Costs and Risks of Testing and Segregating Genetically Modified Wheat

Development of genetically modified (GM) crops is challenging the functions of the grain marketing system. A stochastic optimization model was developed in this study to determine optimal testing strategies. The model chooses the optimal testing strategy that maximizes utility (minimizes disutility) of additional system costs due to testing and rejection, and allows the estimation of the risk premium required for sellers to undertake the dual marketing of GM and non-GM segregations over a non-GM system. Costs are estimated for a vertically integrated grain export chain including testing, rejection, and a risk premium. The model includes elements of costs and risks of adventitious commingling at all stages of the marketing chain, variety declaration, grower truth-telling, and accuracy of testing technologies. Sensitivities were evaluated for the effects of GM adoption, risk parameters, variety declaration, and tolerance levels. Copyright 2005 American Agricultural Economics Association