Lessons from the LIPGENE Lessons from the LIPGENE Project: - - PowerPoint PPT Presentation
Lessons from the LIPGENE Lessons from the LIPGENE Project: Project: Policy Dilemmas that Arise in Policy Dilemmas that Arise in Supplying Special Lipid- - Supplying Special Lipid Modified Foods Modified Foods Presentation for Brussels,
Presentation for Brussels, May 2005 By Dr James Fry and Dr Willa Finley LMC International, Oxford, UK
Brief summary of the incidence and economic
costs of obesity in the EU.
The costs of devising separate identity-
preserved (IP) output and processing chains to supply foods with an improved lipid content to help to combat obesity in general and the metabolic syndrome in particular.
The willingness of consumers to pay a
premium for healthy foods, and the case for
food and lower the incidence of obesity.
% Obesity in Adult Males (BMI > 30) 5 10 15 20 25 30 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Finland Austria Belgium Denmark France Germany Ireland Italy Netherlands Spain Sweden United Kingdom
5 10 15 20 25 30 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 % Obesity in Adult Females (BMI > 30)
Finland Austria Belgium Denmark France Germany Ireland Italy Netherlands Spain Sweden United Kingdom
Total = €32,813 million Total = €32,813 million 10,436 4,748 5,435 4,324 1,989 916 887 863 3,216 Germany Italy UK France Spain Austria Netherlands Greece Others
The full annual direct and indirect costs
For both men and women, at least half
Identity preservation (IP) systems are
In addition to the costs of devising special
200 Quantity (million tonnes) Food Grade Soybeans General Non-GMO Soybeans Herbicide-tolerant Non-GMO Soybeans Non-GMO Maize 40 80 120 160 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 IP costs, $/tonne, excluding processing
Indexes of Soybean Crushing Costs, Illustrating the Indexes of Soybean Crushing Costs, Illustrating the Cost Penalty if IP Requires Smaller Processing Plants Cost Penalty if IP Requires Smaller Processing Plants
0% 50% 100% 150% 200% 250% 300% 350% 400% 2,000 tpd solvent 500 tpd solvent 50 tpd expeller Costs as % of a 2,000 tpd Crushing Costs
0.0 0.3 0.6 0.9 1.2 1.5 Beef Milk Poultry Eggs Omega-3 Content, grams/100 grams Omega-3-enhanced Conventional
0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Beef Milk CLA Content, grams/100 grams CLA-enhanced Conventional
Total supply costs for milk, meat or eggs with
healthy nutrient profiles are 10-60% more than for conventional alternatives. This is due to
The extra costs of feed, such as flax (linseed) or
fish oil, needed to enhance the CLA/ Ω-3 levels,
The costs associated with reduced rate of gain
(high CLA beef) or reduced productivity (Ω-3 eggs).
IP costs, including transportation and testing. Higher unit costs due to inability to exploit scale.
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 Small (<50 head) Medium (50-199) Large (200-499) Industrial (>500) Herd Size (Number of Head) Production Costs, US$ per litre of milk All Other Costs IP Costs Non-IP CLA Costs
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.365 13.6 54.5 Million Litres per Annum Capacity Milk Processing Costs, $/litre Non-IP Costs IP Costs
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Small Medium Large Herd Size Overall Costs, US$ per litre of milk Production Processing Retail
1 2 3 4 5 6 7 8 6,000 18,000 54,000 Number of Birds Produced Annually Full Production Costs ($ per bird) Natural Free-range Organic Natural Free-range + Omega-3/CLA
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 50,000 100,000 150,000 200,000 250,000 300,000 Processing (Birds/day) Processing Cost per Bird ($)
1 2 3 4 5 6 7 8 9 6,000 18,000 54,000 Flock Size (number of birds) $/bird All Other Costs Total IP Costs Total Cost Due to Healthy Trait
200 400 600 800 1,000 1,200 1,400 1,600 1,800 Hormone Free Grass-fed (Enhanced CLA) Conventional $/head Basic Costs Penalty from Lack of Scale Cost of Slower Growth IP Costs
50 100 150 200 250 300 350 Grassfed Conventional $/head Feeding Operations Processing Retail
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 Conventional Organic-Omega-3 Egg Production Costs ($/dozen) All Other Costs Costs due to IP Costs due to Omega-3
IP costs are 2-5% of costs across all products. Extra costs due to the healthy trait typically
account for 7-14% of total costs.
Combined IP and special input costs represent
10-16% of total costs throughout the chain.
It is noteworthy that combined IP and extra
input costs in animal food products, as a share
Economies of scale in agriculture, processing,
distribution and retailing have a bigger effect upon total costs than IP and higher input costs.
The cost penalty for niche products (with 2-3%
(with over 90%) varies from 35% to 85% for the products considered in the LIPGENE project.
Also, retailers expect higher margins on slow-
moving niche products than on basic foods.
Using these results, one can link the extra cost
nature of the product (plant oils, meat or eggs) and (b) the output scale of the healthy product.
The scale of output, in turn, depends upon (a)
consumers’ willingness to pay price premia for health and (b) official subsidies, if any, offered to encourage consumption.
Therefore, we now turn to consider the
evidence about consumers’ willingness to pay.
0% 2% 4% 6% 8% 10% 12% 14% 16% Milk Butter Yoghurt Average Premium That Customers Were Willing to Pay Premium That Customers Were Willing to Pay Who Consistently Choose Low-Fat Brands
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 Omega-3 + Organic Organic Free-Range Natural Conventional $/dozen
0% 50% 100% 150% 200% 250% 300% 350% 0% 20% 40% 60% 80% 100% Market Share Price Premium
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 0% 20% 40% 60% 80% 100% Market Share Price Premium
0% 10% 20% 30% 40% 50% 60% 70% 0% 20% 40% 60% 80% 100% Market Share Price Premium
0% 20% 40% 60% 80% 100% 120% 0% 20% 40% 60% 80% 100% Market Share Price Premium
Phytosterol spreads have 7% of the market in
the UK, and 2%-3% in the US, with buyers paying a near 300% premium at retailers.
Healthy eggs and chickens have 3%-4% of
the US market, with premia of close to 200% for eggs, but of only 40% for fresh chickens.
Healthy beef, milk and cheese hold less than
1% of the US market and command price premia of 25%, 60% and 115%, respectively.
premium for special food attributes.
healthy foods, thus expanding the scale of
at the same time)
against
the consequent savings in health costs.
take-up, but it is indiscriminate in scope and wasteful in failing to target beneficiaries.
sugar in some countries) is indiscriminate, too, but spares governments subsidy costs, passing them on to consumers.
waste, but (a) entails additional administrative costs, (b) incurs cost penalties from lack of scale, while (c) risking failing to reach many
We have computed the cost of subsidies on
inputs such as phytosterols and linseed and fish oils for all EU soft spread, poultry and beef
foods just below those for conventional foods.
(N.B. This would cut out the costs of separate
supply chains and IP, since healthy products would become the “commodity” products.)
These costs are contrasted with the costs of
5 10 15 20 25 30 35 Special Inputs Obesity Costs Annual Costs, € billion Eggs Broilers Beef Spreads Costs of Obesity
receives healthier animal products, regardless of the benefit. Also, it assumes that big increases are possible in the use of key inputs without bidding up their prices. However, against this, it has the benefit of avoiding all IP costs and it ensures the attainment of economies of scale.
to promote a healthier lipid profile in leading animal-derived foods would amount to only 30%
2 4 6 8 10 12 5% 20% 100%
Share of Product Market Targeted for Subsidies or Mandating
Extra Costs, € billion/year IP and Lack of Scale Special Inputs
subsidies on 5% and 20% of the population, rather than 100%, in terms of the associated IP costs and lack of economies of scale, setting these against the savings on special input costs.
lack of scale plus IP systems are similar for both the 5% and 20% cases, at roughly €4 billion.
to around €5 billion for the 5% case and €6 billion with 20%, vs. €10 billion for 100% scope.
Without government intervention, it seems
inevitable that the combination of high input costs, IP systems and lack of scale, alongside consumers’ unwillingness to pay much of a premium for healthy products, would condemn healthy lipid-modified foods to a series of mostly small niches in the market.
If governments intervene, they must decide
whether a targeted approach towards subsidies offers a better cost-benefit trade-off than universal subsidisation or mandating.
Targeting subsidies proves to be cheaper than
an across-the-board subsidy, as long as the administrative costs are kept in check.
A further factor favouring a targeted approach
is that it runs less risk of bidding up the prices
products than a comprehensive approach.
We must await results from LIPGENE research
before the potential scale of reductions in the incidence of the metabolic syndrome as a result of lipid modification become clear.
The analysis presented here suggests:
If the targeting is directed towards lipid-modified
animal products, ranging from meat to dairy products to eggs, for the 20% of the EU population who are obese, the subsidy needed to cover all increased product costs would be €6 billion/year.
If this approach manages to reduce the incidence
by over €6 billion, yielding a small net advantage.
The trade-offs will only become better defined as
the LIPGENE project generates scientific results.