
William Lin, Gregory K. Price, and Edward Allen
Introduction
On September 18, 2000, a news headline reported that some taco shells sold
in retail stores contained a protein from StarLink corn, a Bt corn variety
that was approved only for feed and industrial uses but not for human
consumption. Ever since, this discovery of StarLink corn in food has had
repercussions throughout the grain handling and processing sectors as well
as in global grain trade.
StarLink corn was developed by Aventis CropScience (Aventis), a
multinational firm based in France. According to Aventis, StarLink corn was
grown on less than 1 percent of the total U.S. corn acreage in 2000 (about
362,000 acres), with 40 percent of the acreage concentrated in Iowa.
StarLink corn contains the Cry9C protein, which is toxic to European corn
borers and certain other insect pests. The Environmental Protection Agency
(EPA) did not approve the protein for human consumption due to lingering
questions about Cry9Cs potential to cause allergic reactions. A testing lab
indicated that it found the presence of the Cry9C protein in a sample of
Taco Bell taco shells. Kraft Foods, Inc., the company that produced the
taco shells, recalled all of its taco shells after further testing by the
Food and Drug Administration confirmed the initial results. The incident
led to the recall of nearly 300 food products--including more than 70 types
of corn chips, more than 80 kinds of taco shells, and nearly 100 food
products served in restaurants--by several food manufacturers and caused
major disruptions in domestic and export markets. Recently, StarLink was
found in more corn products, including corn dogs, corn bread, polenta, and
hush puppies.
However, the U.S. grain handling industry quickly became more knowledgeable
in addressing the issues. Over time, the government approved more
destinations for channeling StarLink-commingled corn to feed and non-food
industrial uses, thus opening more market outlets for delivery. Price
differentials between StarLink and StarLink- free corn that existed in the
early stage of the incident eroded quickly. Many grain companies currently
do not discount StarLink corn prices paid to producers because Aventis will
pay the cost of diverting the grain to approved uses. Thus, at present, the
price differential between StarLink-free and StarLink-commingled corn is
small or nonexistent.
The StarLink incident illustrates the complexity of isolating crop
varieties within the existing grain marketing system and preventing
unwanted commingling. (2) The potential commingling of StarLink with other
corn varieties was exacerbated by three factors: (1) some of the corn grown
on the buffer zone was probably cross-pollinated with StarLink corn,(*3)
(2) a portion of StarLink corn (including that grown on the buffer zone)
had entered the marketplace prior to an effort to contain
StarLink-commingled corn, and (3) some elevators did not know that they
were receiving StarLink-commingled corn. The commingled corn may have come
from either the 1999 or 2000 corn crop because StarLink was grown in 1999
but was not detected.
To contain the extent of commingling, Aventis reached an agreement with the
U.S. Department of Agriculture (USDA) on September 29, 2000, to launch a
buyback program, offering producers a 25-cents-per-bushel premium above the
posted county price to ensure that StarLink corn (both the 2000 and 1999
crops remaining on farms) was fed to farmers own animals, sold to feed
outlets, or sold to the Commodity Credit Corporation (CCC), with the
expenses (including extra transportation charges) to be reimbursed by
Aventis.(4) This program, however, did not address the 1999- and 2000-crop
StarLink corn that had already been delivered to local elevators.
The main purpose of this article is to attempt to assess the magnitude of
the impacts of the StarLink incident on the U.S. corn market and global
corn trade. Specifically, the objectives are: (1) to examine the
disruptions caused by the incident in the domestic and export corn markets,
(2) to estimate the potential (upper-bound) volume of StarLink-commingled
corn from the 2000 crop that was produced and marketed near wet and dry
milling facilities, and (3) to estimate the impact of StarLink on global
corn trade and U.S. corn exports.
Disruptions in the Domestic Corn Market
The StarLink incident has disrupted the U.S. corn market since some
shipments destined for food uses or export markets tested positive and thus
had to be rerouted to approved uses. The disruption to food producers and
exporters can be kept to a minimum by directly channeling a large portion
of the commingled corn to feed use, which accounts for about 60 percent of
U.S. corn disappearance (USDA, ERS). Alternatively, commingled corn can be
channeled to certain non-food industrial users, such as dry-mill ethanol
plants where the byproduct feeds produced are typically consumed
domestically. Dry-mill alcohol fuel use accounts for about 2 percent of
U.S. corn disappearance.
Food processors (including wet and dry millers) are testing inbound corn
delivered to their facilities. The most frequently used test is the
protein-based enzyme-linked immunosorbent assay (ELISA) test, which
determines whether the Cry9C protein found in StarLink is present in the
sample. The test takes about 10 minutes to perform and indicates the
presence or absence of the StarLink-specific protein with a yes or no
response. Presently, the detection sensitivity reported by the test kit
manufacturers ranges from 0.25 percent (1 kernel in 400) to 0.125 percent
(1 kernel in 800), which is achievable with newer test kits. These tests
cost around $4 each.(5) Elevators also face the problem of conflicting
StarLink test results, in part, because of the small size of test
samples--up to three 800- kernel sub-samples per test. Some elevators even
use a more sophisticated, DNA-based technique, called the polymerase chain
reaction (PCR) test, which can detect specific foreign genetic material
inserted into corns DNA. The cost of the test ranges from $200 to $450 and
takes 2 to 10 days to obtain the results, which disrupts the rapid turnover
of grain elevator operations. However, the 10-day upper limit is uncommon.
Only one test is required per barge shipment.
When corn shipments are rejected by processors, arrangements must be made
to alter grain flow patterns by hauling the grain away from processing
facilities or export ports to feed or non-food industrial users. Rerouted
shipments of rejected corn impose extra transportation costs on grain
elevators. Compensation by Aventis for any extra transportation costs is
possible if the expenses are documented (Harl et al.). In most cases,
rerouting of the rejected grain involves shipment to destinations not far
away from the originally intended destination. Demurrage adds an extra cost
for grain elevators. Furthermore, grain elevators may face difficulties if
processors and exporters no longer accept commingled corn.
The zero tolerance for unapproved biotech varieties adopted by buyers in
major export markets (mainly Japan) raises the question of whether the
grain industry can segregate grain supplies. Segregation poses logistical
problems for grain transportation. Corn is commonly transported to export
elevators in unit trains of up to 100 cars (or by barge). If effectively
maintaining crop segregation makes it necessary to shift transportation
away from unit trains to individual railcars, transportation costs could
increase significantly. One industry source suggests that if the threshold
for biotech content was 1 percent or lower, transportation costs could
potentially double (Lin et al.). The cost of segregating non-biotech corn
was recently estimated to be around 22 cents per bushel (from country
elevators to export ports) if segregation follows the handling process for
high-oil corn, which typically meets a tolerance level of about 5 percent
in Japanese markets (Lin et al.). A recent sale of segregated non-biotech
corn to South Korea suggests a lower cost of segregation at 18 cents per
bushel. The zero tolerance for StarLink corn is likely to raise the cost of
segregation beyond that incurred with segregating non- biotech corn.
Potential price discounts for StarLink corn are another disruption in the
corn market. The USDA-Aventis buyback program guarantees farmers market
outlets for their StarLink corn by offering a 25-cents-per- bushel premium
above the posted county price to divert the StarLink corn to feed or
non-food industrial uses. However, price discounts or differentials may
arise at the grain-handler level. Aside from additional transportation that
may be needed to channel the commingled corn to approved uses, the value of
StarLink corn could be discounted by buyers upon rejection by food
processors or exporters. According to trade sources, price differentials
between StarLink and StarLink-free corn under the identity preservation
(IP) program ranged between 7 and 12 cents per bushel and in some rare
instances, reached as high as 15 to 20 cents during the early stage of the
incident.(6) Compensation by Aventis for any market losses (besides any
extra transportation costs) is possible if they are documented (Harl et
al.). Price discounts for StarLink corn reportedly were widespread,
especially in the Southeastern poultry market and export markets. However,
trade volume for StarLink-free corn in the domestic market was very thin,
especially in those areas commanding higher premiums.
Premiums for StarLink-free corn eroded quickly for several reasons. First,
the U.S. grain handling industry became more knowledgeable in addressing
the issues. As more destinations for channeling were approved by the
government, StarLink corn found more market outlets for delivery. Second,
several agreements involving the Federal and State governments paved the
way to channel StarLink corn to approved uses, including the Aventis-USDA
agreement on the buyback program in late September 2000, the Aventis-Iowa
State Attorney General agreement reached in mid-October 2000, to extend
compensation coverage to grain elevators, and the agreement made by the
U.S. and Japanese Governments in November 2000 to resolve trade-related
issues. Finally, premiums for StarLink-free corn were also reduced as more
exporters were willing to market their StarLink-free corn under the IP
program, increasing the StarLink-free corns exportable supplies. At
present, the price differentials are small or nonexistent. Many grain
companies do not discount StarLink corn prices paid to producers because
Aventis will pay the cost of diverting the grain to approved uses.
Estimating the Potential Volume of StarLink-Commingled Corn
This section discusses the estimation of the potential volume of
StarLink-commingled corn from the 2000 crop that was produced and marketed
near wet- and dry-milling facilities.(7) The assumptions of the scenario
analysis and the data sources will be discussed first, and then the results
of the estimation for both wet- and dry-milling facilities will be
presented. The results from this scenario analysis are only one of many
possible outcomes, which vary depending on the assumptions and procedures
used. The findings from this study are not intended to reflect the actual
or most likely volume of commingled corn, but should be interpreted as an
upper-bound estimate.
Scenario Development
The Aventis-USDA StarLink buyback program, announced on September 29, 2000,
aimed to contain StarLink and commingled corn at the farm gate. That is,
the program covered corn that had been harvested but not marketed, as well
as corn that had yet to be harvested. The buyback program, however, did not
address commingled corn that had already been marketed.(8) As a result, the
potential for commingling StarLink with other varieties existed in areas
near wet- and dry-milling facilities.(9)
To determine the potential volume of StarLink-commingled corn from the 2000
crop in areas near wet- and dry-milling facilities, this study analyzes
county-level production and marketing data to identify local hot spots. Hot
spots are defined as areas where large StarLink acres were planted or
significant amounts of commingled corn were marketed near wet- and
dry-milling plants. A high concentration of StarLink acreage may have
contributed to significant commingling. Moreover, commingling may have
occurred in areas with large corn production even though StarLink acreage
was relatively small. The potential for commingling could be greater in
certain locations where the proportion of the corn crop harvested by
October 1, 2000, was higher than in other areas. For example, States in the
South harvest their crop in August, thus potentially moving corn (StarLink
and other varieties) into the grain handling system before the buyback
program began.
Data and Methodology
The locations of corn wet- and dry-milling facilities were obtained from
the Corn Refiners Association and the Grain and Milling Annual (Sosland
Publishing Co.), respectively. Based on the geographic information, 2000
county-level data on harvested corn acreage and yields were gathered from
the USDAs National Agricultural Statistics Service (USDA, NASS website).
The potential volume of StarLink- commingled corn is estimated at the
greater-county area level, which is defined as the county in which one or
more wet or dry millers are located as well as the adjacent counties within
the same State. Greater-county area production is the sum of corn
production in the specified counties. Multi-county corn production that had
been harvested and marketed (including StarLink and other varieties) prior
to October 1, 2000, was estimated by multiplying the greater-county corn
production by the estimated percent harvested in the area (USDA, NASS
website) and by the estimated percentage marketed up to that date in
1999/00 (State-level data), which is the latest available USDA data on the
distribution of corn sales (USDA, Ag Prices). The volume of marketed
StarLink corn by county (including the corn grown on the buffer zone) was
obtained from Aventis survey of StarLink producers. The acreage,
production, and marketing data employed in this analysis are provided in
table B-1.
For illustrative purposes, Linn County, Iowa, is used as an example to show
how the volumes of 2000-crop corn (3.9 million bushels) and StarLink
(324,400) sold by October 1, 2000, were estimated for a greater-county
area. The counties that surround Linn County are Buchanan, Delaware,
Benton, Jones, Cedar, Johnson, and Iowa Counties. The 2000 harvested
acreage in the greater Linn County area (1.1 million acres) consisted of
136,100 acres in Linn County and 978,700 acres in the other counties. Corn
production in each county was computed by multiplying the countys 2000-crop
harvested acreage by its average corn yield that year. Much of the
estimated volume of corn in the greater Linn County area (161 million
bushels) came from the surrounding counties (141.7 million bushels), while
only 19.3 million bushels were produced in Linn County itself. To calculate
the estimated volume of corn sold by October 1, 2000, in this greater-
county area, the regional production was multiplied by the estimated
percent harvested in the area prior to that date, which was about 27
percent. Then, that value was multiplied by the estimated share of corn
sold up to that date (9 percent) based on 1999/00 marketing year sales
data. The 324,400 bushels of marketed StarLink and buffer-zone corn were
obtained from Aventis.
We assumed that the StarLink corn marketed prior to October 1, 2000, in a
greater-county area was commingled with conventional corn from the area
sold before that date. The volume of potentially commingled conventional
corn (excluding StarLink and buffer-zone corn) in a given area was
calculated as the difference between the total volume of corn marketed and
the volume of StarLink corn sold by October 1, 2000 (table B-2). For
example, in the greater Linn County area, the 3.6 million bushels of
potentially commingled corn was calculated by subtracting the 324,400
bushels of marketed StarLink from the 3.9 million bushels of total corn
sold by October 1, 2000 (table B-1). A commingling ratio--the estimated
volume of the potentially commingled corn relative to the volume of
marketed StarLink corn--was computed for each greater-county area where one
or more processing facilities are located.
Results
This section presents, for illustrative purposes, the possible results in
terms of the potential commingling of StarLink with conventional corn in
areas near wet- and dry-milling facilities if the assumptions of the
scenario analysis hold. The analysis identified seven greater- county areas
across the States that had StarLink sales prior to October 1, 2000, that
were estimated to be greater than 100,000 bushels. The greater-county area
around Nebraskas Butler County marketed the largest amount of StarLink at
528,000 bushels (table B- 1). Other regions with large volumes of marketed
StarLink corn include the greater Linn (Iowa), Lancaster, Washington, and
Saline (Nebraska), Castro (Texas), and Atchison (Kansas) county areas.
This analysis identifies a number of hot-spot areas near processing
facilities where large volumes of potentially commingled corn existed prior
to October 1, 2000. Not surprisingly, most of the hot spots are in the
Midwest (especially Iowa and Illinois) and other neighboring States, such
as Nebraska, Tennessee, and Kentucky (table B-2). Overall, the potential
volume of marketed commingled corn from the 2000 crop located in areas near
wet and dry millers prior to October 1, 2000, is estimated at 123.8 million
bushels, or about 1.2 percent of the 2000 crop. The actual volume of
commingled corn may differ from the potential volume estimated in this study.
In Iowa, where 40 percent of the StarLink corn was grown (Harl et al.) and
seven wet millers and one dry miller are located, the volume of potentially
commingled corn was found to be large in a few greater- county areas--Linn
(3.6 mil. bu), Clinton (2.3 mil. bu.), and Mahaska (2.6 mil. bu.).
In Iowa alone, the volume of potentially commingled corn in the
greater-county areas is estimated to have reached 11.4 million bushels,
which is nearly 20 percent larger than the 9.6 million bushels of U.S.
StarLink and buffer-zone corn marketed in the U.S. prior to October 1, 2000
(Aventis). Other greater-county areas with large amounts of potentially
commingled corn include regions in Illinois (Macon, Kankakee, Vermilion,
and Tazewell), Tennessee (Madison), Nebraska (Butler, Saline, and
Lancaster), Kentucky (Henderson and Christian), and Texas (Castro).
This county-level scenario analysis does not address the risk of
commingling StarLink corn with other varieties outside of these counties.
Furthermore, the scenario analysis does not address possible intrastate and
interstate corn shipments beyond the surrounding counties because of a lack
of information about current grain flow patterns. These shipments could
compound the risk of commingling StarLink corn with other varieties in the
grain handling system. However, some elevators can directly unload corn
onto vessels, which lowers the risk of commingling.
The 123.8 million bushels of the commingled corn identified above applies
only to the 2000 crop and refers to the potential volume of commingled corn
that could have been marketed near wet and dry millers. Alternatively, the
volume of commingled corn could be estimated at grain handling facilities.
In a separate study, Aventis estimated that the commingled corn from the
1999 and 2000 crops exceeded 430 million bushels (Wichtrich). Most of this
estimated volume of commingled corn came from the 1999 crop, which entered
the grain handling system undetected throughout the entire marketing year.
According to an Aventis spokesperson, the estimate was derived from
information that the company gained from individual grain handlers reports
on the positive detection of Cry9C protein in their grain supplies. Those
grain handlers contacted Aventis for assistance in directing the corn to
approved animal feed and nonfood industrial uses.
Effects of StarLink on Global Grain Trade and U.S. Corn Exports
Restrictions imposed on the use of StarLink corn in some major U.S. export
markets, such as Japan and South Korea, appear to have had a negative
impact on U.S. corn exports. The zero tolerance for StarLink and disputes
over testing protocol have at times disrupted corn shipments destined for
these export markets.
Disruptions in U.S. Corn Exports
There is evidence that the presence of StarLink in U.S. corn exports
temporarily disrupted shipments to Japan during the first half of the
2000/01 marketing year. The first wave of disruptions occurred during late
October and early November 2000 before the U.S. and Japanese Governments
reached an agreement to address StarLink-related trade issues (fig. B-1).(10)
The disruption continued over the next few months as disputes over StarLink
testing results arose. U.S. corn exports to Japan from September 1 to the
week ending December 28, 2000, totaled 4.5 million metric tons (mmt),(11)
down about 11 percent from a year earlier (table B-3). This 11-percent
decline persisted through mid-March 2001, but narrowed to about 7 percent
by mid-April 2001. Outstanding sales of U.S. corn to Japan at the end of
calendar year 2000 were down about 21 percent from a year earlier. By
mid-April 2001, the gap had widened to 44 percent. Accumulated U.S. corn
exports and outstanding sales to Japan together were down 2.2 mmt from a
year earlier on April 12, 2001. While market forces (e.g., larger than
anticipated corn crops and exports from Argentina and Brazil) probably
accounted for a large portion of the decrease in U.S. corn exports to Japan
(as well as South Korea), the StarLink incident also appeared to be an
important factor.
Trade Effects
The markets most affected by Starlink have been the non-feed corn markets
in Japan and South Korea. Import statistics from South Korea and Japan show
a dramatic decline in the U.S. share of corn imports that are not purchased
for feed use. From November 2000 through February 2001 (4 months), Japans
imports of U.S. corn for starch manufacturing dropped 27 percent from a
year earlier, a decline of over 0.3 million tons. Meanwhile, imports for
starch from non-U.S. origins, mostly South Africa, increased from zero to
over 0.2 million tons.
U.S. corn exports to Japan in the NES category (not for feed, starch, seed,
or popcorn, so likely including some food uses) were down 11 percent during
the same period, a drop of over 75,000 tons. Meanwhile, shipments from
non-U.S. origins to Japan for the NES category more than tripled. Only 2
months of import data are available from South Korea (November and December
2000), but they show the same pattern. Non-feed corn imports from the
United States were down 27 percent, while shipments from non-U.S. origins
were 10 times greater than their year-earlier levels.
Competing exporters trade data give similar results. As of April 16, 2001,
Argentina reported corn sales to Japan at 0.65 million tons during the
current marketing year, more than double the previous year. Sales to South
Korea were up even more, reaching 0.8 million tons--an increase from 0.25
million a year earlier.
Japanese buyers have purchased additional corn for food processing from
South Africa--more than 300,000 tons over the past few months.(12) Most of
this corn is from the large crop harvested last year. Some food processors
in Japan and South Korea have turned to Brazil to source corn because of
concerns over StarLink-commingled corn from the United States. Brazils
record corn crop and the devaluation of its currency have made the country
more competitive in the world market. Finally, larger than anticipated corn
exports from China have also contributed to the decline in U.S. corn
exports. Despite a drought- reduced crop, Chinas Government has continued
to subsidize exports (a decision not related to StarLink), thereby reducing
its large stocks.
Most of the reduction in U.S. corn exports is due to increased competition
from the large back-to-back crops in Argentina, the record Brazilian crop,
and the decision by China to continue to subsidize exports. The net effect
of the StarLink incident on U.S. corn exports has been reduced somewhat as
additional U.S. corn is diverted to other markets, including Mexico,
Algeria, and Israel (table B-3).(13) As of the week ending April 12, 2001,
cumulative weekly U.S. corn exports and outstanding sales together to those
specific markets were up about 1.5 mmt from a year ago.
Conclusions
The large volume of StarLink-commingled corn that was produced and marketed
near dry- and wet-milling facilities presents an unprecedented challenge to
the U.S. grain handling industry. To the extent that the commingled corn
can be channeled into approved uses, disruptions in the U.S. corn market
can be kept to a minimum. The large volume of potentially commingled corn
in grain elevators suggests that the grain industry would have to continue
its efforts to channel the commingled corn to approved uses.
Segregating U.S. corn into StarLink-free and StarLink-commingled corn
presents another challenge for the grain industry. Testing for the presence
of the Cry9C protein in a specific lot of corn may yield different results
when different samples are drawn for the test. Many recognize the
importance of proper sampling procedures and knowledge of the issues at
hand in determining the proper number and size of samples. More
importantly, the zero-tolerance allowance adopted by buyers in Japan and
South Korea (only for food use) compounds the difficulties because corn
shipments will be rejected even if any traces of the StarLink-specific
protein are found. Also, segregation to meet zero tolerance (because
StarLink is an unapproved variety in some countries, such as Japan) is
nearly impossible and would involve much greater expenses than segregating
non-biotech corn.
Restrictions imposed on the use of Starlink corn in major U.S. export
markets, such as Japan and South Korea, appear to have had a negative
impact on U.S. corn exports. The zero tolerance for StarLink and disputes
over testing results have also disrupted corn shipments destined for these
export markets.
References
Aventis CropScience. Bushels of StarLink Corn Moved Off-Farm By Grower
Prior to Start of Program, Data provided to the U.S. Department of
Agriculture on October 17, 2000. Corn Refiners Association. Personal
Communication. October 2000.
Environmental Protection Agency. White Paper on the Possible Presence of
Cry9C Protein in Processed Human Foods Made From Food Fractions Produced
Through the Wet Milling of Corn,
http://www.epa.gov/oppbppd1/biopesticides/otherdocs/wetmill18.PDF, 2001.
Harl, Neil E., Roger G. Ginder, Charles R. Hurburgh, and Steve Moline. The
StarLinkTM Situation, Iowa State University Grain Quality Initiative
website. http://www.iowagrain.org, Rev. 3/13/01.
Lin, William, William Chambers, and Joy Harwood. Biotechnology: U.S. Grain
Handlers Look Ahead, Agricultural Outlook, AGO-270, ERS-USDA, April 2000.
Sosland Publishing Co. Grain and Milling Annual, 1999.
U.S. Department of Agriculture, Economic Research Service. Feed Situation
and Outlook Yearbook, FDS-2000, April 2000.
_________________________, Foreign Agricultural Service. U.S. Export Sales.
Selected issues. 2000 & 2001.
_________________________, National Agricultural Statistics Service,
Agricultural Prices: 1999 Summary, Pr 1-3(00)a, July 2000.
_________________________, National Agricultural Statistics Service. NASS
website. http://www.usda.gov/nass.
Wichtrich, John A. Speech presented at the North American Millers
Association meeting in San Antonio, Texas, March 18, 2001.
Footnotes
** NOTICE: In accordance with Title 17 U.S.C. Section 107, this material
is distributed for research and educational purposes only. **
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