TUM 1

GMO Regulations and Food Self-Sufficiency Rate

Qianqian Shao, Maarten Punt, Justus Wesseler

Technische Universität München

TUM 2

Main Idea

• Using a standard political economy model to show the GMO policy as an outcome of the political process.[Grossman Helpman (1994) and Eerola (2004)]

• Lobbying cost and GM regulations affect Food Self-Sufficiency Rate(SSR)s.

TUM 3

Previous Studies

• Josling et al. (2003): political economy analysis is important to show consumer preferences and conflicting pressure on governments.

• Graff et al. (2009): conceptual political economy framework of formulating biotechnology regulations.

• Swinnen and Vandemoortele (2011): dynamic political economy model to explain regulation in the EU and US.

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Food Self-sufficiency Rate

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GM Regulations and SSR

• Many countries with different SSR have a similar biotechnology agricultural policies.

• A government cannot ignore domestic food availability concerns while formulating agricultural policies.

• The level of GM input may influence food supply in a country.

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Paper Structure

• Socially determined GMO regulations

• Politically determined GMO regulations

• GMO regulations with SSR

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The Economy

• Production (domestic) Two sectors:– Tradable numeraire goods– Agricultural food sector including two firms

• GM firm: GM input (g), regulated to and conventional inputs (q)

• Non-GM firm: q

z

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Production

o Production function• GM firm:• Non-GM firm:

o Profit function• GM firm: (1)• Non-GM firm: (2)

( , )Gx kf g q ( 1)k

( )Nx f q

( ) ( , ) ( , )G G G Gp x kf g q c g q

( ) ( , ) ( , )N N N Np x f g q c g q

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Consumers• Three kinds of consumers– α :GM group– β: Non-GM group– (1-α-β): neither group

• Consumers in either GM or non-GM group should make contributions to the group for lobbying, and share the profits.

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Consumers (cont.)• The net income of consumers in each group: (3)1 1( , , ) ( )G GI w p g q B g

1 1( , , ) ( )N NI w p g q B g

1I w

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Consumers (cont.)• The utility function

for ,• The demand functions:

,

{ ( ) ( )}maxj

j

z y

z u y D g

1

. .j

j ji i

n

s t I z p y

, ,1i

(1 ) ( , ),

(1 ) ( , ),

G G Nj

N G N

y d p p j Gy

y d p p j N

,j G N

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Socially determined GMO level

• The domestic aggregate gross welfare (4)

where and ,

( ) ( ) ( ) ( )j jj j

W g w cs g g D g

0 0

( )G Ny y

j G G N N G G N Njcs g p dy p dy p y p y

( )j G Nj

g ( )D g g

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Socially determined GMO level (cont.)

• The aggregate welfare of each group: (5)( ) ( ) ( , , )G G GW w cs g D g p g w

( ) ( ) ( , , )N N NW w cs g D g p g w

1 (1 ) (1 ) ( ) (1 ) ( ) (1 ) ( )G NW w cs g cs g D g

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Socially determined GMO level (cont.)

• The effects of changing GM policy on welfare: (6)

where , , , ,• The socially optimal GM input level is

determined by: (7)

( )( , , ) [ ( ) ( )]G G G

g g gW g

p g w cs g D gg

( )( , , ) [ ( ) ( )]N N N

g g g

W gp g w cs g D g

g

1 ( )(1 )[ ( ) ( )]j

g gj

W gcs g D g

g

1( *) ( *)( *)( ) 0W g W gW gW g

g g g g

( ) 0Ggcs g ( ) 0G

g g ( ) 0Ngcs g ( ) 0N

g g 0gD

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The Political Process

• Government payoff function: (8) and • Lobbying cost of each group: (9)• The optimal contribution level of each group: (10)

( ; , ) ( ) ( ) ( )G g C C aW g C g C g

( ) max[0, ( )]i i iC g W B

( ) (1 ) ( )i i iB g C g

*( ) ( )(1 )i ii

W g C gg g

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The Political Process (cont.)• The optimal politically determined GM policy: (11)• Rewrite the equation: (12)

• The lobbying process changed the outcome of GM regulations from social point of view. The change of welfare benefit or loss depends on the lobbying efficiency of two groups.

( )( )( ) ( ) 0C gC gG g W ga

g g g g

1( ) ( )( )( ) 1 1 01 1

W g W gW gG g a a ag g g g

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GMO regulations with SSR

• From (11)

and

(10) we found that the more concern on contributions,

the less concern on the welfare.• If the government is more inclined to listen to the

lobbying groups, it consider the SSR less.

( )( )( ) ( ) 0C gC gG g W ga

g g g g

*( ) ( )(1 )i ii

W g C gg g

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GMO regulations with SSR (cont.)• Rewriting the lobbying costs: where (13)• The contribution equilibrium: (14)• Interest groups have less incentive for lobbying due

to the less increase in welfare from more contribution in a low SSR country.

• The lobbying behavior is more efficient when the SSR is high, that is,

( ) (1 ) ( )ii iB g C g

s

*( ) ( )(1 )i i iW g C gg s g

0 1s

(1 ) (1 )i i

l hs s

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GMO regulations with SSR (cont.)

• We conclude our discussion that since a lower lobbying cost, lobbying is more efficient in a high SSR country.

• If the government pays more attention to the social welfare than contributions from the lobbying groups, the GM regulation will be less strict, and the SSR will be increased.

• Or: If in a low SSR country, GM regulation is strict, the government pays less attention to SSR.

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GMO regulations with SSR (cont.)

• We proved the result by comparing the marginal effects of changing GM policy to the government payoff in a low SSR country to a high SSR country:

• A stricter GM regulation will not induce a higher payoff effect to the government in a low SSR country, so the policy will be lenient.

0.l hs sg gG G

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Summary

• Using a standard political economy model to explain the reasons behind the GM policy outcomes.

• Different SSR is influenced by the GM lobbying policy. A stricter GM policy will affect a country’s SSR.

• In a country with a low SSR and strict GM policy, the non-GM lobby group has a stronger influence on government policy than the GM lobby group.

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