CropBiotech Briefs Vol. 4 No. 2 The Cost Implications of GM Food Labeling in the Philippines Augusto de Leon, Abraham Manalo, Fe Cielo Guilatco With Supplemental Technical Reports by Nina Gloriani-Barzaga Introduction The growing debate on GM food safety and consumers’ right to know have pressed GM food labeling into an important public policy issue. While the issue has yet to be resolved, some countries have already adopted policies that either imposed mandatory or voluntary labeling of GM products. The issues involved in GM food labeling are complex particularly so since product labeling is not simply sticking labels on finished food products. There are multiplicative processes with attendant benefits and costs. The type of GM food labeling to be adopted by a country will have a significant impact not only on trade but also on agricultural and food production. In this study, the impact of mandatory GM food labeling in the Philippines was evaluated from the standpoint of all stakeholders concerned, focusing on two GM products, soybean and corn, which are found in the daily diet of Filipinos. A significant portion of the study examined the cost implications of mandatory labeling of GM food products to the farmers, traders and manufacturers, the government, and consumers.
Labeling Options Countries tailor labeling policies to their own needs and institutional capacities to carry out and monitor regulatory systems for GM food labeling. Several policy options are available for GM food labeling. These policy options have different implications for product and market development.
The European Union and countries such as Australia, New Zealand, Brazil, Japan and China require mandatory labeling of GM food products. Mandatory labeling is based on the premise that it allows consumers to exercise their “right to know” identified attributes of a product, thus facilitating informed buying decision-making. A number of these countries, however, have set an allowable tolerance level of GM content, otherwise the product has to specify the presence of GMOs. Canada and the United States only require labeling when there is safety concern about the food, or when there is significant change in the composition, nutritional value, or intended use of the food product. Whatever form of labeling is adopted, GM products are assumed to have undergone the required risk assessment by regulatory bodies and are found safe for human consumption.
Philippine Biosafety Regulations The National Committee on Biosafety of the Philippines (NCBP), created in 1990, carry out functions dealing with the implementation of national biosafety guidelines and risk assessment of GMOs. The NCBP has a regulatory role not only in research on GMOs but also on the import and commercial use of GM products. The Department of Agriculture Administrative Order No. 8 (2002) provides regulatory guidelines for a) the importation of GM plants and plant products for experimental purposes or for direct use as food, feed, or for processing; b) the conduct of field trials; and c) the commercial release of new GM varieties. The Administrative Order requires mandatory risk assessment of GM plants and plant products, carried out on a manner specific to a particular GM crop and transformation event. Risk assessment is done according to the principles provided for by the Cartagena Protocol on Biosafety.
Philippine Guidelines on Labeling In December 2002, the Philippine government approved Bt corn for direct use as food, feed or processing and propagation. Other GM crops that had been approved for export into the country for processing, food and feed use include soybean, canola, potato and cotton. Currently, the Philippines has no regulation imposing labeling on GM food products. The Bureau of Food and Drug (BFAD) is tasked to ensure that all processed and pre-packed food products have passed the necessary food safety evaluations and conforms with international food safety standards before releasing to the market. For GM foods, the focus of evaluation of the BFAD is on the characteristics and safety of the product and not the process by which it was produced.
BFAD conforms with the labeling requirements of the WHO/FAO Codex Alimentarius international standard for processed food. Current labeling regulation of BFAD only requires a generic labeling of all ingredients, with no reference to the process by which the product is produced.
Cost Impact of Mandatory Labeling Cost implications of mandatory labeling in the Philippines for GM corn and soybeans and their products were assessed from the standpoint of farmers, traders and manufacturers, the consumers, and the government. Cost Implications at the Farm Level In terms of local farm production, mandatory labeling for GM products will require product differentiation between GM and GM-free raw materials prior to use in any food processing. This will entail setting in place a system for segregation, identity preservation, and traceability at the farm level, resulting into an increase in production cost. Likewise, there will be a need for a certification system to monitor and verify product claims as to the presence or absence of genetic modification in the corn or soybeans; and this will also entail additional cost. Should there be a threshold level of tolerance for adventitious biotech presence, some form of quantitative certification will also be necessary. Cost significantly increases as the threshold level becomes more stringent. The Philippine food industry maintains that a 5% threshold level will be more manageable than a 1% threshold level since the latter will pose more significant challenges and costs. Industry estimates and studies elsewhere indicate that the cost of producing certifiable GM-free corn is about 12% higher than the cost of producing GM-containing corn. Impact on the Food Manufacturing Sector GM labeling will increase cost at the manufacturing due to segregation and other attendant costs. To produce both GM-free and GM-containing products, a manufacturer will have to operate two separate production lines in order to ensure non-commingling. In such a case, the manufacturer will have to incur additional costs in the following aspects: 1) procurement of GM-free raw materials; 2) logistical support due to segregation of production inputs and outputs; 3) separate production runs to ensure non-commingling; 4) compliance to governmental regulations and standards; 5) distribution and retailing; 6) human resources costs due to additional logistical and accounting support; and 7) insurance costs or risk of civil suits. Many local food processors believe that limited production facilities will hinder production of GM-containing and GM-free products at the same time. Thus, the food manufacturer may just concentrate his/her resources in the production of a particular product type. In case of GM-free products, the major source of the additional cost with GM labeling is the premiums paid for GM-free raw materials. Based on the Food Manufacturing Model of this study, food manufacturing companies earning 4% profit before tax will incur a net loss of 7% due to added costs in using and producing GM-free products. Mandatory GM labeling could thus increase the manufacturing cost by 11% to 12% in order for the manufacturer to revert to the previous profit margin of 4%. The willingness of the Filipino food manufacturers to absorb this additional cost will be limited because of its adverse effect on the company’s own viability. A detailed study of the financial strength of 70 selected food companies revealed that in general their gross margin of profit will not be able to absorb an increase in raw material and manufacturing cost. Particularly for the smaller firms, this will have a devastating impact on their viability, unless the incidence of cost can be passed on to the consumers in terms of higher selling price of finished products, and/or to the farmers in terms of lower buying price for raw materials at the farmgate.
Impact on the Consumers Mandatory GM labeling will result in additional food manufacturing cost of as much as 12%. What is expected is that part of this additional cost will be passed on to consumers in terms of higher price of the product. The average Filipino food expenditure is about 54% of their income. This pattern of expenditure for food makes the Philippine market more price sensitive than those in developed countries. Filipino consumers may respond by limiting the volume of purchase of the affected products or buying substitute food items especially when the price increase is significant. Implications to Government Regardless of the type of labeling to be adopted, whether voluntary or mandatory, the Philippine government will have to incur regulatory costs in the implementation of a GM labeling policy. Needless to say, the scale of activities involved and the corresponding costs to be incurred are greater under a mandatory labeling regime. With mandatory labeling, the need to monitor and verify the presence and amount of GM content would require analytical methods capable of detecting, identifying, and quantifying the DNA introduced or the protein expressed in the GM crop. These analytical methods, usually based in or supported by physical laboratories, are required not only for raw materials but also for their processed and finished products. In order for the Philippines to deal with the regulatory requirements of mandatory GM labeling regime, there is a need to establish proper institutional capacity and capability of concerned agencies, including building and maintenance of testing facilities and continuous training of technical manpower.
Conclusion The issues involved in GM food labeling are varied and complex particularly so since product labeling does not simply entail putting labels on packages of finished food products. There are several processes involved with attendant socioeconomic costs. Under the Philippine setting, careful considerations must be taken in designing an appropriate and rational GM labeling regulatory regime. Given the cost implications of GM food labeling to affected stakeholders, several policy options are explored. Among the more viable option is the proposal for the Philippines to adopt a progressive labeling policy involving three phases over a well-defined implementation period. This option will allow policy makers to observe trends in the global agricultural production and international trade, which will for the most part be affected by actions to be taken by the more dominant players. In this way, the domestic labeling policies that will be implemented will be responsive to the global trends in production and trade. Additionally, the government will have enough time to build institutional capabilities to effectively implement its labeling policies, and allow the private sector to adjust corporate plans accordingly. Complete study may be downloaded at: http://www.bcp.org.ph/downloads/ |
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