The Impact of New Biotechnologies on the Agribusiness Value Chain – Prospects, Risks & Management
Mr Mitchell H Hooke
Executive Director
Australian Food and Grocery Council

Presentation

Mr Chairman, distinguished speakers, ladies and gentlemen.

Thank you for the invitation to address the 1999 Australian Agribusiness Congress on the prospects, risks and management of new biotechnologies in the agribusiness value chain.

Given the Congress’ focus and the impressive array of speakers, you have already been provided a comprehensive appraisal of modern biotechnology, also known as gene technology, its potential application in the agri-food industry, its strategic "fit" within the dynamic global agri-food market and an overview of the technology’s social and ethical dimensions both here in Australia and more particularly in Europe.

That is a platform, from which I will address you, that sits particularly well with the organisation I represent.

The Australian Food and Grocery Council does not consider it is in a position to defend or promote the technology per se.

The Council does not consider that it should have to vouch for the scientific integrity of modern biotechnology.

But the Council does consider that it has a responsibility in reconciling the legitimate concerns of the community and the information needs of consumers in the application of this technology in food and drink products – in particular that public health and safety will not be compromised, nor the integrity of the environment, nor the integrity of food and drink consumer products.

Our food and drink manufacturers generally consider themselves to be the "honest brokers" in the adoption of this technology.

Quite simply, companies will, and are, making decisions about the investment in the application and commercialisation of this technology in their products. And they are doing so from the perspective of meeting the needs and expectations of their consumers.

Companies are doing so with regard to the potential benefits of this technology.

Companies are doing so with regard to their appreciation of risk. More particularly, they are doing so with regard to their consumer’s appreciation of risk and their consumer’s appreciation of the capability of Australia’s regulatory system to safeguard public health and safety and protect the environment.

Companies are doing so from an appreciation that in the fast moving consumers goods market, to many, perception is reality.

And food and drink companies are only too well aware of the commercial imperatives of meeting the market in providing a diversity of products that are clearly and meaningfully identified, sourced from both conventional production systems and those applying modern biotechnology.

Accordingly, I have no intention of pontificating to you about the technology or the virtues of its application, suffice for an initial empathy pitch.

I will confine my address to those factors which my organisation considers it has a role and responsibility in pursuing a market environment conducive to innovation and independent commercial decisions about the development and application of the technology.

That is, the AFGC seeks a market capable of operating efficiently and effectively where companies can make their own judgements, governed by a transparent, accountable and capable regulatory system – a market devoid of draconian, costly, ineffective regulation and unwarranted antipathy and fear.

Our position and our strategic approach to the development of this technology is entirely consistent with the AFGC’s mandate to pursue a business environment that promotes investment, jobs, growth and profits and independent commercial decisions.

Furthermore, it accommodates the commercial reality of a membership in excess of 175 business entities spanning a complexity of businesses and a diversity of products, comprising in the order of 85% of the gross dollar value of Australia’s largest manufacturing sector, employing 1 in 5 of the manufacturing work force, accounting for some 2 thirds of the total agri-food sector exports, of which around half or in excess of $5 billion are highly processed.

And, if you will excuse my presumption, I am going to leave you with a fundamental thesis supported by six key take home messages consistent with the topic you have given me, and therefore within the context of a "reality check" on appreciation of risk, risk management and consumer confidence as key factors in the equation of equating prospects with the realisation of potential.

Firstly, the empathy pitch.

Biotechnology is any technique that uses living organisms to make beneficial materials or products. Gene technology is a modern tool of biotechnology.

Gene technology:

• refers to a range of techniques for the controlled or selective modification or transfer of genes from one organism to another [microbes, plants or animals] to give desired characteristics. The modification may simply be switching on or off of a gene, changing the sequence, or it may involve the transfer of genes between organisms, known as recombinant DNA technology;
• is an extension of man’s intervention to improve the quality and quantity of our food supply;
• enhances precision in the genetic improvement of plants and animals, mitigating much of the hit and miss of more traditional methods and reducing associated risks;
• allows breeders to choose specific genes, incorporating beneficial traits to develop new plant varieties or animals;
• makes the process of trait transfer faster, more exact, cheaper and less likely to fail than traditional cross-breeding methods; and
• allows breeders to develop new varieties more rapidly.

Modern biotechnology’s potential in meeting society’s challenges is, prima facie, impressive. The challenges of:

• managing the environment—all environmentalists should be shouting from the rooftops about the potential of this technology;
• sustainable food production—improving the efficiency of using both scarce or non renewable resources including water, fertilisers, land and fossil fuels;
• increasing food demand—the need to feed "two more Chinas" by the year 2025 off a static, if not declining amount of arable land; and
• increased consumer demands for tailored food products and services with greater nutritional value and health benefits—consumer demand is rapidly shifting from products to services to lifetime experiences—foods of the future will provide more than just nutritional benefits—some call them designer foods eg. foods that afford cardiovascular protection, assist digestion, protect against cancers and combat allergenicity.

Within the context of identifying the potential benefits of this technology, it is important to appreciate that the first wave of developments, and therefore benefits, in its application will be in improvements in the agronomic properties and the physiological characteristics of plants and animals – what you might call "on-farm benefits".

And less so in the direct consumer benefit properties in food and drink products.

We can see that now. Current applications are in herbicide, pest and disease resistance, with emphasis on greater yields, sustainable production, enhanced environment and designer plants to tolerate otherwise adverse environments eg. drought and salt resistant plants.

The list of agricultural biotech products on the global market is heavily weighted that way.

The potential for direct consumer benefits is exciting, but will mostly be in the second wave of gene technology product development ie. products that will be on the market within say, 6 years.

The following products are in the pipeline:

• oils, such as soybean and canola oils, developed to contain more stearate, making margarine and shortenings healthier;
• peas grown to remain sweeter and produce higher crop yields;
• bananas and pineapples and tomatoes with delayed ripening qualities;
• peanuts with improved protein balance;
• fungus resistant bananas;
• tomatoes with a higher antioxidant (lycopene) content than current varieties;
• potatoes with a higher solids content (higher starch) than conventional potatoes, reducing the amount of oil absorbed during frying of foods like potato chips, crisps or French Fries;
• fruits and vegetables fortified with or containing higher levels of vitamins such as C and E, to potentially protect against the risk of chronic diseases such as cancer and heart disease;
• garlic cloves, producing more allicin, possibly helping to lower cholesterol levels;
• higher-protein rice, using genes transferred from pea plants;
• strawberries, containing increased levels of ellagic acid, a natural-cancer fighting agent;
• capsicum, strawberries, raspberries, bananas, sweet potatoes and melons that are enhanced for better nutrition and quality; and
• strawberries with higher crop yields and improved freshness, flavour and texture.

And all this without address to the technology’s other significant applications including forestry products, medicines and pharmaceuticals.

The purpose of this empathy pitch is to signify our appreciation of the potential of this technology and to alert you to my fundamental thesis – there is simply an inevitability of gene technology, even though some may vigorously protest it, but there is a real risk Australia will not be well positioned to realise the potential and capture the benefits.

Few argue the potential impact of new biotechnologies to impact on technological advancement in the agri-food industries and their competitiveness, and to society as a whole.

Whether you are a protagonist or antagonist of gene technology, there is increasing acceptance that it will be "the" technology of the start of the new millennium, just as computers and electronics have been "the" technology of this century.

Already the total area planted of the world’s five major genetically improved crops has grown from 2 million hectares to 13 million hectares to around 28 million hectares in the three years to 1998—to put that in some perspective that is roughly three times Australia’s total wheat cropping area.

So the issue is not whether there will be this technology, rather it is when.

Australia will not be well placed to capitalise upon its potential and realise its benefits if this new technology’s application is put at risk in the short-term.

There is a real risk of Australia becoming a "client state", purchasing improvements from others who have harnessed the technology’s power and captured its intellectual property, to sustain our competitiveness in the market.

And all the indications are that Australia is following its traditional path in the development and adoption of new technologies.

As a country, our record and our reputation for generating new science and new technologies has far exceeded our ability to convert that scientific knowledge into commercial products and profitable operations.

I contend that this is a legacy of relatively strong government investment in R&D and low business investment, which has caused an imbalance between public sector research and market driven or business research. [A situation which has been profoundly exacerbated by the reduction in the R& D tax concession from 150% to 125%.]

It is also a function of the financial sector’s tendency to "emphasise" industries – to concentrate on traditional industries or those with a proven track record. The prospect is a self serving circular affirmation of strategies and investment.

The financial community is often looking in different directions for growth.

They are not comfortable with risk in the application of knowledge and innovative ways of growing – one only has to look at our track record of investment in venture capital industries – indeed, the Government’s discussion paper "Developing Australia’s Biotechnology Future", declared that there had been several lost opportunities for the commercialisation of Australian biotechnology research for lack of capital for early stage developments.

And more recently, the Deutsche Bank down-graded the investment risk–return on GMO ventures declaring GMOs as a liability, notwithstanding "what they believed to be the illogical, but persistent, arguments advanced by GM opponents".

On the flip side, the Australia Financial Review of 3 September, reported "the biotechnology sector back in favour, with several small to medium sized companies experiencing recent healthy share price gains" – it is worth noting that the companies quoted are all in the medical and therapeutic goods industry.

And yet, few in this room would argue that the discovery and management of ideas and knowledge sets nations and businesses apart.

In my view, the application of knowledge is where intrinsic competitive value lies – this is where the real capturable benefits are, even if they are not always exclusive or sustainably so.

And yet, in the development and application of gene technology, I see little evidence of any change in the track record of research, development and commercialisation behaviour.

My first take home message is that we run a real risk of the technology "push" far exceeding the market "pull".

The agriculture sector in general, and although changing rapidly, has a history of being more producer responsive, production driven than market oriented.

Many of our scientists [present company excluded, of course!], continue to get lost in the logic of their own arguments or fail to appreciate the sheer vulnerability of their discipline and its products.

The scientific community:

• is failing to heed the lessons of the BSE-CJD debacle in the UK;
• is ignoring the social and moral dimensions of new gene technologies;
• fails to appreciate individuals differing perspective of risks;
• does not recognise the mercenary nature in all of us – we all want a cut of the cake – and yet the benefits are neither immediate nor universal;
• does not understand that perception is reality for many; and
• hopes somebody else will stand up and defend the honour and integrity of science, explain new and complex technologies in a rapidly changing technological age and demand governments honour community service obligations by funding research.

Again, if I may be so presumptuous, my message to the scientists among you is to "get real". If scientists do not [get real], they will continue to be perplexed at society’s attitudes towards science and add to the risk of the new technology’s acceptance in the short-term.

Just as my industry is the "honest broker" in the application of this technology in food and drink products, scientists must be the "honest brokers" in its development.

With any new technology there is an inherent uncertainty and an imperative for reassurance.

We are all looking for reassurances that the direction our scientists are taking us is sound.

I accept that the "publish or perish" syndrome has long ago taken a back seat, but anyone who thinks the promotion of cloning Dolly, four legged chickens and extra ears on mice amidst the current volatile atmosphere, as being science’s valid contribution to the consumer reassurance imperative, ought similarly to take a back seat.

Contrast this with the fast moving consumer goods sector which concentrates its discovery activities on information about the "pull" factors on the demand side, more so than the "push" factors on the supply side, where the revenue opportunities through growth and margin are more obvious to the business.

Need I remind you how far more effective it is to pull a chain than to push it! – and this technology applies throughout the agri-food demand chain.

To underscore my point about the risk of an excessive technology "push", look at the relativities between the investment in the research and development of gene technology in Australia – currently in the order of $250m per year – and that invested in providing information to the market, or simply the effort in promoting and defending the technology’s integrity.

Furthermore, who really appreciates the ramifications of the genetically modified food labelling debate? And even more to the point, the implications of its outcome?. And who among you care? Do you consider that the debate about an appropriate regulatory labelling regime was a side issue and could be accommodated as a sop to those with a political agenda?

If you did, you are in good, if not uninformed, company.

If you will accept some gratuitous advice for those of you with a vested interest in the development of this technology – be careful – those vehemently opposed to this technology are past task masters at shifting the goal posts – labelling yesterday, thresholds today, moratorium tomorrow.

My second take home message – which I alluded to earlier – is that consumer confidence in the safety and integrity of products produced using modern biotechnologies is fundamental to investment in its development and the commercialisation of its products.

That confidence is a function of transparency, accountability and effectiveness of the regulatory regime to ensure public health and safety and protection of the environment.

It is also a function of knowledge in understanding the technology and its application and upon which consumers can exercise their right to choice.

Those seeking to undermine this technology have struck at the heart of:

• the capability and accountability of the regulatory system;
• the legitimacy of the science and the integrity of scientists;
• human’s inconsistent attitudes to risk;
• the motives of business; and
• the consumer’s right to choice as pretense to comprehensive mandatory labelling.

Let me take them one at a time.

The Australia New Zealand Food Authority’s (ANZFA) integrity has been strongly challenged notwithstanding the rigor of its work and the exhaustive nature of its public consultation, and accountability to six States, two Territories and two national governments.

In my professional career I cannot remember when, globally, science was so challenged. And yet, the thinking person cannot help but be impressed by what science and its resultant new technologies have delivered mankind throughout history and particularly so, in the last couple of decades.

Who among us could have foreseen as recently as two decades ago just how profound an impact new electronic technologies would have, not just on society, but on each one of us. If you didn’t, you were in good company.

In 1943 the Chairman of IBM said, "I think there is a world market for about five computers". In 1977, only 22 years ago, the founder and CEO of Digital Equipment Corporation, said, "There is no reason for any individual to have a computer in the home".

Science and new technologies have been unquestionably fundamental to our shift from the agrarian age through the industrial age into the infotronics/electronics age, and stand to launch us into the next age of new biotechnologies.

But with any new technology, as I alluded to you earlier, we are as a community, justifiably seeking assurances about its safe application. And there is the expectation, however unreal, that there are no risks, not just the effective management of risks and of demonstrable benefits.

The "no risk" mantra is a function of our quite inconsistent attitudes to risk.

We are prepared to accept risk if we think we have a degree of control over it.

But we are not prepared to accept risk when decisions about it are out of our hands. And we are not prepared to transfer the onus of responsibility for decision making about managing risk to those in whom we have less confidence.

Equally, the "thought people" who may have a cause, or are just looking for a cause, are clever in the way they manipulate the community’s perceptions of risk to serve their cause.

Many of you will be familiar with the so-called "precautionary principle". You might be surprised though, to learn that its origins lie in ensuring that the lack of conclusive scientific evidence was not used to justify inactivity in environmental remedial policy and management.

I trust the irony of the argument for the "precautionary principle" in this debate is not lost on you ie. the lack of conclusive scientific evidence is sufficient grounds for a moratorium – I liken it to the Northern Territory tourism ad "if you never never go, you’ll never never know!"

And there have been plenty of examples where those seeking to promote fear and trepidation and emphasis the no-risk dictum, have found fertile ground.

Witness:

• the L-tryptophan story — 37 people died, 1500 injured from the production of this body-building amino acid from a genetically modified bacterium, but the process wasn’t at fault, the screening procedures on purity and safety were not carried out.
• the GM potatoes fed to rats with claims of damage to the immune system and stunted growth (ref: Professor Puztai formerly of the Rowett Institute in Aberdeen) – again the issue is not the GM process per se, but the transfer of the lectin gene—these are natural substances found in legumes which protect them from insects but are recognised as toxic to animals and humans in quantity.
• antibiotic resistance—you know the procedures for using antibiotic resistant marker genes in this technology—the probability of shifting that resistance from food to animals, to people, or to pathogenic bacteria, causing antibiotics to loose their effectiveness has been calculated as about the same probability of the radiation from exploding super novae crashing into the earth.
• jumping genes—scientists know the risks, the probabilities are thoroughly assessed, though not high and no evidence of it being unmanageable.
• we’ll all be eating genes! — we’ll all be eating viruses and bacteria—we already do and they are ubiquitous.
• mutant foods – a mutation is defined as a sudden change in chromosomal DNA – it’s a natural part of life – they are merely the raw material for evolutionary change.

Added to this, there is an undercurrent of phobia about monopolistic supply chains aided by intellectual property rights on technologies akin to providing a capacity to derive a monopoly rent from the market for an innovation.

Many of you in this room will feel a sense of deja vu with this line of argument, recalling similar debates about the development of hybrid crops, Plant Variety Rights [now Breeder’s Rights], patent property rights on agricultural and veterinary chemicals, and dare I say, farmers looking for exclusive supply contracts to say, fast food chains.

Even so, the recognition that businesses’ livelihood depends on getting it right with their consumers has been somewhat camouflaged by the classical parish pump lines of multi-nationals wanting to:

• exploit the world’s biological resources;
• limit the development capability of developing countries; and
• confine farmers to a destiny akin to the medieval serf/landlord where intellectual property rights of genetically modified plants and animals is the capital, and not the land.

And the consumer’s right to choice provided the perfect foil for those seeking to promote a labelling regime tantamount to a warning statement and thus discrediting of products derived from this technology.

What other possible conclusion could you draw from the promotion of a labelling regime that its proponents acknowledge will cause the vast majority of products on supermarket shelves to carry a "might contain ….." or "may contain ….." descriptor.

Let me be perfectly clear. We have no dispute with the objectives of mandatory labelling of all products derived from gene technology. Indeed, we strongly advocated mandatory labelling where that could be effectively applied. We recognise the consumer right to choice, we have committed to provide clear and definite information where we can, and that we can substantiate.

The argument therefore, should be about how to deliver a comprehensive mandatory labelling regime that is practical, enforceable and cost effective.

Many foods are not new or different as a result of being derived from GM crops and because those foods are not segregated by farmers and reliable diagnostic techniques are not available to detect differences, food companies will have no alternative under proposed regulations but to use the "might contain ……" label.

Where’s the product differentiation and informed choice in that? Consumers participating in our independent focus group market research similarly dismissed it as being useless.

I am sure the irony of the food industry bearing the brunt of the technology’s antagonists is not lost on you. But just in case it is, the food and drink industry’s sensitivity to the needs and expectations of its consumers is proving to be its nemesis or soft underbelly vulnerable to the vehement opponents of this technology.

My third take home message – food and drink producers simply will not put their products and their brands on the line if consumers do not have confidence in the product’s safety and integrity – the Deutsche Bank put it in more graphic terms, and I quote "don’t expect the food manufacturers and retailers to take a bullet for GMOs."

Companies won’t, indeed cannot afford, to fly in the face of consumers’ wants irrespective of what might be their perceived needs. To do otherwise is to run the risk of being perceived as not acting in the interests of consumers which is so fundamental to any food businesses’ commercial livelihood.

Companies won’t purchase, indeed will actively seek to avoid purchasing, ingredients from genetically modified plants and animals. You only have to look at the current developments in the market to verify this statement.

But at the same time the industry is committed to providing meaningful, cost effective information to consumers (about the use of this technology) to enable them to make an informed choice in the market.

Our consumer market research further indicates that is the overwhelming desire of consumers. In the main they are not convinced by either extremes of the argument and most are not swayed by scare mongering about GM foods – in fact they pointedly declared that they were not as familiar with the "pro" case as they were aware of the emotional hype and fear promotion.

In the four years I have been in the food industry, I have been struck by the attempts of those who seek to represent consumers to promote them as being less sophisticated and discerning than they really are.

Quite simply, consumers are thirsting for information about this technology, its application and regulatory controls, upon which they seek to make their own judgements – and that’s the way it should be.

In recognising the inherent uncertainty and imperative for reassurance about any new technology, we have continued to advocate a strong and comprehensive labelling regime complemented by ready access to information.

We contend that the consumers information requirements will not be satisfied by mandatory labelling alone. The industry is committed to shouldering more of the responsibility for providing meaningful information to consumers through industry Codes of Practice and consumer information through point of sale and the AFGC’s Food Science Bureau.

We could have taken the cheap option and rolled over on a mandatory labelling system that would have served only to mislead and confuse consumers and deny choice. The right to choice is only as valuable as the information upon which it is exercised.

The decision of the Australian and New Zealand Health Ministers earlier this month is tantamount to a reality check on the practical, cost effective delivery of legislative mandatory labelling of "substantially equivalent" GM foods.

I am sure you all know of the Ministers’ decision to reaffirm their intention to require the comprehensive labelling of all GM products, not just those that are "substantially different" to their conventional counterparts.

To my fourth take home message, what is so significant in the context of the debate, are the surrounds to the Ministers’ decision.

Let me tick them off:

• The Ministers unanimously declared that their decision was not a matter of safety, but of information and the right to choice. A position we wholeheartedly support.
• The food and drink industry’s commitment to a comprehensive labelling regime and information system finally broke through the cacophony of political mischief.
• A recognition of the industry’s commitment to shouldering responsibility for the delivery of information over and above regulation requirements through codes of practice and other information sources;
• The technology is not the issue, rather the issue is how to deliver a practical, cost effective meaningful labelling regime;
• A recognition of the technical restraints of delivering against the mutual objectives of comprehensive mandatory labelling – a challenge that has bedeviled every jurisdiction around the world which confronted it – and stumped our Ministers too, notwithstanding 8 hours of deliberations – they could only produce a statement of intent and a list of issues to be addressed that every food and drink product association and government around the world grappling with this problem has similarly identified.
• Consideration of following the European path of determining threshold levels of modified ingredients in whole foods and refined substances as a means of accommodating the practical constraints of comprehensive labelling.
• Recognition that costs are an issue – cost to industry and that which is likely to be passed on to consumers and costs to regulatory authorities and governments, particularly in regard to monitoring and enforcement.
• Consideration of extending mandatory labelling to unpackaged foods – to fresh foods and food from fast food outlets, restaurants, catering and even hospitals.

• Recognition of the implications of applying a restrictive labelling regime to imported products which stands to breach Australia and New Zealand’s commitments as signatories to the World Trade Organisation Agreements; and
• The media coverage shifted markedly from earlier coverage denigrating the technology and demanding labelling to avoid it products, to a greater appreciation of the difficulties confronting companies in making absolute declarations on labels about GM ingredients and to a tentative acceptance, if not embracing, of the technology’s potential.

Our preference throughout this debate has been to concentrate our efforts in those information areas on labels and through other means where industry could really add value for consumers without having to bear the legacy of costly, ineffective further regulations.

We expect in the worst case scenario, the cost of segregating the entire food chain into a "does or does not contain …" coupled with auditing, testing and re-labelling under these circumstances, could amount to at least $1 billion annually, for an industry worth $45 billion – a great proportion of which would be passed on to consumers.

Even so, we are committed to working with Ministers to realise the mutual objectives in providing meaningful information to consumers and will work towards minimising the costs and optimising the benefits.

My fifth take home message is that my take out of the Minister’s decision is that they have either consciously or inadvertently sought to redress the imbalance between the technology "push" and the market "pull".

In doing so, the Ministers have overplayed the market "pull" to the point where the practical constraints of delivering mandatory labelling have become the discipline in meeting the dictates of the market as they perceive them.

My final take home message, which takes me back to my underlying thesis of "realising the potential", is that those who consider they have a vested interest in the advancement of this technology would do well to appreciate the dictates of the market and recognise their role and responsibility in both influencing the market and in serving it.