Market and Welfare Effects of Trade Disruptions from Unapproved Biotech Crops

Genetically modified (GM) crops have been largely adopted in major exporting countries thereby representing a dominant share of a few key agricultural commodities that are traded in international markets. Regulatory reviews and approvals for the cultivation and marketing of GM crops, however, are country-specific and significant discrepancies in the amount of time required to review and approve new GM crops between importing and exporting countries has led to “asynchronous approvals”. Trade disruptions created by asynchronous approvals of GM crops are expected and can quickly deteriorate into effective trade bans because perfect segregation between approved and unapproved GM crops is difficult. The issues we examine in this paper are the potential market and welfare impacts from trade disruptions that might be caused by asynchronous regulatory approvals of new GM crops. We develop a trade model consisting of two composite importing countries and one exporting country. We first derive a baseline equilibrium where no unapproved events exists. When then derive a second equilibrium so that the market and welfare impacts of asynchronous approval on consumers and producers in each composite country can be analyze and discussed. We found that asynchronous approvals tend to increase prices, reduce consumer surplus and increase profits of producers of identity preserved commodities in all countries. However, we found that the aggregate quantities consumed and the profits of commodity producers are depend on the relative size of the export market in the countries where event are not approved.