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Connecting the dots on GM wheat implications for Montana farmers

(Thursday, Oct. 24, 2002 -- CropChoice news) -- Dan McGuire, director of the Farmer Choice-Customer First program of the American Corn Growers Association, presented this speech today at the 87th annual convention of the Montana Farmers Union.

It's a real pleasure to be here at the 87th annual convention of the Montana Farmers Union. I'm here representing the Farmer Choice - Customer First program of the American Corn Growers Foundation and American Corn Growers Association, but I'm also a life member of the National Farmers Union and a state board member of the Nebraska Farmers Union so I can attest to the great job that the NFU state and national organizations do to represent you at the state, national and international level.

We're going to talk about GMOs here today, one of the most serious international wheat and grain marketing issues to face wheat growers, ever. I rank the GMO issue right up there with farm programs and the World Trade Organization (WTO) as a major marketing and price concern, one that will impact your income and shape the future structure of farming and the rural economy. Regarding GMOs, I want to first mention that we cannot be "spectators" on this issue, while biotech companies and giant agribusiness set policy. Just as with the WTO, we have to be proactive. And on the point of being proactive with the WTO, I want to commend your state and national NFU leadership for their upcoming very proactive trip to Geneva, Switzerland to participate in WTO meetings. National NFU leaders, President Dave Fredrickson, national officers John Hansen of Nebraska and Robert Carlson of North Dakota, and NFU staff Tom Buis and Jim Miller and some others that I may have overlooked mentioning will be there representing your interests. I salute them for not just being spectators from 3,000 or 4,000 miles away, but going right to where the action is. After all, the WTO is being used by giant, concentrated, powerful, transnational agribusiness corporations to control the future of farm policy, trade policy, GMO policy, food production and the price you get for your commodities and they're agenda is primarily to enhance their economic bottom line, not yours. They are the same entities that have promoted the dismantling of U.S. farm programs all the way from lowering or eliminating price support loans to getting rid of farmer-owned reserves and all the proven farm program price-impacting tools that worked to the advantage of farmers in the past. These are the same corporate players that said the U.S. had to lower its commodity prices to "be competitive" in the global market. The failed record on that strategy is absolutely clear, lowering U.S. prices does not make U.S. commodities more competitive in global trade because our foreign export competitors lower their prices in lock step with U.S. board of trade prices and/or adjust the value of their currency so that they always remain lower priced. To emphasize that point I want to remind you that U.S. wheat exports in MY 1980/81 reached nearly 1.8 billion bushels. In the most recent marketing year that ended on May 31st, U.S. wheat exports were a mere 961 million bushels or only 54% of the 1981 level, a year when we had a $3.65 per bushel true price support loan rate.

So what did low wheat prices do for exports? Absolutely Nothing! In fact the announcement in 1985 that the U.S. was lowering its loan rate caused foreign buyers to hold off buying, in anticipation of lower prices. They've been buying on a hand-to-mouth, just-in-time delivery basis every since. I'm glad we opposed that farm bill. Isn't great to have been on the right side of that farm policy argument as NFU and ACGA have been ever since? Current farm policy is not about the U.S. being competitive but simply about keeping the price of your commodities low until the processors, exporters and mega-feeders have them in their hands. Now that I have my quick farm policy review out of the way up front, let's get into analyzing GMOs and what their impact will be on you.

It's very important to address the issue of GMOs and the potential market impact of GMO wheat specifically. First, a little background on my experience in the wheat sector and a bit of a review of the economic bill that farmers have been largely footing for over 50 years. For 12 years, from 1978 to 1990, I was the agency director of the Nebraska Wheat Board. As such I managed the check-off funded wheat research contracts that the Board had with the University of Nebraska. Those contracts went as far back as the mid 1950s, nearly half a century ago. Farmers paid in, and continue to pay wheat check-off dollars under contract with the University to improve wheat varieties, including disease resistance, yield improvement and enhancing the intrinsic quality attributes that are desirable to domestic and foreign wheat millers, bakers and consumers. While that product development and improvement investment was being undertaken and matched with state and federal tax dollars, a parallel program was underway to develop export markets for U.S. wheat, also using a similar mix of public producer and tax dollars, including right here in Montana and nearly twenty other states with the same objective in mind, improve wheat varieties to suit the end use needs of world buyers and then promote those varieties on a global basis, thereby satisfying the demands of wheat processors worldwide and the demands of their ultimate market -- THE CONSUMERS OF THE WORLD! This investment was made as a way to make U.S. wheat varieties more competitive and more desirable in the world market. But, since multinational agribusiness exporters, not farmers, actually do the exporting of U.S. wheat (except in rare cases), the idea in promoting wheat exports is obviously to reduce wheat inventories here in the U.S. and increase wheat prices to farmers where they sell, at the local or regional elevator or mill! The strategy is pretty basic in the business world. You might say it takes a page from Marketing 101 in college which more or less says you have to approach the market from the premise that "The Customer Is Always Right" if you want to keep the customer and have repeat sales. That's not to say that you have to believe that "the customer is always right for the right reasons", but if they have an alternative source of supply, which is the case regarding U.S. wheat in the world market, then if you don't treat them as if they're right and do what it takes to supply the wheat varieties they want to buy, you stand to lose them as a market and allow competitor exporters to get their foot in that market door.

I would also be remiss if I didn't mention other initiatives that some of us launched during those years to make U.S. wheat more competitive in world trade. Those included the improvement of the U.S. grain standards and a Clean Wheat Initiative, aimed at pushing some forward thinking exporters to install grain cleaners, so that foreign buyers would have the opportunity to purchase cargoes of U.S. wheat that were as clean and as low in defects as Canadian wheat. I'm pleased to say that we succeeded with that strategy and I can tell you that as a direct result cargoes of No. 1 grade, high quality, clean Dark Northern Spring wheat have been exported from the Port of Duluth, going to cash paying buyers in Europe every year since 1989. I can assure you that this has happened because I've been directly involved in those exports. Those shipments continue today because we took the approach that the customer is always right and that to succeed in the export market it is essential to have a customer-oriented strategy.

Now, to specifically "connect all the dots" regarding Montana and the stake that you have concerning what happens if GMO wheat is introduced. Lets first acknowledge that the biotech company promoting the introduction of Roundup Ready wheat announced that it would first introduce it in the spring wheat class. Montana is the second largest spring wheat producing state with this year's production estimated at 78 million bushels. Montana also produced about 12 million bushels of durum wheat and 24 million bushels of winter wheat in 2002 according to USDA. Your spring wheat production puts you on the front line of "what happens" if GMO wheat is introduced. The DNS wheat raised in Montana, the Dakotas, Minnesota and the PNW is the highest quality wheat raised in the U.S. It is what competes with Canadian Western Red Spring in the high quality world market.

So, what kind of a scenario would likely play out if GMO wheat were to be introduced here in the U.S.? Lets first take a minute to look at what happened to the U.S. corn sector and U.S. corn exports since GMO corn varieties were introduced in the U.S. in 1996. Here is a review of the record:

  • U.S. corn exports dropped from 2.2 billion bushels in MY 1995/96 to as a low as 1.525 billion in MY 1997/98 and have only bounced back to 1.9 billion bushels in the just ended MY 2001/02. That's 300 million bushels less than when GMO corn was introduced six years ago.
  • In MY 95/96 the U.S. exported over 2.7 million metric tons (MMT) of corn to the European Union. That export level dropped the next year to 1.7 MMT and has gone to nearly 0 U.S. corn exports in the MY 2001/02 marketing year that just ended. Only 3,100 metric tons or about half a trainload of U.S. corn was exported to Europe in the marketing year that just ended on August 31st. Europe continues to import about 2.5 MMT of corn each year, but a trade report last week indicated that Spain alone will import 3 to 3.5 MMT this year, but not from the U.S., from Argentina and Eastern Europe.
  • U.S. corn gluten feed exports to Europe dropped from 5.5 MMT in MY 1995/96 to 4.4 MMT in MY 2000/01 and are said to be up a little in the year that just ended. Corn gluten exports are a key part of making ethanol plants profitable so any reduction in those exports threatens our ethanol and bio-energy industry.
  • Because of the GMO corn variety StarLink, Japan (the largest export market for U.S. corn) cut its U.S. corn purchases by 53 million bushels, from 15.81 MMT in MY 1999/00 to 14.56 MMT in MY 2000/01.
  • USDA reported last week that "in just four years, China has replaced the U.S. as the predominant corn supplier in three key Asian markets. The U.S. now has only a quarter of its former market share in South Korea, Malaysia, and Indonesia, while China's share in these markets has tripled." (What happened to all those bushels and tons of U.S. corn that we were supposedly going to be exporting to China by now under the PNTR, WTO-style agribusiness, free trade agreement that so many commodity and farm groups were promoting a few years ago. I'm really pleased that the ACGA and NFU worked against that trade deal. Our farm and trade policies are being proven more correct each year.)
  • In summary, we estimate that the loss of these corn exports has added about 400 million bushels to U.S. corn inventory on a cumulative basis since MY 1997/98. If we would have begun calculating in MY 1996/97 when U.S. corn exports to Europe dropped by a million tons and used an annual factor greater than a loss of 1.6 MMT to Europe every year since, that number would be much higher and closer to .5 billion.

So, what's the market and economic impact of those foregone corn exports and the resulting month-after-month higher inventory and year-over-year higher ending stocks? It becomes crystal clear when you realize that the farm-level average market price of corn has dropped from $3.24 per bushel in MY 1995/96 to $1.93 per bushel in the year we just ended. There's also a corollary, negative economic and public relations impact for farmers. Low corn prices, just like low wheat prices, increase the cost of federal farm program payments. Farmers are still experiencing an unwarranted, but very real, negative public perception regarding income transfer payments through the farm program. And, GMO-driven lost corn exports contributed to that farm program and marketing issue as well. The same will happen with GMO wheat and keep in mind that as bad as the recently-passed 2002 farm bill is, it did raise wheat loan rates somewhat so low wheat prices from lost wheat exports will increase wheat LDP payments even more than before. We can't consider current drought-driven grain prices as "normal" under this farm policy.

Now, lets imagine a scenario where GMO spring wheat is commercially introduced and planted either here in the U.S. or in Canada or in both countries. I expect the marketing impact to be as follows:

  • As soon as the all important cash wheat buyers in Europe, Asia and elsewhere become aware that GMO wheat will be planted, for instance if they knew Roundup Ready spring wheat would be planted in the spring of 2003, they would begin arranging for other non-GMO sources of supply. Indeed, I expect they are already protecting themselves in that regard. On Monday, I spoke to a European grain trader who is traveling through Russia right now. He pointed out that Europe is already buying high quality hard wheat from the Ukraine and other regions via Black Sea ports. He added that wheat suppliers are well aware that North America will become highly vulnerable to losing markets if they introduce GMO wheat and are already considering development projects to increase wheat production and exports as a way to capitalize on that potential situation and become preferred suppliers to those importers that will demand non-GMO wheat.
  • The near 1 million metric tons of U.S. spring wheat that has been exported to the European Union the past two marketing years will be immediately lost. Keep in mind that a million tons is equal to about one half of the entire spring wheat crop produced in Montana this year. Also keep in mind that total, the European Union bought nearly 2.2 MMT of all classes of U.S. wheat this past year, when the totals for each class are combined. They bought a large amount of Durum, also raised in Montana and Spain bought a considerable amount of Soft Red Winter wheat. I expect exports of every class of U.S. wheat would be in serious trouble if GMO varieties were introduced within any U.S. class. I say that because given the nature of the U.S. wheat production and handling system all the way from the seed dealer through the custom combiners to truckers, country and terminal elevators, railcars and export houses, it will be difficult to maintain separation, segregation and identity-preservation. Just as with corn and soybeans there will be an attempt to maintain purity and identity-preservation but the buyers will lack confidence in that system on the scale necessary and will resist paying a higher price for IP which means the IP cost, if such a system is seriously tried, would be passed back to farmers just as with higher freight rates that result in lower wheat prices at the farmgate.
  • The approximate 1.3 MMT of spring wheat that the U.S. has exported to Japan will be in immediate jeopardy as processors and consumers in Japan have an even more serious concern regarding GMO wheat than they do relative to GMO corn and soybeans. The reason is obvious --wheat is milled and goes much more quickly and directly into primarily human food products whereas corn and soybeans go primarily through livestock before reaching people.
  • U.S. wheat exports in general will be stymied. Why? Because if GMO wheat is unacceptable to the foreign market, it could end up being discounted as undesirable here in the U.S. and the industry will likely try to blend it off into other classes of wheat. Keep in mind that the U.S. grade standards for No. 1 grade wheat allows 3% wheat of other classes to be in a class of wheat and still allow it to meet grade. No. 2 allows 5% so I could see the same thing happening with GMO wheat as has happened in the past when the grain trade blended lower grades with higher grade or lower classes with higher value classes to get rid of a low quality wheat problem. If that were to happen foreign buyers would avoid hard red and soft red winter wheat as well as spring wheat, causing a reduction in export demand and downward pressure on wheat prices.
  • Even if GMO wheat were introduced in Canada, but not in the U.S., the problem for the U.S. would be much the same given that from 90-100 million bushels of Canadian wheat comes across the border and enters the U.S. each year. Foreign buyers know that some of that could easily be blended with U.S. wheat and find its way into "U.S. wheat exports". This point sure makes me glad I testified against the U.S.-Canada Free Trade Agreement back in 1989.

Those are just a few of the market impacts from GMO wheat that I see on the selling side of the market for farmers, but keep in mind that there are also market impacts on the production input side of the marketing equation for farmers. I compare the potential GMO wheat problems on that side of the equation to Roundup Ready soybeans. Just as with soybeans, many farmers save wheat seed each year for planting the following year as a way to hold their cost of production down and, by the way, as a competitive factor to keep seed companies from raising wheat seed prices too high. Again, I use the freight sector to make a comparison on that point. Imagine what rail freight would be if there were no trucks or barges to help hold down rail rates. And, just as with Roundup Ready soybeans, Roundup Ready wheat will have patents and technology agreements that will likely prohibit farmers from seed saving under penalty of severe lawsuits and heavy fines. That has been the track record with GMO soybeans where lawsuits were filed by biotech companies against farmers whether or not it was clear that the farmers intentionally violated the patents. And, what happens if one farmer plants GMO wheat and the pollen from that wheat contaminates the non-GMO wheat of his or her neighbor? Or, what about the germplasm banks and foundation seed supplies? Reports have been around a few years already that the corn, soybean and canola germplasm supplies are already contaminated with GMO DNA to the extent that biotech seed companies won't certify that there is no GMO DNA in conventional, non-GMO varieties.

These concerns go to the heart of the structure and future of the U.S. farm and rural economy and who will control the food production of this nation and the rest of the world. National Farmers Union has done some excellent research and released some groundbreaking studies on concentration in the commodity and food production, processing, retail and exporting system.

I've said all along that GMOs and their related contracts will take grain production down the same road that corporate meatpackers and production contracts have taken poultry, pork and beef in terms of stealing market power from farmers and transferring what little market power farmers have left into the hands of biotech seed and chemical companies who already have joint ventures and partnerships with the likes of Cargill, ADM and ConAgra.

Farmers need to ask themselves if they want a future where a handful of corporate giants, with no loyalty to the United States, take control of the food system from DNA to dinner plate. Is weed control convenience and a temporary reduction in herbicide use worth the cost of creating more resistant weed varieties and the cost of losing export markets that you, your parents, your grandparents and your government have spent millions, indeed billions, of dollars developing for over half a century? Is that convenience worth losing your right to save seed and then being forced to buy a specific herbicide which is produced by the same biotech seed company that produces the wheat seed that the company will not allow you to save, even though public varieties that you and your neighbors helped pay for were used to help develop that GMO variety in the first place? To those farmers who say that short term weed control convenience is worth it, I recommend that they be prepared to spend their extra time and lots of additional resources defending farm program expenditures in order to support their income because when the cash paying, high quality wheat export customers evaporate and go elsewhere, as they will, farmers will again face the reality of seeing where the big agribusiness corporations stand on farm policy. They will be standing behind the WTO and its set of rules that they helped write and they will tell U.S. and Montana farmers that the WTO is now your boss on everything from price supports to GMOs and whether you will export or indeed whether the U.S. will import wheat!

Because, just as South America developed its soybean production (with the help of the U.S. treasury) and this year will export more soybeans and products than the U.S. for the first time in history. And, just as China has expanded its corn production and exports, with the help of U.S. tax dollars, and is capturing U.S. corn markets in Asia, other foreign countries, such as Eastern Europe and the former states of the old Soviet Union will develop wheat production and export it to Europe and elsewhere. They will do that and replace the need for you and your wheat if you give foreign wheat customers the incentive to seek out and encourage other sources of supply.

In conclusion, neither the American Corn Growers Foundation, nor the American Corn Growers Association tells farmers that they should or should not plant GMOs. We remain neutral on that decision-making aspect that can only remain in each farmers' hands. However, we will never remain neutral on the market impact that GMOs have had on U.S. corn exports and the prices received by U.S. farmers. We don't believe that the same agribusiness corporations that promoted the bogus theory of lowering U.S. grain prices and told all U.S. farmers to accept their "market -oriented" export strategy should now be unaccountable for introducing commodity varieties that reduce exports while putting a stranglehold on farmers rights. We are obliged to provide a comprehensive market analysis to our members and all U.S. farmers on these issues and, as I said earlier, connect all the dots between GMOs, exports, farm policy and the WTO. Doing anything less would be a disservice to our members and all U.S. farmers. I hope our information and my perspective has been helpful. It's great being here with you. Thank you.