Economic Implications of Plant-made Pharmaceutical Production in North Carolina


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Christopher F. Dumas, Troy G. Schmitz, Christopher R. Giese, Michael Sligh.
Published 2008.
Report features recommendations to help shape a full and meaningful dialogue regarding the future of pharmaceutical crops in North Carolina agriculture. Christopher F. Dumas; Troy G. Schmitz; Christopher R. Giese; Michael Sligh.

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Economic Implications of Plant-made Pharmaceutical Production in North Carolina

  1. 1. Economic Implications of Plant-madePharmaceutical Production in North CarolinaChristopher F. DumasAssociate Professor, University of North Carolina WilmingtonTroy G. SchmitzAssociate Professor, Arizona State UniversityChristopher R. GieseGraduate Research Assistant, Arizona State UniversityMichael SlighRural Advancement Foundation International – USA
  2. 2. The Rural Advancement Foundation International - USA cultivates markets,policies and communities that support thriving, socially just andenvironmentally sound family farms.While focusing on North Carolina and the southeastern United States, we alsowork nationally and internationally. RAFI is creating a movement among farm,environmental and consumer groups to ensure that:• family farmers have the power to earn a fair and dependable income;• everyone who labors in agriculture is respected, protected, and valued bysociety;• air, water and soil are preserved for future generations;• the land yields healthy and abundant food and fiber that is accessible toall members of society;• the full diversity of seeds and breeds, the building blocks of agriculture,are reinvigorated and publicly protected.2008 RAFI-USA. All rights reserved.Rural Advancement Foundation International - USAPO Box 640Pittsboro, NC 27312www.rafiusa.org919-542-1396
  3. 3. iPrefaceFor more than 10,000 years, farmers have worked with the environment tocreate new plants, fiber, and food to sustain life all over the earth. As we losefarmers, we lose diversity. As we lose diversity, we lose farmers. The social,economic, and technological changes converging on our rural communities arerapidly changing how food is produced and what comes to our tables.RAFI-USA believes that farmers and consumers must be informed, involvedwith each other, and active in protecting and directing the use of natural andhuman agricultural resources.RAFI-USA approaches all agricultural policy, practice and technology optionswith the same basic questions:o Who will benefit?o Who will be harmed?o Who will pay, if something goes wrong?o Who will decide?These are fundamental questions and deserve our attention. In the best cases,these questions should be answered prior to adoption of new agriculturalinitiatives, and should be addressed in a fully open and transparent process –especially those initiatives which can have profound and/or long-term impacts.RAFI-USA also uses the “triple-bottom-line” assessment when evaluating newagricultural initiatives:o Is it economically viable for the farmers? Will they receive a fairprice and reasonable return on their investment?o Is it environmentally sound? What are the risks to theenvironment, local communities, biodiversity and the ecosystem?o Is it socially just? Do farmers, workers and others participating inthis initiative have full rights and ownership of the technology?Are the contracts fair? Are the farmers in control of themanagement decisions of this initiative?These two sets of tools, benefit assessment and the “triple-bottom line” analysis,guide our evaluations of any potential new agricultural initiatives.It is in this spirit that we have commissioned this report. We hope ourrecommendations can help shape a full and meaningful dialogue regarding thefuture of pharmaceutical crops in North Carolina agriculture, and the realopportunities to achieve the “triple-bottom” line.Michael SlighJanuary 2008
  4. 4. iiExecutive SummaryOver the last twenty years, agriculture has seen the introduction andrapid deployment of genetically modified (GM), or “transgenic,” crops for food(i.e., corn and soybeans) and fiber (i.e., cotton). Plant-madepharmaceuticals (PMPs) are a class of GM crop not intended for use as foodor feed. Rather, PMPs are intended for use as therapeutic drugs for humansor livestock, or as materials for research and industry (e.g., cell culturemedia). PMP plants are used as factories to produce the PMP product, theproduct is extracted from the plant, and the plant remains are discarded.Scientists and industry groups typically cite two reasons for pursuing PMPproduction methods. First, lower cost: production of high-qualitypharmaceutical components (proteins and antibodies) is presently doneusing cell cultures inside bioreactors, which is very costly (US$105-175 pergram) and limits the size of the consumer market. Second, growingdemand: by the end of the decade, there could be more than 80 antibody-dependent products with an estimated value of US$20-90 billion, providedadequate production capacity can be developed. Proponents of PMP cropsclaim that PMP production will increase the range of available drugproducts, reduce the time required to bring new drugs to market, lower thecost of drug production, and provide additional markets for farmers.Opponents of GM and PMP crops cite potential food safety risks from cross-contamination of food crops, consumer skepticism of genetically engineeredproducts, potential environmental hazards, and past regulatory mistakes asreasons for their opposition.The regulatory history of PMPs grown outdoors as field crops is notencouraging. Although PMPs have been grown by several companies inexperimental field trials regulated by the U.S. Department of Agriculture(USDA) since the early 1990s, none has been grown in commercialquantities (although one just received a permit to grow at commercial scalein 2007), and no PMP drug products have as yet been approved by the U.S.Food and Drug Administration (FDA). (Some PMPs are being sold in smallquantities for use as research materials.) Escape of PMP plants from USDA-regulated field trials has been followed by regulatory reform at USDA, butPMP plants have continued to escape from field trials following the reformeffort. If PMP plants escape from their designated areas and become mixedwith plants that are intended for use as food, and the mixture enters thefood supply, large disruptions of the food industry can occur.This report will review information on the potential economic benefits,environmental impacts, and externalized costs of GM crops in general, andPMP crops in particular, for North Carolina. Special attention will bedevoted to PMP rice developed by Ventria Bioscience. Ventria’s PMP rice iscurrently undergoing field trials in North Carolina. At present, Ventria’sPMP rice is the only field-grown PMP crop in the state. As of 2007, Ventria’s
  5. 5. iiithree PMP rice products, the pharmaceuticals lactoferrin, lysozyme, andserum albumin have not been approved by the FDA for drug, food, or animalfeed uses. The products have been marketed as research and bioprocessingmaterials, but it is not clear that Ventria has received substantial revenuesfrom these uses. Ventria plans to market the products as anti-diarrhealadditives for infant oral rehydration solutions and as nutritionalsupplements in yogurt, granola bars, performance drinks and otherproducts. Ventria has also mentioned adding lysozyme to animal feed as asubstitute for antibiotics. Ventria claims a potential market for theseproducts of more than $2 billion annually. The company’s estimates ofpotential profitability and economic impacts should be considered withcaution. Even if eventually approved by FDA, Ventria’s products may not beprofitable as anti-diarrheal additives for infant formulas marketed indeveloping countries without subsidies, and the profitability of theseproducts in sports drinks, granola bars, etc., is speculative.Although Ventria is conducting field trials in North Carolina, it currentlyplans to grow and process PMP rice at commercial scale in Kansas. Ventriaprojects 30,000 acres of PMP rice production per year in Kansas upon fullscale commercialization. Assuming this speculative acreage forecast iscorrect, with an average farm size of approximately 700 acres in Kansas,perhaps 43 farmers would benefit from PMP rice production. At Ventria’sestimate of $150 to $600 in additional returns per acre relative to corn, PMPrice may bring Kansas farmers an additional $4.5 to $18 million per year.Perhaps 50 more people would be employed in Ventria’s proposed PMP riceprocessing facility in Kansas. Using typical economic multiplier numbers,perhaps 150 additional jobs would be supported in Kansas due to economicmultiplier effects. Including economic multiplier effects, Ventria estimatesthat $45 million annually in economic impact would be generated by PMPrice production activities in Kansas. For comparison, in 2006, Kansasagriculture produced over $11 billion in crop, animal, and relatedagricultural output, with a total economic impact of $28 billion. Ventria’sestimated economic impact of $45 million per year is small relative to thescale of Kansas agriculture.For those farmers considering PMP crop production, several factorsshould be considered in addition to potentially higher revenues per acre.Ventria is implementing the field trials using independent grower contracts.At this early stage, Ventria covers all costs for the North Carolina farmersgrowing PMPs on subcontract. In the future, independent growers will beexpected to provide a seed-to-harvest package deal for the firm’s PMPproduction. This will involve significant investment in PMP-specific trainingand dedicated farm equipment. The USDA requires each PMP grower tohave dedicated land area, dedicated equipment for planting and harvesting,and separate areas for cleaning PMP equipment and processing PMP crops.Employee training is also required as part of compliance with new FDA andUSDA regulatory statues for molecular farming. This raises the possibilitythat molecular farming contracting for field-grown PMP crops will require
  6. 6. ivsuch costly investments in infrastructure and compliance that only thelargest, wealthiest growers would be able to participate and profit.Furthermore, use of PMP crops by some farmers may impose “spillover”costs on other farmers who do not grow PMP crops. Farmers who do notgrow PMP crops may have to spend money to certify that their crops are“PMP-free” if grown in the same region as PMP crops. This is an especiallyimportant issue for organic farmers.In addition to the potential costs of PMP production to the farm sector,there may also be environmental costs if field-grown PMP products have adetrimental effect on fish, wildlife, insects (e.g., bees), or wild plants. Whilemuch work has been done on the environmental impacts of GM plants usedfor food, relatively little work has been done on the potential environmentalimpacts of PMP plants. At this point, the most that can be said is that thepotential environmental impacts of PMP field crop production are unknown.For PMP products grown using familiar field crops, the environmentalimpacts may be small, assuming that the PMP product itself within theplant is not harmful, but again, information is very incomplete and no firmconclusions can be drawn. Ongoing work in bioconfinement methods mayreduce the environmental risk of PMP plants.Detrimental human health effects are another potential cost of PMPproduction. While detrimental human health effects of products intendedfor pharmaceutical use are certainly possible, these products would needapproval by FDA for use as drugs or food, and any non-accidental effectswould likely be small, assuming conscientious review by FDA. In contrast,the issue of accidental, detrimental human health effects looms large in thePMP debate. If PMP products not intended for use as food somehow enterthe food supply and become ingested by humans, the effects could besignificant, as these products may not have undergone food safety testing byFDA. Again, the brief history of PMP crop field trials indicates that it is verydifficult to prevent co-mingling of PMP and non-PMP crops, implying thatthe potential for accidental contamination of the food supply is an importantissue.Neither food plants nor farmers’ fields are necessary for the production ofPMPs. PMPs can be grown using non-food plants in contained systemsinstead of agricultural fields. Some alternative PMP containment systemsutilizing non-food plants include duckweed (Lemna spp.), tobacco (Nicotianaspp.), algae (Chlamydomonas reinhardtii) and moss (Physcomitrella patens),and fungi (Aspergillus niger). Yet another option is to produce PMPs usingfood crops grown inside greenhouses, such as potatoes grownhydroponically. Advantages of growing PMPs in containment systemsinclude better uniformity of product, lack of residues from herbicides,pesticides and fungicides, and greatly reduced risk of contaminating thefood supply. Two disadvantages of producing proteins in containmentsystems are that it is thought to cost more, and it is thought to take longerto bring the product to market. However, recent advances in closed-system
  7. 7. vtechnology have eliminated some of the cost difference between field grownPMPs and contained systems. In North Carolina, the availability of highly-skilled biotech labor and innovations in the use of contained productionsystems that attain high product purity are catalyzing market expansion ofcontained PMP production. Contained PMP production currently co-existswith profitable organic and local food suppliers in the state.At the present time, PMP production via food crops in the field should notbe considered a cornerstone of future agricultural policy or rural economicdevelopment policy in North Carolina or elsewhere in the United States.Given past difficulties in securing FDA approval for PMP products, thebenefits of PMP production are too speculative. Furthermore, given pastdifficulties in preventing the escape of PMP products in the field, the risksand potential costs of future containment loss events are too great.
  8. 8. Contents1 Introduction................................................................................. 12 GM and PMP Regulation............................................................... 22.1 Regulatory Framework and Experience .................................. 22.2 Ventria Bioscience -- Regulatory History .............................. 143 Potential Benefits of PMPs .......................................................... 203.1 Overview .............................................................................. 203.2 The Case of Ventria Bioscience............................................. 224 Potential Costs of PMPs.............................................................. 294.1 Farm Costs and Potential Grower Profitability ...................... 294.2 Government Subsidies to Biotech and PMP .......................... 384.3 PMP Health Risks in Intended Uses...................................... 424.4 Containment Loss and Potential PMP Liability Costs ............ 444.4.1 Consumer Reaction to GM and PMP Products inFood ...........................................................................................................454.4.2 Food Market Reaction to GM/PMP Containment Loss484.4.3 NRC Recommendations to Reduce GM/PMP LiabilityCosts ...........................................................................................................544.5 Externality “Spillover” Costs Affecting Non-GM andOrganic Farmers............................................................................... 564.6 Externality “Spillover” Costs of Environmental Hazards........ 585 Alternatives to Food Crop PMPs.................................................. 666 Conclusions ............................................................................... 677 RAFI Recommendations ............................................................. 748 References.................................................................................. 779 Tables ........................................................................................ 89
  9. 9. 11 IntroductionOver the last twenty years, agriculture has seen the introductionand rapid deployment of genetically modified (GM), or “transgenic,”crops. While crop changes produced by traditional breedingtechnologies such as hybrid corn and Green Revolution rice andwheat have had critics, opposition to the production of GM cropshas developed more quickly and publicly. A new type of GM crop,plant-made pharmaceuticals (PMPs), has been undergoing fieldtrials and is on the verge of commercial-scale production. PMPsare therapeutic drugs or medical products produced insidegenetically modified plants. The debate concerning GM and PMPcrops involves three primary issues: the benefits and costs of thetechnology and its products, regulatory measures to preservehuman and environmental safety, and the appropriate legalframework to encourage innovation, promote competition, andpreserve intellectual property (Nelson 2001). The potential benefitsof GM crops include higher crop yields, enhanced nutritionalcharacteristics, and reduced production costs through lowerpesticide or fertilizer requirements. Proponents of PMP crops alsoclaim that PMP production will increase the range of available drugproducts, reduce the time required to bring new drugs to market,lower the cost of drug production, and provide additional marketsfor farmers (BIO 2002a, 2002b, 2006). Critics of GM and PMPcrops cite potential food safety risks from cross-contamination offood crops, consumer skepticism of genetically engineeredproducts, potential environmental hazards, past regulatorymistakes, and increasing corporate control of agriculture asreasons for their opposition (e.g., Freese 2007, 2002).The U.S. Department of Agriculture (USDA) began regulating GMcrops in 1986 (USDA 2005a). Since that time, USDA has approvedover 10,600 applications for field-testing GM crops at more than49,300 sites. Although GM crops have been in use commerciallysince China introduced virus-resistant tobacco and soybeans inthe early 1990s, the first commercial use of GM crops in Westerncountries was the Flavr Savr tomato, a delayed-ripening tomatointroduced by Calgene in the US in 1994 (Nelson 2001). The globalvolume of GM crop production expanded rapidly over the next tenyears. While most GM crops are grown in North America, largequantities are also produced in Argentina, Mexico, and SouthAfrica. GM crops in widespread use include corn, soybeans,cotton, potatoes and canola. From the beginning ofcommercialization in 1994, the global area planted in GM cropsgrew at an annual rate of 13%, reaching 102 million hectares (252
  10. 10. 2million acres) by 2006 (ISAAA 2006). Soybeans, corn (maize), andcotton are the leading GM crops in terms of acreage. In 2006, anestimated 10.3 million farmers worldwide grew GM crops in 22countries (Table 1). The United States is the world leader in GMcrop area, with 54.6 million hectares under cultivation, whileSpain is the leading European producer with 60 thousandhectares. The eleven developing countries planting GM cropsaccount for forty percent of GM crop acreage, a percentage thathas been increasing steadily.Considerable controversy surrounds the use and adoption of GMcrops. Some consumer advocacy groups believe that geneticallyengineered foods hold health and environmental dangers. Anti-biotech activists have labeled GM products as “Franken Foods”and have raised long-term health concerns regarding theconsumption of GM products. Several of these groups have beensuccessful in launching anti-GM campaigns that have influencedthe rate of GM adoption. Some examples include: (1) the decisionsof the United States and Canada to forego the adoption of GMwheat varieties; (2) the decision of Aventis to terminate theproduction of Starlink corn (see p. 38 below); and (3) the decisionsof California and Missouri to ban the production of certainpharmaceutical rice varieties. In the United States, the rate ofadoption of GM crop varieties slowed considerably during the early2000s. The United States Food and Drug Administration (FDA)approved on average 9.4 GM-food varieties a year between 1995and 1999. This approval rate fell to 3.0 GM-food varieties a yearbetween 2000 and 2004 (Weise, 2005). Similarly, the United StatesDepartment of Agriculture (USDA) approved on average 8.2 GM-crop varieties per year from 1994 to 1999, but only 2.6 GM-cropvarieties per year from 2000 to 2004.The regulatory situation affecting GM crop production haschanged over time, with some observers complaining thatregulations have become too burdensome, stifling innovation andapplication of new technologies, while others claim that regulatorsare too lenient and allow too much risk. All agree that theregulatory process is complex and varies greatly from country tocountry, complicating trade. The approval procedures and labelingregulations covering GM foods differ among countries. In general,biotech regulations are less stringent in the United States (US)than in the European Union (EU), which in part explains why GMproducts are more widespread in the US. In fact, severalinternational biotech and pharmaceutical companies based in theEU conduct field trials in the United States, because their productshave not been approved for production in the EU (Moss et al.
  11. 11. 32006). Finally, the legal framework that protects intellectualproperty embodied in GM crops affects the ownership and controlof new GM projects and the distribution of associated profits.It is within this industry and policy setting that we consider theeconomic and environmental implications of a specific type of GMcrop, plant-made pharmaceuticals, or PMPs, for North Carolinafarmers (Table 2). PMPs are pharmaceutical products producedand extracted from genetically modified plants; the plant is used asa factory to produce the PMP product, the product is extracted,and the plant remains are discarded. PMP plants can be growninside laboratories or greenhouses, or they can be grown outside infields like agricultural crops. The goal of both traditional plantbreeding and new GM technologies like PMPs is to identifydesirable genetic traits and combine them in a crop variety thatcan be grown profitably. Desirable traits are divided into twoclasses—agronomic characteristics that reduce the costs ofcultivation, and product characteristics that increase value toconsumers and the price consumers are willing to pay. PMPs are atype of GM crop that offers a new product characteristic—theability to produce pharmaceutical products. PMPs are referred toas “Generation 3” GM plants. Generation 1 GM plants featuredgenetic modifications that reduced the costs of crop production byreducing the need for pesticides, making the plant more drought-tolerant, etc. RoundUp Ready™ soybeans are an example of aGeneration 1 GM plant. Generation 2 GM plants improved thenutritional qualities of food plants. For example, “Golden Rice” hasenhanced levels of vitamin A. Generation 3 GM plants, PMPplants, differ from Generation 1 and 2 crops in that PMPs are notintended for use as food or animal feed. Instead, thepharmaceutical product is extracted from the PMP plant, and theplant is discarded. However, either food plants (e.g., corn or rice)or non-food plants (e.g., tobacco or algae) can be used to producePMP products. When food plants are used, the plants arediscarded after the PMP product is extracted. However, when foodplants are used, there is a risk that PMP plants may become mixedwith non-PMP plants grown for food or feed during the planting,pollination, harvesting, transportation, storage, or processingphases of production.PMP field trials began in the US (using corn/maize) in 1992,peaked in 1998, and declined beginning in 2001 (Smyth et al.2004). While corn accounts for 47 percent of all PMP field trialpermits, since 2001 there has been increasing interest in PMPsafflower, rice and especially tobacco (Freese and Caplan 2006).Field trials in Canada (using canola) also peaked in 1996-1998 and
  12. 12. 4declined following 2000 but are climbing again based on safflower.Other countries report a small number of PMP field trials between1995 and 2002. To date, PMP crops have not been grown in thefield on a commercial scale in the United States, and no PMPproducts have been approved by the U.S. Food and DrugAdministration (Freese 2007). However, firms currently engaged infield trials will presumably wish to grow successful products atcommercial scale in the future.PMP crops and products present new opportunities and risks forNorth Carolina farmers. Because PMP agriculture is in its infancy,relatively little information is available on PMP crops and products.This report will review information on the potential economicbenefits, environmental impacts, and externalized costs of GMcrops in general, and PMP crops in particular, for North Carolina.Special attention will be devoted to PMP rice developed by VentriaBioscience. Ventria’s PMP rice is currently undergoing field trialsin North Carolina. At present, Ventria’s PMP rice is the only field-grown PMP crop in the state. Ventria has PMP rice field trials inMissouri as well and grows PMP rice experimentally ingreenhouses in California (Sacramento Bee 2006). In May 2007,Ventria received approval from the USDA to plant up to 3,200acres of PMP rice in Kansas and has begun work on a PMP riceprocessing facility in Junction City, Kansas (Ventria Bioscience2006). It appears that any PMP rice grown in North Carolina willbe transported to Kansas for processing. Because Ventria’s PMPrice is the first PMP crop to be grown in the field uncontained atcommercial scale in the North Carolina, decisions concerning itsproduction, processing, transportation, marketing and regulationare potentially precedent-setting.
  13. 13. 22 GM and PMP Regulation2.1 Regulatory Framework and ExperienceA fundamental lesson of economic theory and practicalexperience is that the “invisible hand” of private markets cannot berelied upon to correct externality “spillover” costs precisely becausethe financial incentives that drive the invisible hand are distorted.In such situations, society often turns to government action tocoordinate and regulate private market actions for the public good.Given the potential externality “spillover” costs associated with GMand PMP crops (see sections 3.5 and 3.6), society has chosen toregulate them. Industries often request government regulation toprevent “bad apple” firms from ruining industry reputations andalienating consumers. For example, the Biotechnology IndustryOrganization, the leading GM and PMP industry trade association,supports “strong regulatory oversight for all products of cropbiotechnology” (BIO 2007).The basic institutional structure for regulating all biotechnologyproducts in the United States is the “Coordinated Framework forRegulation of Biotechnology” established in 1986 (see, e.g., PewInitiative 2004). In general, this framework involves three federalagencies: the USDA’s Animal and Plant Health Inspection Service(APHIS), which regulates the importation, interstate movement,and field testing of GM plants; the FDA, which regulates food andfeed additives, human drugs, and medical devices; and theEnvironmental Protection Agency, which regulates the use of allpesticides, including those expressed in GM plants.Because USDA/APHIS is authorized to regulate potential plantpests under the Federal Plant Protection Act, and since all GMplants have the potential to be plant pests, all GM plants areconsidered “regulated articles” by USDA/APHIS. Use of sucharticles outside a contained facility (e.g., in a field test) requiresauthorization from USDA/APHIS through either a “notification”procedure or a permit procedure. In 1993, the USDA promulgatednew regulations governing field tests of genetically engineeredplants, removing permit requirements for most GM plants butretaining them for PMPs. GM plants that do not require a permitare authorized through the notification process.
  14. 14. 3Under the notification process, GM plants (but not PMP plantsor PMIP, plant-made industrial proteins, plants) can be grown infield trials with simple notification of the USDA. For GM plantsintended for use as food or feed, the GM plant developer alsoinitiates a “consultation” with the FDA, during which the planttypically undergoes a voluntary food safety review. For GM plantsmodified to have pesticidal properties, the EPA requires anadditional experimental use permit under the Federal Insecticide,Fungicide and Rodenticide Act (FIFRA). Upon successfulcompletion of the field trials, GM plant developers can apply forderegulated status from USDA/APHIS. If deregulated status isgranted, a GM crop can then be freely commercialized with nofurther oversight by USDA/APHIS, and this is in fact the route thathas been used for all the major commercial GM crops currently onthe market. If the plant has pesticidal properties, it must stillregister with EPA prior to marketing.Since 1993, PMP field trials have been regulated under theUSDA’s permit procedure rather than the notification procedure.In theory, the permit procedure was supposed to be stricter thanthe notification procedure. However, A National Research Councilreport (2002) on the environmental effects of transgenic (GM)plants found that “the only practical trigger used by APHIS [was]the presence of a previously identified plant pest or genes from aplant pest in the transformed plant. Other operational triggers areneeded for transgenic plants that may have associated risks butlack the above characteristics.” The NRC report also found thatAPHIS assessments of potential environmental effects of transgenicplants are largely based on environmental effects considered atsmall spatial scales. Potential effects from “scale-up” associatedwith commercialization are rarely considered. The reportrecommended that post-commercialization validation testing beused to assess the adequacy of pre-commercializationenvironmental testing and that this testing should be conducted atspatial scales appropriate for evaluating environmental changes inboth agricultural and adjacent, unmanaged ecosystems. The NRCreport also found that the APHIS process should be madesignificantly more transparent and rigorous by enhanced scientificpeer review, solicitation of public input, and development ofdetermination documents with more explicit presentation of data,methods, analyses, and interpretations. In the committee’s reviewof public participation in the review process it was apparent thatthe number of comments on Federal Register notices had declinedalmost to zero. Committee discussions with representatives ofpublic interest groups indicated that this decline in responses to
  15. 15. 4APHIS Federal Register notices was at least in part due to aperception that APHIS was only superficially responsive tocomments. The committee found that there was a need for APHISto actively involve more groups of interested and affected parties inthe risk analysis process while maintaining a scientific basis fordecisions. Furthermore, the NRC committee found that the extentof “confidential business information” in registrant documents sentto APHIS hampered external review and transparency of thedecision-making process.In addition to the 2002 NRC report, several incidents in 2002involving PMP crop contamination of food products caused USDAto reevaluate its PMP permitting process. In September 2002,ProdiGene, Inc. was ordered by USDA to burn 155 acres of foodcrop corn in Iowa to ensure that it was not pollinated by a nearbyfield of ProdiGene’s PMP corn (New York Times 2002). InNovember 2002, ProdiGene was fined US$250,000 in a secondincident for allowing experimental PMP corn grown in Aurora,Nebraska, in the preceding year to contaminate a soybean cropgrown in the same field in 2002. The contamination wasdiscovered by USDA APHIS inspectors, but only after the soybeanshad been harvested and stored with other soybeans in acommercial grain silo, contaminating 500,000 bushels ofsoybeans. ProdiGene bought the contaminated soybeans and hadthem destroyed at a cost of US$3.5 million. ProdiGene was alsoforced to post a $1 million bond to cover potential damages fromany future contamination episode. The US government made aninterest-free loan to ProdiGene, because the small biotechcompany had insufficient funds to pay (Washington Post 2003).This can create an incentive problem for the bio-pharma industryas a whole, as the small firms typical of the industry would nothave the funds to pay such fines. The problem is that if firmsknow that the government will provide loans or loan guarantees topay fines resulting from regulatory violations, then firms do nothave the financial incentive to maintain containment ofpharmaceutical crops (Smyth et al. 2004).In mid-December 2002, Dow AgroSciences was fined for failingto meet permit conditions to prevent gene transfer from anexperimental transgenic maize variety undergoing field trials atMolokai, Hawaii (Smyth et al. 2004). That same month, PioneerHi-Bred was fined for planting experimental transgenic maize in anunapproved location that was too close to other experimentalmaize plantings in Kauai, Hawaii. In April 2003, Dow was againfined for violating an EPA permit, this time in Kauai. The fineresulted from the detection of 12 transgenic maize plants that
  16. 16. 5contained an unapproved gene that is suspected of coming fromthe pollen of another experimental plot located nearby. AlthoughDow officials discovered the plants, Dow failed to notify EPApromptly, and EPA officials expressed disappointment over thedelay.In 2003, on the heels of the regulatory violations occurringbetween 2001 and 2003, including the high-profile 2002 Prodigeneincidents, USDA permit regulation of PMP field trials wasstrengthened (USDA 2006A). Crop-specific measures werestipulated to ensure containment, including isolation distance oftest plots (for maize, for example, the distance is one mile, eighttimes the distance required for the production of foundationseeds), planting of buffer borders of non-GM crops was mandated,and perimeter fallow zones were required. In addition, the use ofdedicated equipment was mandated, there were post-harvestrestrictions on land use, and APHIS was to perform a specifiednumber of inspections during the field test growing season.Also in 2003, the USDA introduced a new category of regulatedproducts, “value added protein for human consumption.” As ofOctober 2006 (UCS 2006b), the only two compounds classified asvalue added proteins are lactoferrin and lysozyme, two of theproducts grown by Ventria Biosciences in North Carolina.Significantly, the USDA allows value added proteins to be regulatedunder the notification process rather than requiring permits.However, Ventria voluntarily submitted requests for permits togrow its PMP crops.USDA oversight of PMP crop field trials under the notification /voluntary permit process depends to a great extent on companyreports filed with the USDA at the end of the field trial, or annuallyfor multi-year permits. Such reports are required to include anyadverse impacts of the experimental crop. Batie and Ervin (2001)point out that because firms receive no financial benefit fromdiscovering adverse impacts, they have little incentive toinvestigate them. Freese et al. (2004) goes further and suggeststhat a clear conflict of interest exists. Because self-reporting ofadverse impacts to the USDA could entail revocation or non-renewal of the permit, and thus loss of profits, the company’s dutyto report such adverse effects is clearly in conflict with its financialinterest. Dalton (2002) reports that Pioneer Hi-Bred and DowAgroEvo denied access to proprietary materials required byindependent scientists to conduct biosafety analysis of Btsunflower after the firms initially cooperated with scientists and
  17. 17. 6the scientists’ preliminary findings indicated potential biosafetyrisks.In 2005, the USDA APHIS regulatory program was criticized byits own Inspector General audit for failing to properly regulate andtrack GM and PMP crop field tests, even after the USDAstrengthened regulations in 2003 (USDA 2005a). The audit found:“To evaluate the Animal and Plant Health Inspection Service’s(APHIS) controls over releases and movements of regulatedgenetically engineered plants, we visited 91 field test sites in 22States that were either planted or harvested. We inspected thesites for compliance with APHIS’ requirements for the growing orpost-harvest season. We found that APHIS, the USDA agency thatoversees biotechnology regulatory functions for the Department,needs to strengthen its accountability for field tests of geneticallyengineered crops. In fact, at various stages of the field testprocess—from approval of applications to inspection of fields—weaknesses in APHIS regulations and internal managementcontrols increase the risk that regulated genetically engineeredorganisms will inadvertently persist in the environment before theyare deemed safe to grow without regulation.”In particular, the 2005 USDA audit of APHIS found:(1) The precise locations of all genetically engineered field testsites planted in the United States are not always known. Afterauthorizing field tests, APHIS does not follow up with all permitand notification holders to find out exactly where the fields havebeen planted or if they have been planted at all.(2) Before approving field tests, APHIS does not reviewnotification applicants’ containment protocols, which describehow the applicant plans to contain the genetically engineeredcrop within the field test site and prevent it from persisting inthe environment.(3) At the conclusion of the field test, APHIS does not requirepermit holders to report on the final disposition of geneticallyengineered pharmaceutical and industrial harvests, which aremodified for nonfood purposes and may pose a threat to the foodsupply if unintentionally released. As a result, we found that twolarge harvests of genetically engineered pharmaceutical cropsremained in storage at the field test sites for over a year withoutAPHIS’ knowledge or approval of the storage facility.(4) APHIS does not specify when genetically engineered cropsmust be destroyed, or “devitalized,” following the field test.Approved applicants sometimes allow harvested crops to lie in
  18. 18. 7the field test site for months at a time, their seeds exposed toanimals and the elements. Also, because APHIS has notspecifically addressed the need to physically restrict ediblegenetically engineered crops from public access, we found aregulated edible genetically engineered crop, which had not gonethrough the Food and Drug Administration’s regulatory processfor approval for human consumption, growing where they couldeasily be taken and eaten by passersby.(5) Field inspectors “did not inspect all pharmaceutical andindustrial field test sites five times during the 2003 growingseason, as APHIS has announced to the public. APHIS has alsostated publicly that pharmaceutical and industrial field testsites would be inspected twice during the postharvest period, orthe year following the end of the field test, during which the fieldmust be monitored for regrowth of the genetically engineeredcrop. In one case, a violation at a pharmaceutical field test sitein our sample went undetected because PPQ [APHIS PlantProtection and Quarantine] did not perform the requiredinspections at that site during the 2003 postharvest monitoringperiod” (USDA 2005a).Despite USDA’s assurances that it would address the issuesraised in the 2005 audit, new containment breach incidents in2006 raised questions about the ability of even USDA’s new,strengthened regulations to contain GM crops. Twice in 2006,current regulations did not prevent GM rice from contaminatingnon-GM commercial rice supplies, halting exports of US rice tosome countries and causing substantial economic losses for USrice farmers (Washington Post 2006, Bennett 2007). In January2006, GM Liberty Link (LL601) rice (not approved for humanconsumption) was found in rice processed by Riceland Foods inStuttgart, Arkansas (Fortune 2007). Arkansas produces about 45percent of U.S. rice, and Stuttgart is home to America’s two largestrice mills. The rice was then found in commercial rice supplies inTexas, Louisiana, Mississippi and Missouri, as well. The LibertyLink rice may have come from a rice research station in Crowley,LA, operated by Louisiana State University. Although BayerCropScience had dropped plans to produce LL601 in 2001 and didnot pursue USDA approval for commercial production, the rice hadbeen grown in several test locations, including Louisiana StateUniversity’s rice research station near Crowley, LA, from 1999 to2001 (Washington Post 2006). It was later determined that at leastone variety of rice (Cheniere) grown at the research station was
  19. 19. 8contaminated with LL601 since at least 2003, even though theclosest Cheniere plot was 160 feet from the LL601 plot (16 timesthe then current USDA standard). It is unknown whether thegrains from the two plots were mixed before or after cultivation, orwhether the LL601 plants fertilized some of the Cheniere plants.However, it was not until July 31, 2006, that Bayer CropSciencenotified USDA and the U.S. Food and Drug Administration that thecompany had detected trace amounts of regulated LL601 incommercial long-grain rice (USDA 2007b). On August 18, 2006,Bayer CropScience applied to USDA for deregulation of LL601, thesame day that USDA announced the LL601 contamination(Washington Post 2006). The Center for Food Safety claimed thatthis was merely an effort by Bayer CropScience to avoid legalliability, as Bayer CropScience had no intention of bringing theLL601 rice to market. In November 2006, APHIS announced that2003 Cheniere variety was the only foundation seed that testedpositive for regulated genetically engineered LL601, and farmerswere advised not to plant it. APHIS also announced that a sampleof the 2003 Cheniere variety indicated the presence of trace levelsof unregulated LL62. LL62, LL06 and LL601 are rice varietiesengineered by Bayer CropScience to be tolerant to herbicidesmarketed under the brand name LibertyLink. APHIS hadderegulated LL62 and LL06 in 1999. On November 24, 2006,USDA-APHIS retroactively deregulated Liberty Link LL601 rice,declaring it safe for human consumption. Later tests foundcontamination by two additional strains of unapproved LibertyLink rice in another type of foundation seed rice, Clearfield 131,which farmers were also advised not to plant. Table 3 provides theUSA Rice Federation’s estimates of the impacts of the LL601 riceincident on U.S. rice export markets. Many importing nationsincreased testing, labeling and certification requirements, andsome stopped U.S. rice imports altogether. It is estimated that 63percent of U.S. rice exports were affected.In 2006, the USDA consolidated its regulations and policies intoa single document: “Draft Guidance for APHIS Permits for FieldTesting or Movement of Organisms with Pharmaceutical orIndustrial Intent” (USDA 2006b). Under the 2006 consolidatedregulations, PMP crops are defined as those genetically engineeredcrops produced with pharmaceutical intent. Under the PMPpermit process, PMP developers must submit detailed explanationsof the genetic engineering process, the purpose and design of theproposed production, and the methods to be used to ensureconfinement. Upon approval, the USDA issues a permit specifyingconditions that must be met before, during and after production.
  20. 20. 9The conditions include: separating of PMP crops from cropsintended for food or feed, cleaning production equipment, allowinggovernment inspection of the site, and post-harvest monitoring andland use restrictions. In contrast to GM products intended for useas food or feed, under the permit process PMP crops are notderegulated at the end of field trials; instead, PMP crops remainregulated under permit.The FDA has authority to regulate the manufacture ofpharmaceuticals under the Federal Food, Drug, and Cosmetic Act(FFDCA) but has decided to rely on the USDA to oversee PMP cropproduction (FDA 2002). An exception is the category of “indirectfood additives,” which includes substances that becomecomponents of food indirectly. The PMPs in PMP crops would beconsidered indirect food additives unless classified by FDA as“Generally Regarded as Safe,” or “GRAS.” Substances can beclassified as GRAS if (1) they were in food prior to 1958 and weresafe, or (2) they are generally recognized, among qualified experts,as having been shown to be safe food additives through scientificprocedures. Since most PMPs are not intended for use as food,most do not have scientific evidence for their safety, and hence,would not be considered GRAS, and, therefore, would be regulatedby FDA as indirect food additives. As food additives, thedevelopers would have to submit documentation to the FDAdemonstrating that the products are safe in food. Without FDAapproval, such non-GRAS food additive products would beconsidered “adulterated,” could not legally participate in interstatecommerce, and would typically trigger recall actions. As of October2006, the FDA had not indicated whether it planned to classifyPMPs as indirect food additives (UCS 2006b). However, the FDA(2002) has said that the presence of PMP materials in food couldrender it adulterated under the FFDCA. This effectively establishesa “zero tolerance” level for PMPs and PMIPs in food or feedproducts. Meeting a zero-tolerance level is difficult and essentiallyimpossible to achieve with absolute certainty. This is aconundrum, but one that exists under current regulations in theUnited States as well as abroad. Because it is widely accepted that100% purity is not attainable, a zero-tolerance standard raises thequestion of what should happen in those (inevitable) events when itis violated. Costly recalls of adulterated food may be necessary,firms may be exposed to consumer and public backlash, andliability issues would inevitably arise (Moschini 2006). While somehave called for relaxing the zero-tolerance policy for PMPcontaminants in the food supply and would instead allow somesmall, positive tolerance levels, presumably to minimize the
  21. 21. 10financial liability of small loss of containment events, the USDAand FDA have maintained the zero-tolerance standard (Freese andCaplan 2006). The food industry has opposed relaxing the zero-tolerance standard, fearful of consumer and export marketrejection of food if even low levels of PMPs appear in the foodsupply (National Food Products Association 2003). Perhaps it isnot surprising that the Grocery Manufactures of America and theNational Food Processors Association have taken positions againstthe use of food/feed crops for pharmaceuticals (USA Today 2006,Freese and Caplan 2006). In 2003, the former CEO of Kraft Foodssingled out the issue of PMP contamination of foods as a threat toher company and the food industry as a whole (Chicago Sun Times2003).As of late 2006, the USDA-APHIS had never denied a petition fora new GM crop, although about a third of all petitions arewithdrawn when APHIS challenges company claims on petitionsupporting documentation (National Public Radio 2006).On February 28, 2007, the USDA announced yet anotherincident involving loss of containment--rice seed in Arkansas werecontaminated with GM rice variety LL62. In March 2007, the USARice Federation (2007a) expressed doubt that current USDAregulations can prevent GM contamination of the U.S. non-GMcommercial rice supply: “The USA Rice Federation supports theUSDA action in March 2007 to prevent the planting anddistribution of Clearfield 131 (CL131) rice seed that could containtrace levels of genetic material unapproved for commercialization. .. . By the same token, we are increasingly frustrated with theapparent lack of ability on the part of private companies andfederal regulators to control research and maintain accountabilityof the resulting products. The current approach to research,development and management in the biotechnology industry mustbe replaced with more conservative methodologies. . . . The USARice Federation has a long established policy that there must bemarket acceptance and regulatory approval prior to the productionof genetically engineered rice in the United States.”The North American Millers’ Association’s Statement on the Useof Food and Feed Crops for the Production of Plant-madePharmaceuticals and Industrial Products (NAMA 2007) states:“NAMA has significant concern that current confinement systemsfor controlling the seed, pollen and output of plant-madepharmaceuticals and industrial products cannot control 100percent of the genetic material of the newly developed organism orprevent deliberate evasion of the security protocol. . . . NAMA
  22. 22. 11believes the risk of adulteration from genetic material not approvedfor food and feed entering the food chain is unacceptable. NAMAbelieves that preventing such adulteration is the responsibility ofthe technology developer and the U.S. government because theprevention of such adulteration is totally within their control.”On May 4, 2007, a federal judge in San Francisco orderedfarmers to stop planting Monsanto’s GM Roundup Ready alfalfaseed because of the risk that it could contaminate nearby non-GM,organic alfalfa fields (Sacramento Bee 2007). This ruling issignificant in that it was the first time that GM crop planting wasstopped due to the potential for, rather than actual, containmentloss. Nationwide, about 200,000 acres of Roundup Ready alfalfahave been planted since the seed was approved for commercial usein June 2005. The judge criticized USDA for failing to adequatelyassess potential problems with cross-pollination before approvingthe alfalfa seed for commercial planting. The judge ruled thatcontamination of an organic alfalfa field with the Roundup Readygene could effectively destroy the organic farmer’s crop.In 2007, the USDA (2007c) conducted an investigation of theLibertyLink rice incidents and released findings in October 2007.On August 1, 2006, USDA’s Animal and Plant Health InspectionService (APHIS) initiated an investigation after Bayer CropSciencereported that regulated genetically modified LLRICE601 (Cocodrievariety rice) had been detected in the long-grain rice varietyCheniere. Investigators determined that genetically modifiedLLRICE601 and Cheniere variety rice were grown at the samelocation and at the same time at the Rice Research Center NorthFarm in Crowley, Louisiana, in 1999, 2000, and 2001 under aBayer CropScience contract. The varieties were separated duringthose three years by distances of 210 feet, 3,000 feet, and 165 feetrespectively. Cheniere was never planted on a location that hadbeen previously occupied by LLRICE601, according to the recordsprovided. Affidavits stated that equipment cleaning had beenaccomplished by the parties involved at the Rice Research CenterNorth Farm in Crowley, Louisiana, for all planting, harvesting, andcleaning operations during this period. Because rice seed for theperiod 1999-2002 was no longer available, the exact mechanismfor incursion of the LLRICE601 gene into the Cheniere variety,such as gene flow or mechanical mixture, was not determined.On February 16, 2007, USDA (2007c) expanded the LibertyLinkrice investigation to include the discovery of regulated geneticmaterial, later identified as LLRICE604, in the long-grain ricevariety Clearfield 131 (CL131). The Arkansas State Plant Board
  23. 23. 12reported that up to 30 percent of the samples of CL131—a long-grain variety of rice developed by LSU that was to be sold ascertified rice seed in the spring of 2006—had tested positive for the35SBar gene i n LLRICE604. The variety Cocodrie containingLLRICE604 was developed by Bayer CropScience (formerly DowAgroEvo) and was tested at various locations, including the LSURice Research Station North Farm in Crowley, Louisiana, between1998 and 2000. Because the development of these two varietiesdid not overlap in location and time, the most likely entry point forLLRICE604 into CL131 was through a means other than directcrosspollination. Because LLRICE604 was not detected inrepresentative samples of breeding lines at LSU, the exact timeperiod and means of incursion of the LLRICE604 gene into theCL131 variety was not determined.USDA is currently exploring revisions to its biotechnologyregulations in Title 7, Part 340 of the Code of Federal Regulations(CFR). In July 2007, APHIS published a draft environmentalimpact statement ( thatevaluates potential options for revising the biotechnologyregulatory program. As a result of this review, APHIS has compileda list of lessons learned (USDA 2007d) and considerations toenhance its regulatory framework. The lessons learned were:1. Records are sometimes not easily obtainable because theyare not retained by the permit and notification holders.USDA is exploring whether to require the creation andretention of additional records to inform potentialinvestigations.2. Efforts to test seed samples during the investigation werehampered by the unavailability of seed samples. USDA isconsidering (a) revisions to the Plant Protection Act thatwould provide the agency with authority to subpoena seedsamples and (b) revising regulations to require sampleretention by permit and notification holders for a specifiedperiod of time.3. In some instances, researchers and developers wereunclear about their responsibilities in the event of anunauthorized release of genetically-modified material.USDA is considering revising regulations to require thatpermit applicants submit contingency plans that addressunauthorized releases., have testing procedures to identifyreleased genes, and retain samples of genetically modifiedmaterials for test purposes.
  24. 24. 134. Efforts by USDA offices to work together to collect, test,and track samples were complicated by lack of priorinteroffice links and agreements. The USDA is examiningoptions for interoffice memoranda of understanding andagreements to improve collaboration.5. In some cases, formal, contractual relationships betweenresearchers, developers and other parties did not exist orhad expired. This hampered the investigation. USDA isexploring revisions to regulations that would requirecertain business agreements among technologyresearchers, developers and other parties.6. The sufficiency of isolation distances betweenexperimental crops and nearby field crops to ensureconfinement was unclear due to advances in scientificunderstanding. USDA is exploring revising policy toensure that the latest science is incorporated into isolationdistance recommendations.7. Appropriate quality management systems were notconsistently found throughout the biotechnology industry,increasing the likelihood of compliance problems. TheUSDA is launching a new outreach program to improvequality management systems in the industry.8. Difficulties in retrieving information delayed inspectionsand investigations. USDA plans to use its “ePermits”electronic permit system to improve information accessand retrieval.In terms of the potential effects of international biotechregulations on U.S. farmers, in 2004, the European Union adopteda new Directive on Environmental Liability (2004/36/CE) thatestablished the “polluter pays” principle with respect to adverseeffects of new organisms, such that producers and biotechnologycompanies may be accountable for any uncontrolled release of GMmaterials (Belcher et al. 2005). The European food market is forthe most part closed to trade in North American corn, soybeansand canola (Brassica sp.) at least partly because of the extensiveadoption of GM varieties in the US and Canada, combined with thelack of effective identity preservation mechanisms to deliver qualityassured non-GM produce for the EU market. However, in 2006 theWorld Trade Organization ruled in favor of the United States andGM food producers when it decided that the European Union hadbreached international rules by restricting imports of GM cropsand foods made from them (New York Times 2006a). In fact, theWTO ruling simply claimed that Europe had failed to follow its ownprocedures, resulting in undue delays, rather than faulting the
  25. 25. 14European regulatory process for GM crops. If a PMP productproduced by a U.S. farmer somehow contaminated a shipment offood to the EU (perhaps organic food), it is uncertain at this timewhether the farmer or the biotech company would be liable.2.2 Ventria Bioscience -- Regulatory HistoryCurrently, Ventria Bioscience is the only firm with PMP fieldtrials in North Carolina, and no PMP products are grown in thefield uncontained at commercial scale in the state. Ventria hasconducted field trials of rice genetically engineered to producehuman milk proteins in North Carolina since 2005. Table 4provides an overview of Ventria’s regulatory history as described inthis section of the report. Ventria Bioscience was founded in 1993by Dr. Ray Rodrequez, currently a professor of molecular andcellular biology at the University of California, Davis (VentriaBiosciences web site,, accessed July 20,2007). In 1997, Ventria developed a proprietary productiontechnology, ExpressTec, that uses rice and barley plants toproduce proteins. As of 2007, Ventria had produced threepotential protein products, the pharmaceuticals lactoferrin,lysozyme, and serum albumin. These products have not beenapproved by the FDA for drug, food, or animal feed uses. Theproducts have been marketed as limited research and industrialbioprocessing materials (for cell culture and cell lysis applications)under the brand names Lacromin (lactoferrin, since 2005), Lysobac(lysozyme, since 2006) and Cellastim (serum albumin, since 2006).Ventria plans to market the extracted milk proteins as an anti-diarrheal additive for infant oral rehydration solutions (Bethell2006) and as nutritional supplements in yogurt, granola bars,performance drinks and other products. Ventria has alsomentioned adding rice-based lysozyme to animal feed as asubstitute for the antibiotics added to feed (San FranciscoChronicle 2002).Lactoferrin and lysozyme possess antimicrobial properties andseveral of Ventria’s proposed uses for its recombinant proteins areexplicitly medical in nature. Therefore, the permits initiallyprovided by the USDA for Ventria’s rice production werespecifically for rice engineered to produce pharmaceuticals andindustrial chemicals. Ventria has made several attempts to changethe USDA designation for its rice. In 2003, USDA changed thedesignation of Ventria’s products from “pharmaceutical proteinsproduced” to “value added protein for human consumption.” This
  26. 26. 15reclassification of Ventria’s recombinant proteins could potentiallypose a number of potential health risks that have not beenadequately investigated. In addition, Ventria initiated a voluntaryconsultation with the FDA so that its rice could be considered as agenetically engineered crop intended for general food use. Finally,Ventria is seeking Generally Recognized as Safe (GRAS) statusfrom the FDA, which would exempt it from the food additive reviewprocess.The FDA considers PMPs to be indirect food additives unlessclassified as GRAS. Ventria’s products do not have GRAS status.Therefore, Ventria’s products would be regulated by FDA asindirect food additives. As food additives, Ventria must submitdocumentation to the FDA demonstrating that the products aresafe in food. Without FDA approval, food containing non-GRASfood additives would be considered “adulterated,” could not legallyparticipate in interstate commerce, and would typically triggerrecall actions. This effectively establishes a “zero tolerance” levelfor Ventria’s PMPs in food or feed products. The potential forcontamination of food-grade rice with Ventria’s PMPs raises thequestion of unintended exposure. However, the FDA plays virtuallyno role in pharma crop regulation unless a company reaches theclinical trial stage, typically after 5 to 10 years of outdoor fieldtrials. The FDA does not regulate Ventria’s pharma rice at the fieldtrial stage, and will not regulate it at any stage if the intended useof the rice is production of a research chemical, a “medical food”(which is different from the regulatory category “food”), or forexport. Although FDA may ultimately review lactoferrin and/orlysozyme produced from Ventria’s pharma rice if Ventria attemptsto market them as food or feed, it will not consider the potentialhuman health impacts of these pharmaceuticals as accidentalcontaminants in the food supply if Ventria markets the products forresearch use, as “medical foods,” or produces them for export.The EPA has authority to regulate products intended for use aspesticides. The EPA has not reviewed Ventria’s PMP rice despiteevidence that its pharmaceutical proteins possess pesticidalproperties and could harm beneficial organisms, create moreaggressive weeds, or disrupt soil ecology, because the PMP riceproducts are not intended for use as pesticides. Although ascientific advisory panel to the EPA has recommended full lengthamino acid sequencing of plant-produced recombinant proteins,Ventria has only tested a subset of its amino acid sequences.In 2004, the USDA granted Ventria Bioscience field trial releasepermits to grow PMP rice on 120 acres in California (USDA APHIS
  27. 27. 16Permit No. 03-365-01r); however, Ventria was blocked fromgrowing its rice in California (Silber 2004) by opposition fromCalifornia rice growers.On June 28, 2005, the USDA announced a “Finding of NoSignificant Impact” (FONSI) and the availability of anEnvironmental Assessment (EA) for the proposed field release ofVentria’s PMP rice in Missouri and North Carolina (Federal Register2005a, 2005b). Based on the EA, USDA/APHIS concluded that theMissouri and North Carolina field releases will not present a risk ofintroducing or disseminating a plant pest and will not have asignificant impact on the quality of the human environment. TheUSDA granted Ventria field trial release permits to grow PMP ricein 2005 on 200 acres in Scott County, Missouri, (USDA APHISPermit No’s. 04-302-01r, 04-309-01r, 05-004-01r) and on 70 acresin Washington County, North Carolina, (USDA APHIS Permit No’s.05-073-01r, 05-117-01r, 05-117-02r) (USDA 2007a).In 2005, Ventria was blocked from growing its rice in Missouri(Bennett 2005) by farmers and food companies concerned aboutcontamination of their food crops with Ventria’s PMP cropscontaining proteins that have not been approved by FDA.In comments filed on June 2, 2005 with the USDA, the FoodProducts Association (2005) expressed its “concerns with theVentria lysozyme and lactoferrin applications, as well as other non-food proteins expressed in food crops, center on the clearpossibility and consequences of adulteration of food/feed suppliesdue to contamination by food crops that have been geneticallyengineered to produce pharmaceuticals or industrial compoundsunapproved for food/feed use.”In June 2005, Ventria planted approximately 60 acres of PMPrice in North Carolina (New York Times 2005c). Planting wentforward in North Carolina in 2005 despite objections fromresearchers at the North Carolina Department of Agriculture andConsumer Services’ Tidewater Research Station( ), located in Plymouth,NC, where rice varieties from around the world are tested beforeintroduction into U.S. rice breeding programs. Ventria’s field triallocation is about a half-mile from the research station (UCS2006a). According to USDA scientist Dr. David Marshall, who isbased at North Carolina State University: “The potential exists forstray rice pollen to be carried via air currents from the VentriaBiosciences fields to the Nursery and pollinating the introducedgermplasm. If this were to occur, genes from the rice expressinghuman lactoferrin could be introduced into the rice germplasm of
  28. 28. 17the National Plant Germplasm System, and thus be disseminatedthroughout the U.S.” (Center for Food Safety 2005). In commentson Ventria’s North Carolina field test proposal, Dr. KarenMoldenhauer, the Chair of the Rice Crop Germplasm Committee(CGC) and Professor at the University of Arkansas, said: “CGC isconcerned about the perception of a grow out this close to thequarantine nursery and hope that they consider moving this growout to a location farther away (at least 15 miles) from the TidewaterResearch Station of NCDA & CS at Plymouth, NC” (Center for FoodSafety 2005). The USDA subsequently moved the station toBeltsville, MD (USA Today 2006).In January 2006, the Union of Concerned Scientists (UCS) fileda Freedom of Information Act request for information on USDA-APHIS inspections and company compliance with federal permitrequirements at the Ventria field test site in North Carolina for the2005 growing season. The USDA provided information detailinghow often the USDA inspected the site, what the USDA found, andhow well Ventria followed permit requirements. The USDA recordsshowed that (1) the USDA failed to inspect the Ventria site duringplanting and harvest, two of the most critical times with respect toensuring containment, (2) Ventria submitted only one of ninerequired notification/planting reports to USDA, (3) the USDAcompleted only three of five required inspections at the Ventriasite, and (4) the USDA did not communicate with Ventria about theeffects of Hurricane Ophelia, which passed close by the site inSeptember 2005 (UCS 2006a). A UCS report concluded that theUSDA was apparently failing to adequately monitor and inspect theVentria test site.Ventria withdrew USDA permits for PMP rice field trials in MO inFebruary 2006 (USDA APHIS Permit No’s. 05-336-01r, 05-336-02r).North Carolina field trials were subsequently approved by USDAin November 2005 and went forward in 2006 (USDA APHIS PermitNo’s. 05-293-01r, 05-332-01r, 05-332-02r). In March 2006,Ventria received approval from USDA to expand its field trials inWashington County, NC, from 70 to 335 acres.North Carolina field trials for 2007 were also approved by USDAin November and December 2006 (USDA APHIS Permit No’s. 06-305-04r, 06-285-01r).On February 28, 2007, the USDA released a draft environmentalimpact statement concluding that Ventria’s PMP rice could begrown in Kansas with no undue risks (Ironically, on the same day
  29. 29. 18the USDA announced that rice seed in Arkansas werecontaminated with GM rice LL62.) (Washington Post 2007).Despite the containment breaches involving Liberty Link rice in2006 and 2007, in May 2007 the USDA granted Ventria releasepermits to grow 3,200 acres of commercial PMP rice in GearyCounty, Kansas (USDA APHIS Permit No’s. 06-285-02r, 06-278-01r, 06-278-02r, Fortune 2007), which would be the world’slargest PMP planting to date (Weiss 2007, Freese 2007). On May16, 2007, the USDA announced a “Finding of No SignificantImpact” (FONSI) and the availability of an EnvironmentalAssessment (EA) for the proposed field release of Ventria’s PMP ricein Kansas (Federal Register 2007). Based on the EA, USDA/APHISconcluded that the Kansas field releases will not present a risk ofintroducing or disseminating a plant pest and will not have asignificant impact on the quality of the human environment.APHIS stated in the ruling that “The combination of isolationdistance, production practices, and rice biology make it extremelyunlikely that this rice would impact the U.S. commercial ricesupply.” However, these are the same factors that have failed toprevent containment breaches in the past.The Union of Concerned Scientists (UCS 2007) criticized theUSDA’s decision on Ventria’s Kansas application based on thefollowing grounds:(1) Ventria did not supply enough information on the acres to beplanted (3,200 acres are implied in other USDA documents)(2) the procedures and safeguards to be used by Ventria toensure that none of the PMP rice escapes containment or persistsin the environment after harvest, as described in the permitapplication and the Ventria’s standard operating procedures(SOPs), were not made public in USDA’s environmental assessmentdocuments, the documents on which USDA made its permitapproval decision(3) the analysis made public by USDA does not consider threepotential routes of containment loss: production, shipment andstorage of PMP seed prior to planting, post-harvest transport ofPMP rice to processing facilities, unintentional dissemination ofPMP rice in the field by extreme weather events, such as floods andtornados (the proposed Kansas sites are within 4 miles of theKansas River and one mile of the Smoky Hill River tributary, bothof which flooded in 1993 according to the National Oceanic andAtmospheric Administration; Kansas ranks third among states intornado frequency, with an average of 47 tornados per year), and
  30. 30. 19(4) the containment breaches involving GM Liberty Link rice thathave occurred under current USDA regulations.It should be noted that the USA Rice Federation (2007b) filedcomments with USDA on March 29, 2007, strongly recommendingthat APHIS deny Ventria permission to grow [PMP] rice:“The USA Rice Federation today expressed itsdisappointment with USDA APHIS’ approval of the VentriaBioscience request to grow rice containing human proteinsin Geary County, Kansas. . . . The USA Rice Federation isdisappointed with the APHIS decision and hopes Ventria andregulators will carefully ensure that sound and enforcedprotocols will prevent contamination of the commercial ricesupply—an event that would be devastating to the riceindustry. . . . The U.S. rice industry is still reeling from therelease of BayerCropScience’s genetically engineered LibertyLink rice into the U.S. Delta-region rice fields. We are livingwith the effect of unintended events and consequences. Thisdecision will not generate any comfort among U.S.commercial rice growers.”Ventria received permits to produce value-added proteins usingPMP rice field trials in KS in May 2007 (USDA APHIS Permit No’s.06-278-01r, 06-278-02r, 06-285-02r). Ventria received permits toproduce pharmaceutical products using PMP rice in KS inFebruary 2008 (USDA APHIS Permit No. 07-342-102r).Ventria received permits to produce pharmaceutical proteinsusing PMP rice field trials in NC in March 2008 and permits toproduce pharmaceutical products using PMP rice field trials in NCin April 2008 (USDA APHIS Permit No’s. 07-341-103r, 08-093-108r).Again, it should be emphasized that because Ventria’s PMP ricewill be the first PMP crop to be grown in the field uncontained atcommercial scale in the United States, decisions concerning itsregulation are potentially precedent-setting.
  31. 31. 203 Potential Benefits of PMPs3.1 OverviewFor millennia, farmers have used selective breeding to producecrops with desirable characteristics. The novel aspect of GMtechnology is the ability to move genes and associatedcharacteristics between organisms that are not sexuallycompatible, creating organisms with previously unavailablebundles of characteristics. GM technology has been used toincrease crop yield, drought tolerance, herbicide tolerance,disease/insect resistance, and product quality. Most recently, GMtechnology has been used to produce PMP substances within cropplants. Many of the PMP products under development areproteins--antibodies, enzymes, vaccines and other therapeuticagents--due to an increasing number of protein-based drugdiscoveries by pharmaceutical companies. In 2005 alone, 38 newprotein-based drugs were approved and more are in the FDApipeline (Williams 2006, 2007). The pharmaceutical industryseeks low-cost production methods for these new drug products.Producing drugs inside green plants, PMPs, is one of severalalternatives.Scientists and industry typically cite two reasons for pursuingplant made pharmaceuticals (PMPs) (Smyth et al. 2004). First,production of high-quality pharmaceutical components (proteinsand antibodies) is presently done using cell cultures insidebioreactors, which is very costly (US$105-175 per gram) and limitsconsumer affordability. Cell culture bioreactors take an average ofthree to seven years to build and cost on average US$450-$600million to complete. Second, there is insufficient bioreactorcapacity to meet current production needs, let alone expectedfuture needs over the next decade (BIO 2002b). Antibodiesproduced in bioreactors using mammalian cell cultures areexpensive, difficult to scale up, and pose safety concerns due topotential contamination with pathogenic organisms or oncogenicDNA sequences (BIO 2002b). As of 2002, production of just fourpharmaceutical products required 75% of global bioreactorcapacity (BIO 2002a). By the end of the decade, there could bemore than 80 antibody-dependent products with an estimatedvalue of US$20 billion, provided adequate production capacity canbe developed (Smyth et al. 2004). The Biotechnology Industry
  32. 32. 21Organization, an industry trade group, reports that a January2005 study by Frost & Sullivan, a market research firm, found thatthe PMP market could realize total cumulative revenues ofUS$98.2 billion by 2011 (BIO 2006). The potential size of themarket drives investigation of alternative production methods,including PMP production. Compared with other productionmethods, the costs of producing and storing plant-producedpharmaceuticals are relatively low, plants may be able to producethe product for extended periods of time, product quality isrelatively high, and risk of contamination by pathogens is low(Table 5). The leading PMP plants have been corn/maize,canola/rapeseed, safflower, tobacco and rice.In July 2006, Calgary-based SemBioSys announced that it canproduce over one kilogram of insulin per acre of PMP safflower(BIO 2006). This is enough to supply 2,500 patients for one year oftreatment each. With insulin demand projected to be 16,000kilograms per year by 2012, SemBioSys’ GM safflower provides away to supply insulin to a growing diabetic patient population. Itis claimed that producing insulin in PMP safflower can reducecapital costs by 70 percent and product costs by 40 percent,compared to existing insulin manufacturing. In February 2007,the USDA announced a preliminary decision to allow SemBioSys toplant 1000 acres of PMP safflower in Washington state, althoughthis initial planting would produce a drug to treat diseases infarmed shrimp and promote fish growth rather than insulin. (TheUSDA’s decision to allow SemBioSys to plant PMP safflower on acommercial scale has been criticized (UCS/CU 2007) based on thefact that the USDA review did not assess the potential risks ofescaped PMP safflower in the environment, including the risk ofbecoming an agricultural plant pest, but rather assumed thatSemBioSys’ proposed containment measures would be 100 percenteffective.) Other PMP products under development in 2006included: cystic fibrosis treatment from GM corn (Meristem);treatment for ovarian cancer from GM tobacco (Chlorogen); GMtobacco to address dental caries, as well as the common cold, andhair loss (Planet Biotechnology); monoclonal antibodies from GMduckweed (Biolex), and human milk proteins from rice (VentriaBioscience) (BIO 2006).Although Ventria’s recently proposed PMP rice processing facilityin Kansas may promote economic development in the region(assuming project financing and construction proceed as projected,and Ventria is able to secure necessary approvals to market itsproducts), the history of PMP product development to dateindicates that caution is warranted when projecting the economic
  33. 33. 22development benefits of PMP production. Many PMP companieshave either gone bankrupt or have ceased pursuit of PMPproduction, or switched to non-food crop PMP production (Freeseand Caplan 2006). ProdiGene was saved from bankruptcy after itsPMP corn contaminated non-GM soybeans in 2001 and it wasforced to pay for the cleanup by a USDA no-interest loan;ProdiGene was subsequently taken over by Stine Seed. CropTechwent bankrupt in 2003 after pursuing PMP production in tobacco.Meristem Therapeutics stopped PMP corn trials in Colorado in2003 due to farmer-led opposition. Monsanto ceased developmentof PMP corn and soybeans in 2003 even though it had received 44field trial permits from USDA. Epicyte Pharmaceutical, once aleader in PMP corn development, went bankrupt and was takenover by Biolex in April 2004; Biolex now produces PMPs using thenon-food plant duckweed inside controlled bioprocessing facilities.LargeScale Biology went bankrupt in 2005 after pursing PMPproduction in viral-vectored tobacco. Ventria Bioscience droppedfield trial plans in California in 2004 and Missouri in 2005 due tofarmer opposition.3.2 The Case of Ventria BioscienceIn this section, we consider in detail the potential benefitsassociated with Ventria Bioscience’s PMP rice development andproduction, as Ventria’s PMP rice may be the first PMP crop to beproduced in the field uncontained at commercial scale in the U.S.Given that Ventria is a private company developing a new productin the very competitive biotech industry, the firm does not provideestimates of the potential benefits to the firm itself associated withthe eventual production and marketing of its PMP products. Interms of current employment supported by the firm’s activities, theSacramento Bee (2006) reports that Ventria had 18 employees inits Sacramento headquarters in 2006.In 1997, Ventria developed a proprietary production technology,ExpressTec, that uses rice and barley plants to produce proteins.As of fall 2007, Ventria has only three potential products, thepharmaceuticals lactoferrin, lysozyme, and serum albumin thathave not been approved by the FDA for drug, food, or animal feeduses. These products have been marketed as research andbioprocessing materials (for cell culture and cell lysis applications)under the brand names Lacromin (lactoferrin, since 2005), Lysobac(lysozyme, since 2006) and Cellastim (serum albumin, since 2006)by Ventria directly, and by firms InVitria( and Sigma-Aldrich
  34. 34. 23(, but it is not clear that Ventria has received substantialrevenues from these uses. As of fall 2007, Ventria appears to besupported financially primarily by venture capital and with someindirect subsidies from state (Kansas) economic developmentagencies. For example, the Kansas Bioscience Authority gave $1million to Junction City, KS, to support the attraction of VentriaBioscience ( appear to be no subsidies to date from North Carolina stategovernment.) Ventria plans to market the extracted milk proteinsas an anti-diarrheal additive for infant oral rehydration solutions(Bethell 2006) and as nutritional supplements in yogurt, granolabars, performance drinks, and other products. Ventria has alsomentioned adding rice-based lysozyme to animal feed as asubstitute for the antibiotics added to feed (San FranciscoChronicle 2002). Ventria claims a potential market for theseproducts of more than $2 billion annually. Ventria claims thefollowing economic and societal benefits associated with its PMPproducts (Ventria Bioscience 2007):• Potentially save hundreds of thousands of lives globallyby reducing childhood diarrhea in developing countries;• Reduce duration of childhood diarrhea by 4 million daysannually in the US and help these children get back toschool sooner; Help parents return to work sooner with aneconomic impact of $1.6 billion over five years in the USalone;• A $50 million positive economic impact over five yearsfrom direct employment in Ventria’s bioprocessingoperations in Junction City, Kansas;• A $228 million positive economic impact over five years tofarmers and rural communities from Ventria’s fieldproduction activities in Kansas;• $37.5 million in savings to the US Government andAmerican taxpayers when compared to governmentsubsidized rice production;• Successful introduction of these first products may leadto additional products being developed using plants as abiological factory. This multiplies the benefits to societyand the US economy.
  35. 35. 24In support of the first claim, Ventria sponsored a study in Peruto assess the efficacy of rice-based oral rehydration solutioncontaining recombinant human lactoferrin and lysozyme inPeruvian children with acute diarrhea (Zavaleta 2007, Bethell2006). Ventria’s interpretation of the study results is thatVentria’s products helped to reduce the duration of acute diarrheaby 30%, or a day and a half. (Average duration: 5.21 days forcontrol vs. 3.67 days for Ventria’s products). In addition, Ventriaclaims that the study shows that children receiving Ventria’sproduct more likely to recover from their diarrhea and were lesslikely to relapse into another episode of diarrhea. Freeze (2007)disputes the study findings on several grounds related to allegedproblems with the study methodology.Even if the Zavaleta (2007) study results are scientifically sound,the potential profitability of Ventria’s oral rehydration supplementproducts to the firm itself may be limited by the inability ofconsumers in the target market, low income households indeveloping countries, to pay. Ventria’s CEO Scott Deeter has saidthat financial support from foundations might be necessary tomake oral rehydration solutions containing his company’s proteinswidely available (USDA 2003, Freese 2007).With respect to Ventria’s claim of potential benefits toconsumers in the United States, where consumers have a greaterability to pay for the product, Ventria applies it’s interpretation ofthe results from the Peruvian study to the number of childhooddiarrhea cases in the United States and the number of workingparents and the average daily wage in the U.S (Ventria 2007). Theapplication of the Peruvian study results to the United States mayoverstate potential benefits in the U.S. if children in the U.S. havebetter overall nutrition, sanitary conditions, and hygiene, relativeto Peruvian children, reducing the relative benefit of Ventria’sproducts. A controlled study of Ventria’s products on children inthe U.S. would appear to be necessary to verify this benefit claim.Another potential hurdle to realizing consumer benefits in theUnited States is that, despite the results from the Peru study,Ventria has failed to gain “Generally Recognized as Safe” (GRAS)status from the U.S. Food and Drug Administration for its rice-derived pharmaceutical proteins in four petitions since 2003 (Table4). Ventria has applied to the FDA to approve its PMP proteins asa “medical food” rather than a drug (USA Today 2006). As amedical food, Ventria would not need to conduct long and costlyhuman tests. Instead, Ventria submitted data from scientists insupport of “generally regarded as safe,” or GRAS, status. If Ventria
  36. 36. 25wins approval to add its PMP proteins to infant formulas, there isno requirement to label any food products in the U.S. ascontaining genetically engineered ingredients.Part of the reason why Ventria has yet to be granted GRASstatus for its PMP rice may be that a 2004 National Academy ofSciences report (NAS 2004) recommended more stringent testingfor new ingredients in infant formulas. To date, Ventria haschosen not to submit its proteins for review by FDA as new drugs,a more rigorous review process. Concurrently, however, anothercompany (Agennix, based in Houston, TX) has been developingrecombinant human lactoferrin under FDA’s new drug reviewprocess for use as an anti-cancer drug since 1996 (Freese 2007).The material is being produced in genetically modified fungus in acontained manufacturing facility, not in field crops. Thatlactoferrin is being considered as a potent anti-cancer drug raisesconcern about Ventria’s attempt to gain approval for the materialunder the less stringent food additive regulations. Production oflactoferrin in fungus also presents a potential competitor for PMPrice lactoferrin, depending on regulatory approvals and relativeproduction costs.If Ventria’s products are eventually certified as safe, the netbenefits of Ventria’s products to potential consumers, economicallyspeaking, are defined as the incremental benefits beyond thoseprovided by the next-best substitute product. Even if Ventria’sproducts are completely safe and effective, the benefits to theultimate consumers, infants at risk for diarrhea, should bemeasured relative to the benefits provided by the next-bestsubstitute product. Freese (2007) makes the case that improvedsanitation facilities, clean drinking water supplies, improvedhygienic practices, use of disinfectants, and better breastfeedingpractices, in combination with existing oral rehydration therapy,provide a good substitute for rice-derived proteins in terms ofreducing the incidence of diarrhea, perhaps at lower cost, indeveloping countries. In the U.S., the benefits of the next-bestsubstitute treatment for childhood diarrhea would need to becompared with the benefits of Ventria’s products to determine thepotential net benefits of Ventria’s products to U.S. consumers.Potential consumer benefits in the U.S. may be reduced if thepatent holder, Ventria, can exert monopoly power and raiseconsumer prices. Although there are no estimates of Ventria’sability to exert monopoly power in the market for transgenic riceproducts, Kostandini et al. (2006) estimated the potential size anddistribution of economic gains from biopharming transgenic
  37. 37. 26tobacco as a source of human serum albumin using an economicsurplus model under imperfect competition. Kostandini et al.determined that the development of transgenic tobacco wouldgenerate annual profit flows of between $25 million and $49million for the patent holder. Because the patent holder can exertmonopoly power in the output market, consumer prices are higher,and consumer benefits lower, than would be the case in acompetitive market. However, should both rice and tobacco provesuccessful as sources of serum albumin, some degree ofcompetition between the two would presumably lower prices,reduce profits, and benefit consumers.In addition to consumers, Ventria’s products may provideeconomic benefits to farmers, crop transportation, processing anddistribution workers, and others who receive benefits due toeconomic multiplier effects. With respect to benefits claimed byVentria for farmers, PMP processing workers, and the local ruralcommunity near Junction City, Kansas, the site of Ventria’splanned PMP processing facility, see Section 4.1 of this reportbelow.With respect to the estimated benefits that may accrue to theJunction City, Kansas, community due to the economic multipliereffects of Ventria-related farmer and processor activity, Ventriaestimates that “with a projected 30,000 acres of production peryear upon full scale commercialization of Ventria’s products, weestimate the resulting economic benefit to be $18 million per yearin direct economic benefit for farmers and the rural community ofJunction City, Kansas.” Ventria’s proposed PMP rice processingfacility in Junction City “is a $6 million capital improvementproject and is expected to employ 10 people within the first year ofoperation. Employment will expand as the demand for Ventria’sproducts grows. It is estimated that an employment of 50 people inJunction City, Kansas will be required for full-scale production.”Ventria assumes an economic multiplier of 2.54 [based on theeconomic multiplier used by Junction City/Geary CountyEconomic Development Commission], to develop an estimate of thetotal economic benefit (direct benefits plus economic multipliereffects) for farmers and rural communities from Ventria’s productsof $45 million per year over the first five years of full-scaleproduction. For comparison, in 2006, Kansas agricultureproduced over $11 billion in crop, animal, and related agriculturaloutput, with over $3 billion in wage, rent, interest, and profitincome (USDA 2007e). Using a 2.54 economic multiplier, the totaleconomic impacts of the $11 billion in direct impact would be onthe order of $28 billion. Ventria’s estimated economic impact of
  38. 38. 27$45 million per year is small relative to the$28 billion impact ofKansas agriculture.Ventria’s claim of “$37.5 million in savings to the USGovernment and American taxpayers when compared togovernment subsidized rice production” is not valid, as PMP-rice isnot grown for food and so will not substitute for the rice grown forfood that receives the rice subsidy. However, if Ventria’s PMP-ricereplaces subsidized corn, then Ventria would potentially be able toclaim a reduction in corn subsidies as savings to U.S. taxpayers.Forty-four percent of farms in the Kansas region receivedgovernment payments in 2005, with an average payment of$17,000 per farm (USDA 2007e), or $18,000-$20,000 per farm inGeary county, Kansas (KFMA 2006). In 2007, Ventria estimated “.. . a projected 30,000 acres of production per year upon full scalecommercialization of Ventria’s products” (Ventria Biosciences2007). With an average farm size of approximately 700 acres inKansas (, perhaps43 farmers would participate in Ventria’s PMP rice production inKansas. If we assume that 43 farms growing Ventria’s rice wouldhave otherwise participated in farm programs in which they wouldhave received $17,000 each in government payments, thensubstituting Ventria rice for corn in Kansas could save taxpayerson the order of $731,000. This number is very small relative to thealmost $286 million in net government payments made to Kansasagriculture in 2006 (USDA 2007e).The economic benefits of Ventria’s PMP rice field test activity inNorth Carolina are difficult to determine, as Ventria will not revealinformation on the numbers of farmers or researchers actively atwork in the state (Sargent 2007). However, given the low acreageinvolved, it is likely that only a very few farmers are participating inthe field tests. It is known that Ventria project researchers,including professors from North Carolina State University, arebased at the Tidewater Research Station in Plymouth, NC(Washington Daily News 2006a). NCSU professor John Van Duyn,is reportedly doing research for the Ventria project in WashingtonCounty.Although Ventria looked for a place to process its rice that wouldbe “within 50 miles” of its PMP rice field test site in Washingtoncounty, NC, and Dr. Scott Deeter of Ventria said that the companywas considering placing a processing facility in WashingtonCounty, Greenville or Wilson, NC, Ventria said in December 2006that it planned to maintain operation of 200 acres of PMP rice inWashington County, NC, but that it would expand rice production
  39. 39. 28and establish a rice processing plant in Kansas instead of NorthCarolina (Washington Daily News 2006b).
  40. 40. 294 Potential Costs of PMPsThe potential benefits of PMPs must be weighed against thepotential costs, including: (1) the costs to the farmer of specialized,dedicated equipment, training, administration and liability to theGM/PMP-producing farmers, (2) any government subsidies toVentria or farmers, (3) the costs of any harm to human health inintended uses (e.g., allergies), (4) liability costs associated with thepotential loss of containment of PMP products and subsequentcontamination of the food supply, (5) externality “spillover” costsaffecting non-GM producing farmers, including organic farmers,and (6) externality “spillover” costs affecting the environment. Thefirst four cost categories are considered in this section of thereport, while the two types of externality costs are covered infollowing sections.4.1 Farm Costs and Potential Grower ProfitabilitySome GM crop technologies and products are developed bypublic institutions (such as public universities and federalresearch laboratories) financed by tax dollars, while others aredeveloped by private, profit-seeking firms. The intellectual propertydeveloped by public institutions is typically financed by tax dollarsand distributed to users without charge, for example, thoughpublication in publically-available academic journals, whereas theintellectual property developed by private firms is typically ownedby the inventor, who tries to recoup his development costs andmake a profit by, for example, increasing the price of GM cropseed, charging a technology fee, or requiring that the crop be soldback to the firm.Regardless of the source of innovation, farmers must somehowgain from a new technology in order to adopt it. Typically, newtechnology must provide increased financial returns to the farmerby some combination of raising crop yields, lowering input costs,enhancing crop quality (thereby increasing the price consumersare willing to pay), or reducing farm management effort. A roughestimate of gains to farmers from PMP crop production could bemade by estimating increases in net returns (benefits minus costs)per acre and multiplying the per acre gains by the number ofaffected acres. When Ventria was considering locating its PMP rice
  41. 41. 30processing facility in northwestern Missouri, the firm reportedlyagreed to pay PMP-growing farmers in the region about twice whatthey would typically earn growing their next-most profitable crop(New York Times 2006b). Ventria (Ventria Biosciences 2007)estimated that farmers located near the site of its planned PMP riceprocessing facility in Junction City, Kansas, will “earnapproximately $150 in additional profit per acre plus additionaleconomic impact from more intensive management required ofVentria’s production, requiring an additional $300 per acre. Forexample, a corn farmer that is currently generating $587 per acrefrom corn production would generate an economic impact of$1,037 per acre, or an increase of $450 per acre if they switch toVentria’s production.” These estimates are based on analysis byDaniel O’Brien, Associate Professor and Extension AgriculturalEconomist, Kansas State University. In addition, Ventria makesthe claim that:“. . . [farmers] are able to receive a more consistent revenuestream versus their alternatives because they do notshoulder losses caused by poor yields, weather damage,disease or insect damage, or other negative impacts typicallyfaced by farmers today. Third, the farmers are trained in newvalue-added farming practices, quality control, andregulatory requirements. Finally, farmers are able to entermulti-year agreements which provide more certainty aboutfuture cash flow, thereby improving their financial outlook.Based on the above, we estimate an economic benefit tofarmers of $600 per acre in positive economic impactcompared to their alternative with corn” (Ventria Biosciences2007).Per acre impacts in North Carolina would likely be different fromthose in Kansas, due to differences in crops grown, theirproduction costs, and market prices. As discussed by Wisner(2005), PMP firms such as Ventria will be the sole suppliers of theirPMP products and may choose to let farmers compete with oneanother for PMP production contracts, inevitably lowering thecontract prices paid to farmers, and reducing farmer benefits fromPMP production.Turning to estimates of the eventual number of acres that maybe devoted to Ventria’s PMP rice production, in a presentation to aUSDA Biotechnology Advisory Committee meeting in 2003 (USDA2003), Dr. Scott Deeter, president and CEO of Ventria Bioscience,described the likely acreage involved as approximately 10,000