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Claudio Soregaroli, Stefano Boccaletti, Alessandro Varacca 14 November 2012 WP5: Coexistence implications within the EU and international supply chain Stakeholder dialogue workshop

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Claudio Soregaroli November 2012 2 WP5: Who is involved UNICATT UNIVERSITA CATTOLICA DEL SACRO CUORE IPS - INSTITUTO POLITECNICO DE SANTAREM TUM - TECHNISCHE UNIVERSITAET MUENCHEN EVD - EIDGENOESSISCHES VOLKSWIRTSCHAFTSDEPARTEMENT JRC - JOINT RESEARCH CENTRE

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Claudio Soregaroli November 2012 3 WP5: Motivation Coexistence has implications downstream within the national and international supply chain that are pivotal in determining scenarios for the EU agricultural, food and feed industry Consumers preferences (demand) are the driving force. Firms need to comply with market requirements (positive or negative labelling public or private mandatory/voluntary standards)

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Claudio Soregaroli November 2012 4 WP5: Economic problem International supply chain and EU supply chain They are interdependent and face the economic risk of adventitious presence (AP) of GMOs The economic risk is influenced by: Endogenous factors Actions taken by firms to control risk of AP Exogenous factors Asynchronous approval, threshold levels, enforced liability, imports from non-EU countries

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Claudio Soregaroli November 2012 5 WP5: Purpose To evaluate implications of coexistence and segregation along the supply chain under an industrial organization and institutional perspective. Taking into account the structure of the chains and exogenous factors (approvals, thresholds, liability)

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Claudio Soregaroli November 2012 6 WP5: Structure Structure of the supply chain for maize and soybean Governance Economic risk of AP - Asynchronous approval - Liability - Traceability - Thresholds - Imports Scenarios Case studies - Maize (Portugal) - Milk (Switzerland and Germany) WP2 Implications for the EU industry WP4

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Claudio Soregaroli November 2012 7 WP5: Description of work (1) Description of the international (soybean and maize) and EU supply chains Objective is to identify: 1. the structure of the chain, with a clear picture of the economic agents involved and their linkages; 2. Identify the relevant governance aspects with particular focus on segregation and GM-free labelled foods 3. contractual arrangements, standards, quality management procedures, market failures, transaction costs involvement of stakeholders, data availability from secondary sources !

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Claudio Soregaroli November 2012 8 WP5: Description of work (2) Factors influencing the economic risk of adventitious presence (differentiated by crop, trait, and supply chain) Subtasks: 1. Legal issues, their costs and possibilities for reducing them (TUM) 1. Three levels: farm, supply chain and WTO 2. Up-date of the JRC-IPTS report on GM crops in the pipeline (JRC-IPTS) 3. Overview of the technical traceability requirements and their relevance to firms (JRC- IHCP)

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Claudio Soregaroli November 2012 9 WP5: Description of work (3) Case studies 1. Description and analysis of the maize bread supply chain in the context of maize coexistence in Portugal (IPS) 2. Description of the market for conventional and GM-free labelled milk in Switzerland and Germany (EVD) Detailed description of the structure and focus on costs

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Claudio Soregaroli November 2012 10 WP5: Description of work (4) The final goal is to evaluate implications of coexistence and segregation along the supply chain provide scenarios and implications for the EU feed and food industry

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Claudio Soregaroli November 2012 11 WP5: First year of work Countries covered EU: Germany, Italy, Portugal, Switzerland Non-EU: Brazil, Argentina (USA, Ukraine...) Objective: description of supply chains Method: Use of secondary data sources (statistics) Literature review (supply chains: maize and soybean, GM and non-GM) Qualitative unstructured survey on key agents at different levels of the supply chain

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Claudio Soregaroli November 2012 12 Survey on key agents of supply chain Step 1: Literature review Step 2: Questionnaires setting up Building on available literature One common framework for all countries Step 3: Questionnaires drafts tested with industry experts Step 4: Interview with representative stakeholders

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Claudio Soregaroli November 2012 13 Questionnaires Type: open questions Structure: One general structure adapted to the type of respondent Questions cover the supply chain structure, the market of commodities and processed products, supply chain deals and pricing mechanisms, GM and non-GM products and their segregation, certifiers and certifications, liability long the supply chain Selection of respondents: Relevant players, associations, snowball selection

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Claudio Soregaroli November 2012 14 Questionnaires for Italy (1) EU supply chain: main actors interviewed Multinational trading companies Domestic oilseeds crushers Compound feed producers Livestock breeders Retailers Certification bodies

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Claudio Soregaroli November 2012 15 Questionnaires for Italy (2) Other actors interviewed: One Brazilian oilseeds crusher focused on non-GM soybean processing One port shipping agent One market broker One crereal food processor One representative of a national association of processors

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Claudio Soregaroli November 2012 16 Italy: Soybean meal (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews 000 tons % over available soybean meal Production from domestic seeds3509.3 Production from imported seeds95025.3 Imported as GM228060.8 Imported as non-GM1704.5 Available soybean meal3750 Exported1905.1 Apparent consumption3560

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Claudio Soregaroli November 2012 17 Italy: Maize (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews

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Claudio Soregaroli November 2012 18 Italy: Maize flour (average situation) Source: Own elaborations based on: ISTAT (2012), Assalzoo (2010), and expert interviews

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Claudio Soregaroli November 2012 19 Italy: Structure of the supply chain Soybean / soybean meal Maize Domestic Retailers/consumers

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Claudio Soregaroli November 2012 20 Italy: Traders and crushers International traders 5 Multinational trading companies: Bunge, Cargill, Dreyfus, Nidera, Noble. Only Nidera supplies non-GM soybean meal Non EU non-GM soybean meal comes from Brazil Two main ports: Mestre (Venice) and Ravenna Domestic crushers 5 domestic crushers 2 only process domestic soybean - non-GM 1 has a dedicated plant to domestic soybean 1 (Bunge) only crushes GM soybean 1 crushes non-GM and GM soybean

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Claudio Soregaroli November 2012 21 Italy: Compound feed industry Almost 260 industries, but 3 are the main players in terms of volumes, 2 integrated downstream (Veronesi and Amadori) 1 multinational integrated upstream (Cargill) Inputs: they source soybean meal from domestic crushers and international traders they source maize from domestic farmers or elevators (often cooperatives) Outputs: local markets matter market niches can be exploited

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Claudio Soregaroli November 2012 22 Italy: Supply chain deals Personal relationships are very important Middle-men operate as an outsourcing of the purchasing department (especially for SMEs and large stock breeders) Trust on supplier and its flexibility are seen as the most important attributes... after price! There is no evidence of long-term contracts, orders are processed for each supply and based on market price Price shocks are largely transmitted downstream

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Claudio Soregaroli November 2012 23 Italy: market for non-GM soybean World supply for non-GM soybean product decreasing: non-GM price premiums on the rise (higher costs of IP and less economies of scale) Source: International trading companies, Industry representatives, interview by UNICATT staff, 2012 HP non-GM premium for soybean meal over the price of the regular pellet 46 protein in the market of Paranagua

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Claudio Soregaroli November 2012 24 Italy: market for non-GM products It is a small market, its size is becoming smaller in latest years (niche), and it is concentrating on fewer dealers Only one international trader involved and domestic crushers rely on domestic production paying soybeans with no premium Two kind of structures emerge for compound feed processors: large firms with dedicated plants and small specialized firms other SMEs outsource production of non-GM feed Dedicated plants of compound feed processors usually work at full capacity, however they don't sell all of the product as non-GM Most of the market is driven by Coop, the largest Italian retailer. No mark-up at the consumer level.

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Claudio Soregaroli November 2012 26 Retailer case study: COOP Italia (1) Non-GM Private labels: Animal products: poulty meat, beef, pork, milk, eggs, farm fish, some cold cuts and cheeses. Processed meat/eggs so far excluded 0.9% treshold (fed without GM feedstuff) Negative labeling Certified Grocery products 0.1% treshold No negative labeling: corporate policy Certified

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Claudio Soregaroli November 2012 27 Retailer case study: COOP Italia (2) Non-GM Animal PL Products: Technical specifications imply vertical coordination Suppliers qualification guidelines: suppliers shall deal with other qualified subcontractors only Certification: BVQI, CSQA Audits on: Retailer Slaughterhouses Feed Producers Retailer price: in line with that of regular animal products (no premium charged at the consumer level)... This implies....

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Claudio Soregaroli November 2012 28 Final remarks Only soybean supply matters (coexistence in producing countries and segregation practices) No price premium at the consumer level for non-GM products implies lower margins Upstream the supply chain there is little incentive to produce for non-GM feed What would happen if coexistence is allowed in the country? (maize, soybean...) Except for organic production, will any liability issue be relevant?

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Claudio Soregaroli November 2012 29 Thanks for your attention!