by Dan R. Anderson, Ph.D.,CPCU - Wisconsin School of Business ...

More documents

Recommendations

Info

Biotechnology Risk Management: The Case of Genetically Modified Organisms (GMOs) discoveries, these manufacturers recalled their taco shells and other corn products from grocers’ shelves. Several corn millers were forced to suspend operations to clean their facilities. (Brasher, 2000) The Kellogg Company closed several lines at a cereal manufacturing plant in Memphis, Tennessee because a supplier could not guarantee its corn was free of a GM-modified grain yet approved for consumption. (Collins, 2000) Some 35 reports of adverse health effects from StarLink corn experienced by 44 consumers came in a two-month period following the discovery of StarLink in Kraft Foods taco shells. (Pollack, 11/29/2000) Aventis Crop Science, a U.S. subsidiary of Aventis, the French pharmaceutical and agricultural company, is incurring substantial costs related to its StarLink corn. While Aventis received less than a million dollars in licensing fees on StarLink, it is estimated that its cost to resolve the issue would be in the h u n d reds of millions of dollars. No future revenues are forthcoming as Aventis has withdrawn its license for future sale. (Barboza, 12/11/2000) Farmers whose crops were contaminated are being reimbursed under a U.S. Department of Agriculture program in 17 states that is funded by Aventis. Aventis has p romised to find markets for this year’s StarLink c o rn and farmers are being off e red a 25-cent p remium per bushel over the market cost of c o rn. Aventis also has pledged to compensate grain elevator owners and grain handlers for expenses related to the eff o rt to keep Star Link c o rn out of the food chain. (Bradford, 2001) Aventis faces substantial costs in the future . A class action suit involving several hundre d thousand farmers who produced clean corn, but contend they lost overseas revenues because of damage to the U.S. corn supply, has been filed. ( B r a d f o rd, 2001) Another group of farmers who did not plant StarLink corn but whose corn was contaminated by StarLink corn is suing for damages. (Barboza, 12/4/2000) Consumer suits have also been filed alleging allerg i c - t y p e injuries from the StarLink corn. (McKay, 2000) Nearly every major food and agricultural company is testing for Cry9C from StarLink so f u rther recalls and expenses could re s u l t . Aventis is seeking temporary approval of StarLink from the EPA to mitigate costs so that the food industry could avoid further recalls and f u t u re testing would not have to be so extensive. A recent hearing and re p o rt by a federal advisory panel of scientists found there was a medium likelihood that StarLink is a potential allergen. It recommended more tests, which the EPA said would be conducted, so any a p p roval at best is far in the future. (Pollack, 12/6/2000) Finally Aventis fired the head of its U.S. crop-science division and two other top managers in the wake of the StarLink situation. ( F u h rmans, 2001) Reputational Risk Closely related to the business risk that customers will not buy GM foods is a firm ’s reputational risk. Firms and groups exposed to reputational risks could include the GMO technology companies, farmers, grain handlers, f o od processors, and food manufacturers and retailers. Reputation is important to any o rganization, but food companies with stro n g brand power can suffer exceptional losses fro m reputational risks. When customers consume a food prod u c t , p a rticularly from a sealed package, bottle, or can, they assume it is safe to eat. If one contaminated batch injures consumers, the adverse publicity and reputational damage can be severe. Recall the bankruptcy several years ago of the Bon Vivant Company following botulism poisoning in a batch of its canned soups. More recently the contaminated Coke fiasco in Belgium and France, particularly the e ffects on school children, tarnished Coke’s worldwide image and reputation. While not a f o od company, the reputational damage to the F i restone Company from SUV ro l l o v e r accidents caused by defective tires may result in the demise of one of the oldest, most re c o g n i z e d brands in the United States. In response to concerns on GM foods and grains, several companies chose to avoid their use to eliminate potential damages fro m reputational risks and business risks. For instance, first Gerber and then Heinz in the summer of 1999 announced that they would use only non-GMO products in their baby food s . (Nelson, et. al., 1999) In January 2000, Frito- Lay announced that it would stop using GM c o rn in its Fritos, Doritos, and Tostitos chips. (Barboza, 6/4/2000) In Spring of 2000, M c D o n a l d ’s began quietly telling its fre n c h - f ry suppliers to stop using the potato fro m Monsanto, the only firm to commercialize a GM spud. (Kilman, 4/28/2000) Additional examples of corporations distancing themselves f rom GMO risks will be presented in a later section on risk avoidance. 222 CPCU JOURNAL “In response to concerns on GM foods and grains, several companies chose to avoid their use to eliminate potential damages from reputational risks and business risks.”
“In February 2001, the European Union Parliament passed a measure that established strict rules on GMOs . . .” While such potential GMO risks as the “superbug,” or “superweed,” or severe allergic or toxic reaction, or other serious genetic pollution have not actually materialized, the adverse e ffects on the reputation of any firms associated with such developments would be catastro p h i c . The fact that considerable warnings, criticism, and opposition will have preceded any such development would only aggravate the reputational and liability losses. Regulation and World Trade Issues United States Regulations of GMOs in the United States have been relatively benign, part i c u l a r l y c o m p a red to Europe. In May 1992, the FDA issued a policy statement: The agency is not aware of any information showing that foods derived by these new methods differ from other foods in any meaningful or uniform way. The effect was that corporations would not need government approval to sell the foods they w e re developing. GM crops were considered to be essentially the same as those produced by conventional breeding methods. Genetic m odification was not considered an additive that would have re q u i red safety testing and labeling. Testing was not re q u i red, but a company could perf o rm it voluntarily. Because of the increasing public debate on GM foods, the FDA in January 2001 pro p o s e d rules to make safety reviews of new GM food s m a n d a t o ry before bringing the foods to the market. The rules stop short of mandatory a p p roval. The proposed rules will not impose many new burdens on the companies because they are already notifying and providing data to the agency voluntarily. Guidelines were also issued on how food companies could voluntarily label products that did employ genetic engineering. While these proposed rules and guidelines re p resent a step up in re g u l a t i o n , many stakeholders argued for stro n g e r re q u i rements like mandatory approval, not just re v i e w, of new GM foods and mandatory labeling. (Pollack, 1/18/2001) In reaction to the monarch butterfly studies, the EPA required in January 2000 that farmers using Bt crops must plant at least 20 percent of their crop and 50 percent of their cotton crop with conventional seeds. This will partially provide a screen for the butterfly larvae and reduce the probabilities of insects developing Bt resistance. WINTER 2001 Biotechnology Risk Management: The Case of Genetically Modified Organisms (GMOs) E u ro p e In contrast to the United States, Euro p e a n Union Directives re q u i re both mandatory a p p roval of GM crops before they can be planted (1990 EU Directive) and mandatory labeling of all packaged food that contains GM c o rn and soy (1998 EU Directive). The United Kingdom went even furt h e r, requiring the restaurants, caterers, and bakers list all GM i n g redients or face fines up to $8,400. Finally in April 1998, the EU stopped approving new GM c rops for use in or import into the EU. ( P a a r l b e rg, 2000) Cultural diff e rences, less tru s t in government regulators, and food - re l a t e d s c a res discussed above contribute to gre a t e r societal pre s s u re in EU countries than the United States to regulate GM crops and food s . In Febru a ry 2001, the European Union Parliament passed a measure that established strict rules on GMOs, preparing to end Euro p e ’s u n o fficial moratorium on new bioengineere d seeds and food. The rules govern the testing, planting, and sale of crops and food for humans and animals and the testing and sale of p h a rmaceuticals. Under the rules, companies have to apply for licenses that will last 10 years and to pass approval processes. All genetically a l t e red products will be tracked in a central database that will also mark the locations of all c rops. A separate bill to set tough food labeling and tracing re q u i rements was to be in place by April 2001. (McNeil, 2001) With the changes, the thre e - y e a r- o l d moratorium should end sometime in 2002. Still this is not a done deal as many members of E u ropean Green parties abstained from the vote. In addition, the French government issued a statement saying it and the governments of Austria, Denmark, Greece, Luxembourg, and Italy all wanted the moratorium kept in place. (McNeil, 2001) Other Countries Tough re g u l a t o ry stances are also present in a number of other countries. Japan and Kore a have tightened approval pro c e d u res for GM varieties and re q u i re mandatory labeling of genetically modified seeds and foods. Australia and New Zealand announced in 1999 that they would re q u i re labeling of all GMO-derived f o ods. (Pollack and Shaeff e r, 2000) Thailand d e c l a red in mid-1999 that GM seeds would not be brought into the country until proven safe for human consumption. Brazil, whose export s of GM-free products to Europe and Japan have i n c reased during the GMO debate, has 223
Page 1 and 2: I n t ro d u c t i o n Genetically
Page 3 and 4: “It is also this ability to cross
Page 5 and 6: “The widespread planting of Bt cr
Page 7: “Consumers in the United States h
Page 11 and 12: “Innovation and creativity will b
Page 13 and 14: “The longtail genetic pollution r
Page 15 and 16: “Reputational and business risks

by Dan R. Anderson, Ph.D.,CPCU - Wisconsin School of Business ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?