GENETICALLY MODIFIED FOODS, TRADE, AND DEVELOPING COUNTRIES

This paper analyzes price, production and trade consequences of changingconsumer preferences regarding the use of genetically modified organisms (GMOs) infood production. The analytical framework used is an empirical global generalequilibrium model, in which the entire food processing chain – from primary cropsthrough livestock feed to processed foods – is segregated into genetically modified (GM)and non-GM lines of production. This model is used to analyze the implications ofwidespread use of genetically engineered crops in some regions whilst consumers inWestern Europe and High- income Asia adopt a critical attitude toward GM foods. Twodifferent representations of consumer preference changes are illustrated: (1) a change inprice sensitivity: i.e. consumer demand is less sensitive to a decline in the price of GMfoods relative to non-GM varieties, and (2) a structural demand shift: for a given priceratio consumers simply demand less of the GM variety relative to the non-GM variety.This analysis finds that developing countries adjust their trade patterns inresponse to preference changes in important trading partner countries. Non-GM varietiesare diverted to GM-critical regions while GM varieties are sold to countries in whichconsumers are not sensitive to GM content. Furthermore, the development of segregatedGM and non-GM food creates a potential niche market for producers if the non-GMcharacteristic can in fact be preserved and verified throughout the marketing system atreasonable costs.