This paper examines the evidence regarding the segmentation of export markets for corn and soybeans into GMO and non-GMO varieties and products. First, we examine EU policy which is evolving in a piecemeal fashion across countries, GMO varieties, and end-use markets. Thus EU importers face a difficult challenge in matching supplies with end use markets, and may choose to demand non-GMO product whenever possible, to avoid any problems with market acceptance. Next, we examine trade flows, which differ between the corn and soybean markets. U.S. corn exports to the EU have virtually disappeared following the introduction of GMOs, as the EU is able to supply their diminishing import demand from many other sources. U.S. soybean and soybean meal exports to the EU remain a signficant share of U.S. exports and of the EU market. There are fewer substitutes and fewer alternative sources for soybeans.
These changes in demand are reflected at the local level in Midwestern grain markets, which we examine through the trade press and informal interviews with grain handlers. Two major processors have a specific program to handle and process non-GMO soybeans. They will also accept only EU approved varieties of corn in this coming marketing year. Many elevators are advertising on the internet for non-GMO corn and soybean contracts with growers. These contracts vary in the price premiums offered and in the need for verification that a crop is truly non-GMO. Premiums and markets for non-GMO soybeans appear more robust than those for corn, following the pattern of EU demand. The costs of segmented markets for specialty grains provide a high estimate of the marketing costs of segmentation. Actual costs may be lower due to the higher volume in non-GMO segments and the declining costs of market coordination with use of the internet. On the other hand, if verification of non-GMO status becomes more important to end-users, that could substantially increase marketing costs.
A priori analysis of market segmentation cannot predict whether we will eventually see premiums for non-GMO product or not. Shifts in supply and demand curves are expected in both GMO and non-GMO markets. Adoption of GMOs and the evolution of policy in other countries that are major actors in world corn and soybean markets will also influence the outcome. It will be interesting to watch markets respond to the challenges presented by new technologies and changing demands over the next few years.