Impact of the spread of Karnal bunt into Kansas on the United States wheat industry

Technical trade barriers (TBTs) have become increasingly important barriers to trade. In agricultural trade, they are often implemented as sanitary and phytosanitary (SPS) measures. Karnal bunt, a fungal disease of wheat, is one example where these types of measures have been implemented. The United States led the campaign to list Karnal bunt as a quarantine pest. However, in 1996, Karnal bunt was detected in areas of the Southwestern United States. Officials opted to quarantine infected areas to maintain established trading relationships with countries listing Karnal bunt as a quarantine pest. This allowed the United States to continue exporting wheat. Since 1996, the fungus has spread to additional counties in the southwest. Four counties in north central Texas on the southern border of the wheat belt have been affected. It is possible that Karnal bunt may spread into other portions of the wheat belt. This study examines the current incidence of Karnal bunt on the U.S. wheat industry and the effects of an outbreak in Kansas. A simulation model is built to represent the U.S. wheat market. There are three domestic regions and one foreign region. A disease spread model simulates the potential spread of Karnal bunt into Kansas, and the loss in production. Over a seven year period, this model indicates 6.6 percent of Kansas production is quarantined. Results show an average increase in the wheat price of 0.8 percent causes feed, ending stocks, and food demand to decline. Production increases in the original quarantine area and the rest of the United States, but declines in Kansas due to continual spread of Karnal bunt. U.S. exports also decline by 0.5 percent. Implications to agribusiness are considered. The increase in the wheat price has negative impacts on the flour milling industry. Given that wheat accounts for 80 percent of the cost of milling flour, an increase in the wheat price lowers returns to operating capital. Alternatively, if these returns are assumed to be held constant, the increase in the wheat price is passed on to the consumer through a higher flour price.