Who pays the costs of non-GMO segregation and identity preservation?

This paper proposes an analytical framework to examine the market and welfare impacts of GMOs, when some consumers refuse genetically modified organisms (GMOs) and when two supply channels are segregated (one for goods that containing GMOs and one for non-genetically-modified identity-preserved goods). Our analytical framework begins at the level of individual farmers, handlers and consumers, to build up market supply and demand functions. This allows us to circumvent the difficulties of conducting supply and demand analysis in the different horizontally and vertically related markets concerned by GMOs and market segregation. We represent explicitly the costs of non-GMO segregation and identity preservation (IP) for both producers of non-GM IP goods and producers of non-IP goods, and how these costs vary depending on the relative sizes of the two production channels. We then illustrate our model by a simulation of potential adoption of GM rapeseed with non-GMO market segregation in the European Union (EU). We analyze how the costs of IP are distributed among heterogenous producers, handlers and consumers in this simulation.