Market and Welfare Effects of GMO Introduction in Small Exporting Countries

This paper analyzes the market and welfare effects of the introduction of GM products in small open developing economies that, prior to the adoption of GM crops, were net exporters of non-GM products. It explicitly accounts for differences in consumer attitudes towards GM products and producer agronomic characteristics as well as for the structure and conduct of the GM seed suppliers. Different scenarios concerning different labeling regimes in the small exporting country and the world market of the products are considered. A positive welfare effect of the introduction of GM products to small open economies should not be taken for granted. While yield increases and cost reductions associated with the GM technology are certainly important, their presence does not guarantee a positive effect on the welfare of all groups involved and/or on aggregate domestic welfare. The market and welfare effects of the introduction of GM crops in small exporting economies were shown to be case-specific and dependent on the labeling regimes in the world market, the labeling regime in the domestic market, the segregation costs and the marketing margins under the different labeling scenarios, the domestic consumer attitudes towards GM products, the premium enjoyed by the non-GM crops, the relative cost effectiveness of GM crops under the local production conditions, and the market power of the GM seed suppliers.