It's good to see you too.
Thanks for the invitation to speak to the committee this morning on the topic of the biotechnology industry.
Allow me to preface my remarks very briefly with my background and expertise. I'm an agricultural economist in the department of bioresource policy, business, and economics at the University of Saskatchewan. I teach and conduct scholarly research on food markets, consumer preferences for food traits, and the structure of agrifood supply chains. My past research has examined various aspects of the biotech sector from a social science perspective, including, for example, food labelling, consumers' response to biotechnology, and the international trade rules concerning products of biotech. I welcome the opportunity to share some thoughts on the biotech industry and its implications for public policy in Canada.
I'd like to cover three main points today. First, at a macro level, I'll comment on trends in global food markets and the role of biotechnology in that regard. Second, I'll offer some observations about the economic impacts of public sector investment in agricultural research. Finally, I'll address the challenges created by different rules for the labelling and segregation of agricultural products produced with biotechnology.
I'll take the macro-level trends in global food markets as a starting point. Recently we've seen the consequences of imbalances between supply and demand on world food markets in the form of significant price volatility and major spikes in the prices of key commodities--wheat, canola, soybeans, corn, and so on. Price instability, I think, in world agricultural commodity markets looks set to continue. Last year, world food prices were close to a record high.
For consumers, instability in world food markets creates economic hardship and is often the source of political unrest in low-income countries, as we've seen recently. For agricultural producers, instability in agricultural commodity prices creates uncertainty, and it exposes them to higher levels of price risk for outputs and often for inputs as well.
On the demand side, the major driver of world food demand is going to come from population growth and increasing incomes in developing countries. For example, it's estimated that world food demand could double in the first half of the 21st century as low-income consumers in developing countries escape from poverty. As the populations in those countries become increasingly urbanized, where is all that food going to come from?
If we turn to the supply side, the major drivers of world food supply are land and climate constraints and technological change. It's estimated that there is, at most, 12% more arable land available worldwide that isn't currently forested or subject to soil degradation and erosion. Climate constraints in many parts of the world preclude bringing more land into viable agricultural production, and climate change is expected to increase the frequency of extreme weather events. Increased food production, therefore, must come from improvements in agricultural productivity in the form of improved yield and through increasing the genetic potential of crops and animals.
Technological change, then, is the third key driver of world food supply. Technological change is the reason that Malthus, writing 200 years ago, was wrong when he said that population growth would outstrip food production. Technological change has been at the centre of agricultural productivity growth over the last 150 years.
Most of the productivity enhancement potential of the pre-biotech era, the so-called green revolution, has already been achieved. I'd say it's widely recognized that biotechnology offers considerable potential for yield increases, increased tolerance to drought and heat, enhanced nutritional content in grains, and improved resistance to disease and pests.
What are the implications, then, of this big global picture for the Canadian agricultural food sector? Well, of course Canada is a net exporter of many agricultural commodities. For Canada to remain competitive, continued improvements in agricultural productivity and the development of crops and livestock with innovative new traits--enhanced nutritional qualities, functional traits, and so on--will be necessary.
This requires ongoing investments in both the public and the private sectors in agricultural R and D. Economic evidence for high rates of return to society from investments in agricultural research is really quite compelling. Accurately measuring the cost-benefit ratio of agricultural research is complicated by the fact that there are very long time lags between knowledge creation and the eventual commercialization and adoption of technology, together with substantial spillover effects. In other words, investments in one province or in one country often spill over into benefiting other regions.
Nevertheless, the returns to society from expenditures on ag research are estimated to be substantial. Recent estimates, for example, for returns on public sector agricultural research expenditures in the United States put this at around 19% to 23% return per year, on average, over a substantial period.
Despite those well-documented high rates of return, however, public sector expenditures on agricultural research have declined in Canada and elsewhere. Alongside that decline in public sector investment in agricultural research has been a pervasive slowdown in agricultural productivity growth rates since the 1990s.
In this regard, the recent decision by the Natural Sciences and Engineering Research Council of Canada, or NSERC, to drop food and agriculture from its list of targeted areas for research funding is, I find, particularly troubling. Given the imbalances in supply and demand in world agricultural markets that I outlined earlier, continued investment in technology in both the public and private sectors is going to be necessary to deliver those needed agricultural productivity enhancements, and increasingly, as we already heard, public-private research partnerships and clusters of research expertise are necessary to deliver the advances in knowledge—new crop varieties, animal vaccines, functional food products with health benefits, and so on—that characterize a competitive agricultural sector in Canada.
So an examination of the state of public sector funding of agricultural research in Canada, including ag biotech, and the interplay between industry-funded, producer-group-funded, and publicly funded research is timely. It's one of the topics being examined by researchers in the Canadian Agricultural Innovation and Regulation Network, or CAIRN. The work of that research network may be of interest to members of this committee as they consider this topic.
The second public policy issue I'd like to briefly highlight pertains to rules concerning the labelling and segregation of products derived from biotechnology and the implications these have for international market access. Differences in the way different countries treat agricultural products produced through biotechnology can significantly increase costs for exporters. They can also limit or restrict access to some international markets. This, I think, has been a challenge for Canadian exporters of some agricultural products when accessing the European market, given rules over mandatory labelling of food containing GMOs and zero-tolerance requirements for commodity shipments into Europe.
Differences in international rules for market access create uncertainty and impose supply chain segregation costs on the industry. Uncertainty and higher costs deter investment, so a policy priority, I would argue, would be to push for an international agreement on harmonization of labelling and market access rules. This could be done multilaterally through the WTO as well as bilaterally through the proposed Canada-EU free trade agreement.
In closing, I'll reiterate the three main points: I think biotechnology has a key role to play in contributing to the agricultural productivity growth necessary to meet world food demand; renewed public sector investment in agricultural research is an important piece of the Canadian competitiveness puzzle; and proactive protection of international market access for products derived from biotechnology is also an important piece of that Canadian competitiveness puzzle.
Thanks for your attention. Copies of my speaking notes have some references to that sort of material, if you'd like to follow up.