New food products emerging from genetic engineering must be tailored to market demand, not simply to economies of production, says Jerome Siebert, Extension economist at the University of California, Berkeley.
Speaking at a conference in Seaside probing the future of agricultural biotechnology in Monterey County, Siebert said lowering production costs "isn't going to cut any ice" with consumers, who won't see reductions in prices at check-out counters.
Instead, retailers will intercept the benefits of any economies of production. "And that's no slam against retailers, because they have the market power to do it," he said, adding that any price breaks would be likely only in the event a surplus of supply.
Rice modified genetically for higher nutritional value would strike a chord with consumers, who also are interested in foods that have longer shelf life and are healthy and safe in all respects.
"Those are the things genetic engineering can bring to the food supply, in addition to things that increase productivity."
Production oriented Siebert, who is also associate director of the UC Agricultural Issues Center and is a former director of Cooperative Extension, said the initial stage of the GMO era has been very production-oriented.
"That's usually the way it is in agricultural food markets. Research from experiment stations and USDA focuses on the agronomic qualities valued by farmers.
"And that's fine. We need to do that to be competitive in the world market. And three things have kept California competitive in that market: its ideal climate, the integration of university ag research and Cooperative Extension, and management of the industry by highly skilled personnel using technology to utilize the research."
The next stage, he predicted, will be crops designed for the end-user. Commodity growers are already spending considerable sums on research aimed at characteristics to appeal to consumers.
An example: the California walnut industry is investigating genetically altering the so-called "good" and "bad" fat content of walnuts with an eye to making walnuts more healthy for consumers. This goes forward, along with research for the traditional goals of increased productivity.
"They are looking at the end-user to find a way to trigger increased demand for their product. Economic viability will be determined by the market overall," he said.
Siebert said industrialization is a key element for agricultural markets. "By industrialization I don't mean large-scale farms. Rather it is an integration of production into the marketplace. That's going on full-speed, and producers who are not going to be a part of this integration process will, quite frankly, be left out of the picture."
Globalization is another factor, and its importance is quickly confirmed by a check of the origins of products on retail shelves. Less attractive, however, he added, is that imports into the U.S. are growing faster than our exports.
Markets for farm products also are influenced by consumerism, environmentalism, and technology.
In the case of Monterey County, Siebert said creating a successful environment for existing, small companies may well be more important than efforts to attract new, larger companies.
"If you look at the history of technology development, the small companies are probably much more creative than the larger companies," said Siebert.
He named the supply-side developments, ranging from reduced chemical use to public health regulations, that have driven farmers to adopt new biotechnology. The result has been a mixed success, mainly because farmers depended too much on genetically modified organisms to bring them new markets. "But this really hasn't happened," he said.
With the world facing a projected population of eight billion by 2020, most of the expansion in Asia and Southeast Asia, China has developed a market ripe for California products.
Siebert said that market will be suited to value-added products, which will evolve because of increased water costs anticipated for California farmers.
The economist also said real prices of foods in the U.S. have declined for some time because of gains in productivity.
Along with that greater output has come increased demand from throughout the world, and biotechnology is a key factor in maintaining production to keep pace with international demand.
The balance of supply and demand for food around the globe is quite delicate, Siebert warned. "It's only a 1 to 2 percent balance, and a huge disaster, such as what we almost had in the 1970s with corn blight, could turn this into a shortage situation."