COSTS AND RISKS OF CONFORMING TO EU TRACEABILITY REQUIREMENTS: THE CASE OF HARD RED SPRING WHEAT

Stochastic simulation was used to determine the marginal cost and optimal testing strategy (location and intensity) for an integrator conforming to proposed European Union traceability requirements for imported hard red spring wheat. Cost, risks and premiums were determined for exports of non-genetically modified (non-GM) wheat from the U.S. to the EU. Cost components include certified seed, certification and auditing, testing, traceability, quality loss, and a risk premium for the added risk of a dual traceability system over a single non-traceability system. The optimal strategy is the one that maximizes the integrator's utility (minimizes disutility of integrator's additional costs). Adventitious commingling is defined stochastically. Results indicate that traceability requirements can be met with specified buyer and seller risk at a total cost of approximately 50 c/non-GM bushel. The risk premium for traceability along the vertically-integrated supply chain (farmer, integrator, and importer) is 21 c/non-GM bushel.