietnam

and the USA will be producing and sellingproducts that are highly price competitive, bothdomestically and on world markets. The onlymarket to which their produce will be deniedis the market for products derived from non GMmaterial, which will be very small relative tothe total volume of global production and trade.

3.4.2.2 Growers and millers of non GM riceThis category of producer/miller is mostly likelyto be found in parts of the EU, the USA, Thailandand Japan and will be producing and sellingproducts that are less price competitive onworld markets than GM derived rice. Theirproducts will need to service markets wherethe demand for non GM derived material isstrong and where these markets are preparedto pay the necessary additional costs involvedin growing non GM rice and undertaking theassociated IP systems required to ensure thatthere is no adventitious contamination of theproduct on route to markets.

In the immediate period of about 2-3 years after2004, this market may provide marketopportunities for a minority of producers andexporters of rice located in the EU, USA,Thailand and Japan. However, in the longerterm, this small market is likely to decrease inimportance towards 2012, making it purely aniche market attractive to a small number ofgrowers and millers.

It is also important to recognise that if a majorrice producing country (e.g., Thailand) were toprohibit (and enforce) the growing of GM(agronomic trait) rice, it would be denying itsrice export industry a competitive advantagein the majority of its export markets.


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4 SUMMARY AND CONCLUSIONS

4.1 Global Importance of Rice

1. There has been a broadly stable areaof rice planted globally over the lastfive years although the level ofproduction has increased by 12%relative to the early 1990s. Thereforeincreases in yield have been the mainorigin of the higher levels ofproduction.

2. The vast majority of global productionand consumption of rice is found inAsia (e.g., 88% of global riceconsumption).

3. Only 6% of global rice production istraded globally and three-quarters ofthis trade is indica varieties. Theimportance of trade relative toproduction is much lower for rice thanfor the other leading cereals (e.g., tradeaccounts for 13% of global maizeproduction and 22% of global wheatproduction).

4. The vast majority of rice is consumeddirectly for human food (88%). Thiscontrasts with other cereals. Food useaccounts for 72% of wheat use andonly a small share of barley and maizeuse. Animal feed use is the primaryuse for barley and maize and is animportant usage for wheat. In contrastfeed use accounts for only 3% of totalrice use.

5. Rice prices are currently at an historiclow, having fallen by 30%-40% overthe last 10 years.

4.2 Rice Biotechnology Development

6. There are many players in the field ofrice biotechnology including publicand private organisations. Of the 16leading organisations, 5 are multi-national biotechnology companies, 6are boutiques/specialist biotechnologycompanies and the balance areinternational and national institutions/organisations.

7. For the mainstream (five) multinationalbiotechnology companies, rice hasbeen an important priority crop forresearch but in recent years it has beendowngraded to a ‘second/third’ tier crop(in terms of priority for regulatoryapproval and commercialdevelopment). This largely reflects aperceived limited scope for capturingvalue through the rice crop and hencea reasonable return on investment.

Nevertheless, considerable investmentis being made by commercialorganisations and international/nationalbodies on sequencing the RiceGenome. This makes rice the mostgenetically understood of all cerealgrains and is being used as a model forcereals. Also over the last 10 years therehave been considerable amounts ofpublic funding and institutional support


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in laying the foundations forlaboratories in the key rice producingcountries to take advantage of modernmethods of rice transformation andgene expression.

Public-private partnerships indeveloping rice biotechnology aremaking steady progress as illustrated bythe Golden Rice Initiative and theformation of the Humanitarian Boardfor Golden Rice.

8. Successful transfer of biotechnologydevelopments to commercialapplication requires germplasm, plantbreeding capability and seedmultiplication. Monsanto and Aventishave relevant capability in some of theleading rice producing countries andIRRI acts as a major source of advancedbreeding, germplasm and varietiesthrough its well established network inAsia, Africa and South America. Inaddition, there are a number ofimportant, national (publicly funded)plant breeding programmes (e.g., inIndia, China, Vietnam, Malaysia) eachof which has proprietary germplasmand access to IRRI’s material.

9. Our forecasts for release of GM traits inrice (see Part 2) highlight that fourtechnologies are currently available andready for advanced breeding, seedmultiplication and release to farmers.These are herbicide tolerance, fungaldisease resistance (bacterial leaf blight),insect resistance (Bt) and nutritionallyenhanced rice (Golden Rice).

4.3 General Market Development

10. The main factors driving riceconsumption are population growthand income levels. In general, theseforces are ‘pulling in oppositedirections’ in the main rice consumingcountries with consumption per headdeclining as income risescounterbalanced by increases in theabsolute level of consumption aspopulations rise.

11. The main drivers of production aredomestic support policies, tradeagreements, the development of newtechnology and the price of rice.

12. The projected nature of the global ricemarket in 2012 (in the absence of GMdevelopment) is for global riceconsumption to rise from 584 milliontonnes (paddy equivalent) to 660million tonnes (paddy equivalent) andfor global production to increase from585 million tonnes (paddy equivalent)to 672 million tonnes (paddyequivalent). The planting area isexpected to remain broadly stable overthe next 10 years.

13. Global trade in rice is forecast toincrease by about 10 million tonnes to44-45 million tonnes (paddyequivalent). Relative to production thevolume of trade will be 6.7% of globalproduction compared to 6% currently.The forecasts above point to the worldmarket for rice being broadly in balancein 2012 (a small surplus). However,


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these forecasts are based on both globaldemand/consumption and productionincreasing at a compound rate of about1% per year to 2012. If the rate ofchange to either production orconsumption is altered (e.g., 0.5%additional rate of increase in demandor –0.5% to the rate of productionincrease) this will result in significantshortfalls in the global supply balanceposition for 2012. This highlights thevulnerability of the global rice supply/

demand position to for example, smallnegative changes in the level of annualproduction and the limited nature ofsecurity to the global rice balance.

4.4 Impact of GM Technology

14. Our forecasts for the projected timingfor commercial, farm level use of someof the leading GM rice developmentsare summarised in Table 16. These

Table 16. Projected Time Periods for the Probable Farm Level Use of GM Rice 2002-2012

Herbicidetolerance

Disease (fungal)resistance

2004-05

2005-06

Ready for release in 2002 but held back largely by political/regulatory approval processes. Availability for use is assumed tostart from 2004-2005.

It is assumed that the technology will reach the farm level inChina and India first by the biotechnology companies(Monsanto & Aventis) seeking collaborations with breeders andobtaining approval from national authorities. The technologywill become available at the farm level and its cost effectivenesswill then drive uptake. This will then act as a catalyst forregulatory approval and uptake in other important rice growingcountries in Asia. It is also assumed that no licence fees orpremia on seed costs are charged and hence this will not act asa barrier to adoption - a similar scenario to the release ofherbicide tolerant soybeans in Argentina.

Bacteria leaf blight is a major problem for Asian growers. Theresearch of the Xa21 gene is well advanced, shows broadspectrum resistance to all races and is endogenous to rice.

Period in whichgreater than 80%

probability ofavailability to

growers

Comments/Assumption

continued ...


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Table 16. Cont’d. Projected Time Periods for the Probable Farm Level Use of GM Rice 2002-2012

Insect resistance

Nutritionallyenhancement

2005-06

2007-08

It is assumed that IP rights can be agreed and IRRI, through thenetwork of international breeding stations disseminates parentaltransgenic material to breeders. Regulatory approval is firstgranted in China and widespread adoption in China occurs. Itsefficacy and positive yield impact will then drive uptake acrossChina and into other Asian countries. Wider regulatoryapproval may not be initially forthcoming in some countries(e.g., possibly Thailand) but the clear benefits of the technologywill drive uptake (which may include unapproved plantings insome countries where the regulatory approval process movesslowly).

Insect resistance using Bt genes is a well established/provenmethod of insect control. The introduction of Yellow StemBorer/Lepidopteran pest resistance will result in more secureand higher yields and reduced use of insecticides.

It is assumed that, through a combination of gene discovery andcollaboration, breeders in China and India will release Bttransgenics in rice to growers. The technology will becomeavailable at the farm level in these countries and its costeffectiveness will then drive uptake. This will then act as acatalyst to uptake in other important rice growing countries inthe region. It is also assumed that no licence fees or premia onseed costs will occur in China but there will be some room forcommercial incentives in more market oriented economies.

The portfolio of ‘Golden Rice’ genes provides a combination ofenhanced vitamin A and improved iron bio-availability, both ofwhich are important to improving the nutrition and well beingof populations in many developing countries.

It is assumed that through a co-ordinated approach by theGolden Rice Humanitarian Board, regulatory approval andinter-action with national breeding programmes will result in thematerial being made available through the CGIAR and nationalbreeding programmes.

Period in whichgreater than 80%

probability ofavailability to

growers

Comments/Assumption

forecasts take into consideration,political, economic and intellectualproperty right factors of influence.

4.5 Impact of GM Technology on RiceProduction

15. Drawing on analysis presented in Part3, the following are some of thepotential impacts of GM rice by 2012:

• Assuming the equivalent of 40%global adoption and a 10% netpositive effect on yields, by 2012 thiswould result in an additional 23-29million tonnes of rice productionrelative to baseline (non GM adoption)production forecasts. This isequivalent to about 5.86 millionhectares of rice (3.9% of forecast 2012plantings). If adoption levels were50% then the production increasewould be an additional 25-33 milliontonnes;

• If the positive yield impact wasextended to an average of +15% (at40% adoption levels) the positiveimpact on global production would be+42 million tonnes, the equivalent of8.41 million hectares or 5.5% of theforecast global planting area in 2012;

• If current baseline assumptions forgrowth in demand for rice by 2012 areused, a 40% adoption rate for the GMrices examined above would result inthe potential for reductions in the global

area planted to rice of 4% (+10% yieldresponses assumed), freeing up this areafor alternative uses and reducingpressures on demand for theincreasingly scarce resource of waterin many rice producing countries;

• If the more pessimistic assumption forgrowth in demand for rice is assumed(+1.5% compound increase indemand pa over the next 10 years),then the adoption of the GM ricesreferred to above would largelyeliminate the global supply deficit ata 10% positive yield impact.

4.6 Impact on Prices

16. Quality traits : The commercialdevelopment of value added traits inrice is not a major priority for theleading biotechnology companies –their focus is much more on oilseedsand other cereals (notably maize). Asindicated above, the main quality traitin rice that is likely to be growncommercially is nutritionallyenhanced rice, which targets dietarydeficiency in developing countrypopulations. As these forms of riceneed to be kept segregated frommainstream rice varieties, there willinevitably be some, probably smalladditional cost involved in supplyingthese rices to the market. Theseadditional costs will be in the on andpost farm part of the supply chain andwill result in a small price premia


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relative to mainstream rices. Based onevidence of existing (non GM) qualitysegments of other rice, cereal andoilseed crops, this premia willprobably be in the region of 5%-10%(it should be noted that the premia willbe higher than this if nutritionallyenhanced rices are more expensive togrow than conventional rices, e.g.,have lower average yields).

17. Agronomic traits: Assessing the impactof agronomic, cost saving technologyon agricultural crop prices is difficultbecause prices reflect a multitude offactors, of which the introduction ofnew technology is one factor ofinfluence. Also there are no currentexamples of the commercialapplication of GM (agronomic trait) riceon which data can be drawn.Nevertheless, some conclusions can bedrawn from current examples of theapplication of GM technology in othercrops (notably soybeans). The key pointto note about the application of GMcost reducing technology in soybeansis that it has contributed to a loweringof the real price of soybeans tradedglobally (and within the mainproducing countries). Estimates madein the USA suggest that global soybeanprices may have fallen by between0.5% and 1% as a result of adoption ofherbicide tolerant soybeans by 2000(this estimate assumes that there are noyield benefits), that the impact on priceswould be –2% to –2.6% if there wasglobal adoption and that if there was

global adoption of the technology andsignificant (+5%) yield benefits werealso derived, the impact on price wouldbe –5% to –6%.

4.7 GM Versus Non GM Markets:Segregation/IP and Trade Patterns

18. The following points are of importancein influencing these developments inthe rice sector:

• The nature of the global market for ricehas some important differences to thecurrent market for soybeans (andmaize). These include i) the majorityof soybeans and maize are used asanimal feed ingredients whilst themajority of rice is consumed directly ashuman food ii) rice is mainly producedand consumed in lower incomecountries in Asia, with consumption indeveloped countries accounting for asmall minority of total production, iii)trade is a less important part of globaluse of rice (the equivalent of 6% ofproduction relative to over 20% forwheat, 13% for maize and 30% forsoybeans), iv) the global rice tradeprobably has a greater number of sub-markets and segments (e.g., japonicarices relative to indica rices, aromaticrices (e.g., Basmati, jasmine) than is thecase for a crop like soybeans;

• Those with strong anti-GM technologysentiment and the requirement toconsume food not derived from GM


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crops tend to be mostly in higher socio-economic groups and found in thehighest income, developed countries.

Given these factors we do not expectany significant development of any GMversus non GM markets in the ricesector. Initially from 2004-05 it maydevelop to 2%-2.5% of globalconsumption or 9.5 million tonnes(inclusive of aromatic rices consumedin developed countries), but by 2012,it is likely to be no more than 0.5%-1%of global production (3.4-6.7 milliontonnes) and affecting only 1%-1.5% ofglobal trade (0.5-0.7 million tonnes). Ineffect it will, by 2012 be a small, nichemarket.

19. The lack of regulatory approval (evenfor importation) of GM rices in somedeveloped countries is unlikely to holdup the introduction of GM agronomictraits in the main producing countriesbecause of the lack of significance ofdeveloped country demand for rice.

20. The non GM market will beconcentrated in the EU and possiblyJapan. It will also affect some of thehigher quality indica rices like Basmatiand jasmine and will mainly impact onthe regions/countries that traditionallysupply rice to the EU/Japan markets. Asboth Basmati and jasmine rices arecurrently subject to segregation throughthe supply chain, any additionalrequirements about being derived from

non GM rice is unlikely to addsignificantly to the way in which theserices are produced and supplied tomarkets, although additional (marginal)costs will be incurred in providingcertification to demonstrate noadventitious contamination with GMrices.

21. Higher value rices are also likely to beless attractive to plant breedersdeveloping GM rice germplasm thanmainstream ‘IRRI’ rices because of themuch smaller size of the respectivemarkets.

22. The main rice producing countries inwhich requirements for segregation/Identity Preservation of GM from nonGM derived rice is likely to be initiatedare:

• The US - an important source of indicarice to the EU market, especially to theNorthern EU states where anti-GMsentiment is strongest;

• Thailand – because of the importanceof jasmine rices (the main rice exportedto the EU);

• Parts of India and Pakistan, because ofthe importance of Basmati, which hassignificant sales into the EU.

Lastly in the case of nutritionallyenhanced rice, these rice need to bekept segregated from mainstream riceand therefore will be subject tosegregation/IP.


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Table 17. Winners and Losers

Adoption of GM(agronomic traits)rice

Adoption of GMquality traits(nutritionallyenhanced rice)

Global users and consumers (lower realprices) and greater security of supply

Farmers: reductions in costs ofproduction, higher yields, greaterflexibility/convenience, additionalrevenues

The technology innovators(biotechnology companies): sales ofallied products to GM seed (notablyherbicides) and ‘spin off’ gains foradoption of GM technology in othercrops (see concluding comments)

Developing country governments:improved food security and probablereductions in import requirements intraditional importing countries (lowervolumes required and imports at lowerprices)

The environment: less pesticide use

Consumers accessing improvedproducts with better nutritional content

Developing country governments:improved health and welfare ofpopulations

Technology providers (biotechnologycompanies): demonstration of theutility of the technology leading to‘spin off’ gains for wider acceptance ofGM crops

Non adopting farmers: fallingprices but no cost savings or yieldbenefits

Technology innovators (biotech-nology companies): limited scopefor earning returns on GM innova-tions and for some, reduced salesof agro-chemicals – replaced byGM pest & disease control mecha-nisms

None

LosersIssue Winners


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4.8 Winners and Losers

These are summarised in Table 17.

4.9 Concluding Comments

The information and analysis presented in thisreport highlights that there are a number of GMrice traits that are either ready for or close toreadiness for commercial use. These offer somepotentially substantial benefits ranging from theprovision of nutritionally enhanced rices fordietary deficient populations in developingcountries, to the provision of higher yielding,lower cost rice production. In addition, thetechnology has the potential to make importantcontributions to enhanced food security indeveloping economies.

Nevertheless, the application of GM technologyis currently ‘stalled’ through a combination ofreasons including politics, intellectual propertyrights, regulatory approval processes andopposition to the technology from someinternational interest groups.

Our analysis and forecasts presented in thisreport for the global rice market and thedevelopment of GM technology points to GMtechnology playing a significant and growingrole by 2012. This clearly assumes that thefactors that are currently ‘stalling’ progress arelargely overcome in the next 2-3 years.

We perceive that the driving force for this willcome from the adoption of GM rice technologyat the national level. Here the largely publicsector plant breeding and research bodies in

China, Vietnam and possibly India, will drivethis based on the desire (of their respectivegovernments) to reap the benefits of thetechnology for their domestic economies, forpopulation nutritional enhancement and forimproved food security. Once GM rice isadopted in countries like China it is likely thatthe clear benefits of the technology will driverapid uptake across Asia and political andregulatory opposition is likely to subside ‘in theface of the clear benefits’.

Clearly the speed with which this may happenwill be influenced by the willingness of thosebiotechnology companies and researchinstitutes to strike deals over the intellectualproperty rights held on some of the GM traits.Some traits (notably those being developedindependently in countries like China) will notbe dependent on this process, whilst others will.Therefore the willingness of holders ofIntellectual Property Rights on GM rice to agreefavourable ‘deals’ with international bodiessuch as IRRI and public sector plant breeding/research bodies in countries like China,Vietnam, India etc will have a significantinfluence on the speed of uptake.

As the holders of IP rights on GM rice weigh upthe pros and cons of striking such deals (themain negative being the apparent limited natureof commercial incentives within the rice sector),it may be worthwhile for these IP right holderstaking a broader look at the issues by examiningthe wider benefits to be obtained fromdisseminating GM technology for rice tonational and international bodies with little orno restriction or cost to use. Whilst theopportunities to derive commercial benefits


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from the technology in rice may be low,opportunities from “knock-on” effects in othercrops are much more significant. Certainly ifGM rice is made widely available across Asia(without undue restrictions on users having topay significant royalties/license fees), its rapiduptake in the region has the potential todemonstrate across the world the benefits of thetechnology. In turn this may make a valuable

contribution to reducing opposition to GMtechnology, especially in developedeconomies. In turn this may contribute tofacilitating regulatory approval and uptake ofthe technology in all crops in these countries –countries in which the scope for derivingreasonable returns on innovations is muchhigher than in developing countries.


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