Duff, Andrew

English

Research Papers in Economics

Economic Aspects of GM Beet and Cane 
Andrew Duff, Senior Research Economist, LMC International, Ltd 
Agricultural Outlook Forum 1999           For Release:  Tuesday, February 23, 1999 
THE GLOBAL CONTEXT 
Biotechnology has been hailed as a means to create a second Green Revolution in 
agriculture. In the case of sugar, I would like to begin by examining the challenges that 
the future holds for the world’s cane and beet sugar industries, to assess the extent to 
which such a revolution is required.  
At present, cane sugar accounts for around 70% of global sugar production, with beet 
sugar accounting for 30% of global output. On average, global sugar production and 
consumption have risen at an annual rate of 1.7% since 1980.  
If we project this rate of growth into the future, the implication is that by 2010, a mere 
11 years away, global consumption will have risen from its present level of around 124 
million tonnes, raw value, to around 150 million tonnes, raw value (Diagram 1).  
Diagram 1: Trend in World Production and Consumption 
75
100
125
150
175
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
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Production Consumption Forecast Consumption
 
Where is this extra 25 million tonnes of sugar, equivalent to an increase of 20% in 
global output from today’s level, going to come from? 
If we examine the way in which the world’s beet and cane sectors have expanded 
output since 1980, a stark difference emerges: the driving force behind the expansion 
of world cane sugar production since 1980 has been increases in cane area. By 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 1 
© LMC International Ltd, 1999 contrast, the key influence on the more modest expansion of world beet sugar 
production over the same period has been sugar yield.  
Table 1 indicates that, on average, world beet sugar production has risen by around 
0.7% since 1980. However, this has only been achieved because while world beet area 
has declined over this period (largely as a result of the contraction of the beet sector in 
the Former Soviet Union) by around 0.8% a year, average beet sugar yields have risen 
at a rate of almost 1.5% a year. 
In contrast, the 2.7% annual increase in cane sugar production has been the result of 
strong expansion of cane area, at around 2.0% a year, coupled with a relatively minor 
increase in cane sugar yields per hectare of around 0.7% 
Table 1: Influences on the Growth of World Sugar Production since 1980 
 
  Average Annual Growth in  Influences  Dominant 
  Sugar Production  Area  Sugar Yields  Influence 
 (%)  (%)  (%)   
Beet Sugar  0.69  (0.79) 1.48  Sugar  Yields 
Cane Sugar  2.71  2.00  0.71  Area 
 
Given that cane currently accounts for 70% of global sugar output, the burden of 
satisfying increasing demand for sugar in the future will fall mostly on the cane sector. 
Unless the cane sector succeeds in raising cane yields at a gretaer rate than it has 
done so to date, the area of land under cane will have to continue to grow at a rapid 
pace in the future.  
Similar projections can be made for a host of other food commodities. This implies that 
as the supply of available agricultural land dwindles, and more marginal land is put 
under the plough, there will be an increasing need to focus on raising crop yields. Many 
scientists believe that biotechnology will be a key factor in addressing this issue, 
through the development of plants with enhanced production traits and the creation of 
new plant varieties designed to thrive under specific agroclimatic conditions. 
Along with this technical argument, there is a powerful economic rationale for the global 
sugar industry to take the potential of GM beet and cane seriously. 
The slow but steady progress towards greater liberalisation of global trade in 
agricultural products suggests that any economic benefits to sugar producers arising 
from biotechnology will be seen as a means of enhancing competitiveness in the 
future. Diagram 2 indicates that over the last 40 years or so, real (i.e., adjusted for 
inflation) world sugar prices have fallen, on average, by between 1.5% and 2.0% per 
year. So far, global average sugar production costs have more or less managed to 
keep pace with this decline. However, what this implies is that producers are faced with 
a continual challenge of having to lower their costs if they are to maintain, let alone 
improve, their competitive position in the international arena. 
The constant pressure on producers to reduce costs creates a powerful economic 
incentive to exploit any cost savings that can be achieved through the use of GM crops. 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 2 
© LMC International Ltd, 1999 Biotechnology is expected to make a significant contribution towards meeting the 
technical and economic challenges outlined here. What progress have the world’s beet 
and cane industries made to date in developing GM crops?  
Diagram 2: Trend in Real World Sugar Prices and Actual Real World Sugar 
Prices, 1952-1998 
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1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997
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Real (1998) World Raw Sugar Price Trend in Real (1998) World Raw Sugar Price
 
THE DEVELOPMENT OF GM BEET AND CANE 
There is a fundamental difference in the breeding of beet and cane which has 
significant implications for the commercial development of GM beet and cane varieties. 
Beet is an annual crop that must be grown every year from seed. Owing to the 
widespread use of hybrid seed, farmers cannot grow a crop of beet from seed collected 
from a previous crop; instead they must buy their seed from seed companies. As a 
result, a large and lucrative beet seed industry, with considerable resources to spend 
on research and development, has evolved to meet this need. 
In contrast, cane is a perennial crop which farmers can propagate themselves without 
having to buy seed cane. So, not only do cane farmers replant their cane fields only 
once every few years, they also do not have to buy seed cane from cane breeders. The 
ability of farmers to propagate their own cane means that it has proved virtually 
impossible for any breeder to restrict the use of a newly developed variety to those 
farmers that buy seed cane directly from them. Not surprisingly, therefore, cane 
breeding programmes are generally government or industry financed, and tend not to 
have access to research and development facilities on the scale available to beet 
breeders.  
In the context of development of GM beet and cane, the nature of the plant breeding 
industries within each sector has meant that companies investing in the development of 
GM beet can see a ready mechanism for generating returns on their investment 
through annual purchases of seed by farmers.  
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 3 
© LMC International Ltd, 1999 However, the difficulty of monitoring the use of a GM variety of cane following its initial 
release (and hence the difficulty of collecting breeders’ royalties or fees) represents a 
significant impediment to the commercial development of GM cane containing genetic 
material that is the intellectual property of a private company. Legislation in a number 
of countries is evolving to cope with intellectual property rights in the context of plant 
breeding, although not without controversy. 
The majority of commercial GM crops are currently produced in North America. The 
spread of GM crops across the rest of the world is likely to be spearheaded by the 
adoption of the technology in large commercial operations producing commodity crops. 
This is because this type of industrial structure provides the best opportunity for 
recovery of breeders’ fees. This in turn suggests that, where intellectual property rights 
are an issue, cane sugar industries in which ownership of cane is concentrated on 
estates or on large commercial farms are likely to be among the first to exploit GM 
cane. Among such industries are Australia, Brazil, Colombia and South Africa, all major 
exporters of sugar.  
As a result of the nature of cane breeding and the problems it raises regarding 
intellectual property rights, it is generally agreed that the commercial use of GM cane 
remains two to three years away. In contrast, commercial uptake of GM beet is likely to 
take place within the next year in the US. What will the introduction of GM beet offer to 
growers, processors and consumers? 
GM BEET IN THE US 
Beet is an annual crop grown in rotation along with a number of other crops. Along with 
rotational constraints and the spreading of risk, the relative profitability of the range of 
crops available to a farmer is a key factor influencing the area of land a grower is 
willing to dedicate to beet. 
The relative profitability of sugar crops compared to alternative crops therefore has a 
key influence on raw material supplies for sugar processors. This means that 
processors themselves maintain a keen interest in the relative profitability of sugar 
crops, since their own costs are intimately linked with the level of factory capacity 
utilisation. In the case of co-operatives, of course, beet growers and processors are 
one and the same.  
In certain sectors of the US sugar industry, pressure on raw material supplies has been 
brought about by the competitiveness of alternative crops, notably in California and the 
Great Lakes region. In the Great Lakes, the profitability of soybeans and corn have 
often been higher than beet over the past decade, as Diagram 3 indicates.  
With the advent of GM soybeans and GM corn into mainstream US agriculture, this 
competitive pressure is likely to intensify. Despite the additional cost of acquiring 
seeds, farmers using commercially available GM soybean and corn varieties have 
enjoyed significant economic benefits, and the uptake of these varieties has been rapid 
(Diagram 4).  
 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 4 
© LMC International Ltd, 1999 Diagram 3: Average Gross Margins (excluding Land Rent), Great Lakes Region,  
1992/93-1996/97 (US$ per acre) 
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Diagram 4: Area Under Soybeans in the US, 1995 to 1998 
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Roundup-Ready Soybeans Conventional varieties
It is likely that where such competitive pressures exist, the interest in GM beet will be 
greatest. Trials of herbicide-tolerant beet varieties in the US (and in Europe) have 
indicated that such varieties have the potential to reduce costs and to increase ease of 
management while matching or exceeding current average beet yields. 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 5 
© LMC International Ltd, 1999 Under these circumstances, the herbicide-tolerant beet varieties that are likely to come 
onto the US market within the next 12 months are sure to be of interest to at least part 
of the US beet industry.  
For growers, the economic benefits of GM beets are certainly compelling. But 
consumers’ attitudes to the sugar produced from such crops is also crucial in 
determining the extent to which sugar processors and food industries will countenance 
the use of GM sugar crops, and this is the next issue I would like to address. 
GM SUGAR IN THE US AND EUROPE 
In the US, the FDA has officially approved the consumption of sugar and sugar by-
products derived from GM beet. Because, in the US, the authorities have said that they 
see no evidence to suggest that, as a class, GM foods are inherently less safe than 
foods derived from conventionally bred crops, no special labelling is required for such 
sugar or for products containing such sugar.  
To date there appears to have been little consumer resistance to this policy. Unlike 
their European counterparts, US consumers have been exposed to the GM debate for 
much of the 1990s, with the introduction of the Flavr-Savr tomato in 1992 and the 
approval of bovine somatotrophin in 1994. Furthermore, and this is a crucial point, US 
consumers have confidence in the FDA’s judgement. 
This stands in stark contrast to the situation in Europe, where the general public’s 
confidence in the ability of scientists, regulators and politicians to monitor and assess 
potential threats to food safety has been undermined by a spate of recent food safety 
problems, most notably the BSE (Bovine Spongiform Encephalopathy) crisis. 
This has meant that in Europe, consumers have yet to be fully convinced of the 
benefits of GM food crops. Given that the current ‘first generation’ of GM crops is 
geared towards enhancement of crop production, consumers can see no benefit for 
themselves in the introduction of such crops. Environmental concerns and worries 
about food safety have emerged as major issues affecting consumer attitudes to GM 
crops. 
To date, only very small areas of GM crops have been produced in the EU, although 
considerable research into GM food crops has been carried out, as Table 2 indicates. 
The distribution of trials among EU countries broadly reflects national consumer 
attitudes to GM technology.  
In the food processing and retail sectors, attitudes to GM crops are coloured by 
consumer opinion. For this reason, European sugar producers have for the most part 
adopted a position of neutrality towards GM beet. 
However, it is possible that new labelling laws in the EU may encourage sugar 
processors to express greater interest in GM beet. Under these laws, all foods 
containing GM crops or their derivatives are required to be labelled, except when 
neither protein nor DNA resulting from the genetic modification is present.  
For the EU sugar industry, this suggests that if GM beet were to be approved for use in 
the EU at some point in the future, the sugar produced from such beets would not have 
to be labelled as a GM food. The extraction and purification processes used in sugar 
production should ensure the purity of the final product.  
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 6 
© LMC International Ltd, 1999 Table 2: Notifications of Releases of Genetically Modified Crop Plants in the EU to July 
1998 
 
 Crop   
Country  Maize Oilseed  rape Sunflower Wheat Sugarbeet Others  Total 
Austria  1       2 3 
Belgium  14  38   1 8  29 90 
Denmark    2    17  13  32 
Finland    2    4  10  16 
France 155  70  5    49  103  382 
Germany  18  13    18  42  91 
Greece  3       9  12 
Ireland        4  4 
Italy  77      19  105  201 
Netherlands  13 9  2   16 60 100 
Portugal  3       7  10 
Spain  33  3 3 2 9  57  107 
Sweden    14    4  18  36 
UK  6  71    1 21 64 163 
Total  323  222  10  4  169  519  1,247 
 Source:  EU Commission. 
Ultimately, however, the consumer is king. In Europe, environmental concerns about 
the commercial release of GM crops, coupled with an apparent desire on the part of the 
consumer for ‘the right to choose’ between the consumption of foods produced by 
conventional crops and by GM crops continue to dominate the public debate on the 
issue.  
Indeed, the last two weeks have seen the GM debate plastered over the front pages of 
national newspapers in the UK. In the current rather frenzied atomosphere surrounding 
the issue, there is a real danger that a deluge of sensational headlines will deny the 
general public any significant exposure to reasoned arguments for and against the new 
technology.  
GM SUGAR AND INTERNATIONAL TRADE 
Of the 37 million tonnes or so of beet sugar produced every year around the world, only 
around 7 million tonnes enter international trade, and the vast bulk of this originates 
from the EU. The majority of beet sugar production is destined for domestic 
consumption, and thus the acceptability of sugar produced from GM beet is largely a 
domestic issue, as it is in the US. 
The world’s cane sector produces around 85 million tonnes of sugar a year, of which 
close to 30 million tonnes is exported. For those countries exporting to the EU (The 
African, Caribbean and Pacific group of sugar producers), the persistence of negative 
attitudes to sugar derived from GM crops might impede the uptake of such crops in 
these industries. However, by the time these industries are in a position to export such 
sugar, attitudes in the EU may well have changed. 
As mentioned earlier, the cane sugar industries having a structure most conducive to 
the commercial introduction of GM cane are those where cane production is 
concentrated on large mill-owned estates or private farms. Many of these industries are 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 7 
© LMC International Ltd, 1999 also significant exporters of sugar, such as Australia, Brazil, Colombia and South 
Africa. Given approval of GM cane in these countries, this could help to enhance their 
competitiveness relative to other exporters who may find adoption and regulation of the 
new technology more problematic.  
Table 3: World Sugar Production and Trade ('000 tonnes, raw value) 
 
  Average 1995/96 - 1997/98 
 Production  Exports 
Beet Sugar  37,130  7,030 
  EU  17,770  5,250 
  US  3,730  - 
Cane Sugar  86,220  27,470 
  US  3,260  - 
  Australia  5,550  4,490 
  Brazil  14,960  6,720 
  Cuba  4,010  3,130 
  Mexico  5,030  740 
  China  6,130  - 
  India  15,200  490 
  Thailand   5,580  3,780 
    
World Sugar  123,350  34,500 
 
CONCLUSIONS 
It is clear that the technical and economic challenges facing sugar producers in the 
future provide a compelling argument for the adoption of GM technology for sugar 
crops.  
Experience with commercial production of GM crops in the US suggests that the ‘first 
generation’ of such crops have considerable appeal to farmers. Particularly in those 
regions of the US where the margin of competitiveness of beet compared to alternative 
crops is narrow, there is likely to be considerable interest in herbicide tolerant beet.  
While US authorities and consumers appear to be satisfied that their regulatory 
procedures adequately address environmental and food safety concerns, the 
introduction of GM crops and foods into the EU continues to be controversial. There is 
a real danger that current scare stories in the media could further damage EU 
consumers’ perceptions of GM crops, which, at the very least, would be likely to result 
in significant delays in their commercial introduction. 
As a substantial importer of cane sugar, the EU’s stance towards sugar produced from 
GM crops could have a significant effect not only on the uptake of GM sugar crops 
within the EU (which represents a massive potential market for biotechnology 
companies), but also on their use in countries supplying the EU with cane sugar. 
ECONOMIC ASPECTS OF GM BEET AND CANE  PAGE 8 
© LMC International Ltd, 1999 

ECONOMIC ASPECTS OF GM BEET AND CANE

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