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, May 2005 By Dr James Fry and Dr Willa Finley LMC International, Oxford, UK
Outline of the Presentation Outline of the Presentation � 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 official subsidies to lower the prices of such food and lower the incidence of obesity.
The Incidence and Direct The Incidence and Direct and Indirect Costs of and Indirect Costs of Obesity in the EU- -15 15 Obesity in the EU (Applying growth rates from OECD (Applying growth rates from OECD time series – – some of which are biased some of which are biased time series downwards by self- -reporting reporting – – to to downwards by self recent IOTF estimates, and UK NAO recent IOTF estimates, and UK NAO obesity cost data for 1998) obesity cost data for 1998)
Increase in Obesity Among EU Adult Males Increase in Obesity Among EU Adult Males % Obesity in Adult Males (BMI > 30) 30 25 20 15 10 5 0 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
Increase in Obesity Among Adult Females Increase in Obesity Among Adult Females % Obesity in Adult Females (BMI > 30) 30 25 20 15 10 5 0 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
2002 Total EU- -15 Direct and Indirect Costs of 15 Direct and Indirect Costs of 2002 Total EU Obesity (Attributed Pro Rata to 1998 UK Data) (Attributed Pro Rata to 1998 UK Data) Obesity 3,216 863 887 10,436 916 1,989 Total = €32,813 million Total = €32,813 million 4,324 4,748 5,435 Germany Italy UK France Spain Austria Netherlands Greece Others
Overall Costs and Incidence of Overall Costs and Incidence of Obesity in 2002 in the EU- -15 15 Obesity in 2002 in the EU � The full annual direct and indirect costs of obesity in the EU-15 in 2002 were estimated to be nearly €33 billion. The UK, Germany, Italy and France together accounted for over 75% of the total. � For both men and women, at least half the member states have more than 20% of their adults with BMIs of over 30.
The Costs of Improving The Costs of Improving Plant, Dairy and Meat Plant, Dairy and Meat Nutrient Profiles Nutrient Profiles and of Applying and of Applying Identity Preservation (IP) Identity Preservation (IP) Systems Throughout Systems Throughout Their Supply Chain Their Supply Chain
The Costs of Separate The Costs of Separate Supply Chains Supply Chains � Identity preservation (IP) systems are needed to keep special foods, commanding premium prices, separate and segregated from cheaper “commodity” products. � In addition to the costs of devising special IP systems for special plant and animal products, the creation of low volume supply chains imposes extra costs on suppliers via the inability to exploit economies of scale.
Identity Preservation (IP) Identity Preservation (IP) Costs Along the Costs Along the Production Chain with Production Chain with Oilseed and Grain Oilseed and Grain Products Products
Production and Marketing Costs of IP from a Production and Marketing Costs of IP from a Farm in the US to an Export Market in the EU Farm in the US to an Export Market in the EU 200 IP costs, $/tonne, excluding processing Food Grade Soybeans 160 120 Herbicide-tolerant Non-GMO Soybeans 80 General Non-GMO Non-GMO Soybeans Maize 40 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Quantity (million tonnes)
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 Costs as % of a 2,000 tpd Crushing Costs 400% 350% 300% 250% 200% 150% 100% 50% 0% 2,000 tpd solvent 500 tpd solvent 50 tpd expeller
Supply Chain Costs Supply Chain Costs for Healthy Nutrient for Healthy Nutrient Profiles in Animal Profiles in Animal Products Products
Examples of Existing Examples of Existing Lipid- -Modified Livestock Modified Livestock Lipid Products With Enhanced Products With Enhanced Conjugated Linoleic Linoleic Acid Acid Conjugated Ω - (CLA) or Ω -3 3 Content Content (CLA) or
Ω - Ω -3 Fatty Acid Levels in Conventional 3 Fatty Acid Levels in Conventional and Enhanced Livestock Products and Enhanced Livestock Products 1.5 Omega-3 Content, grams/100 grams 1.2 0.9 0.6 0.3 0.0 Beef Milk Poultry Eggs Omega-3-enhanced Conventional
Levels of CLA in Conventional and Levels of CLA in Conventional and Enhanced Milk and Beef Enhanced Milk and Beef 1.6 CLA Content, grams/100 grams 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Beef Milk CLA-enhanced Conventional
Production Costs of Food Products Production Costs of Food Products with Healthy Nutrient Profiles with Healthy Nutrient Profiles � 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.
Example of the Fresh Example of the Fresh Milk Supply Chain Milk Supply Chain
Economies of Scale in Conjugated Linoleic Economies of Scale in Conjugated Linoleic Acid (CLA) Fresh Milk Production Acid (CLA) Fresh Milk Production 0.70 Production Costs, US$ per litre of milk 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Small (<50 head) Medium (50-199) Large (200-499) Industrial (>500) Herd Size (Number of Head) All Other Costs IP Costs Non-IP CLA Costs
Economies of Scale in Processing Economies of Scale in Processing CLA Fresh Milk CLA Fresh Milk 0.80 0.70 Milk Processing Costs, $/litre 0.60 0.50 0.40 0.30 0.20 0.10 0.00 0.365 13.6 54.5 Million Litres per Annum Capacity Non-IP Costs IP Costs
Economies of Scale in the CLA Fresh Milk Economies of Scale in the CLA Fresh Milk Production & Processing- -to to- -Retail Chain Retail Chain Production & Processing 2.00 1.80 Overall Costs, US$ per litre of milk 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Small Medium Large Herd Size Production Processing Retail
Example of the Free Example of the Free Range Broiler Range Broiler Chicken Supply Chicken Supply Chain Chain
Economies of Scale in Free- -Range Range Economies of Scale in Free Broiler Production on Farm on Farm Broiler Production 8 Full Production Costs ($ per bird) 7 6 5 4 3 2 1 0 6,000 18,000 54,000 Number of Birds Produced Annually Natural Free-range Organic Natural Free-range + Omega-3/CLA
Economies of Scale in Broiler Processing Economies of Scale in Broiler Processing 3.50 3.00 Processing Cost per Bird ($) 2.50 2.00 1.50 1.00 0.50 0.00 0 50,000 100,000 150,000 200,000 250,000 300,000 Processing (Birds/day)
Costs to the Processing Stage for Costs to the Processing Stage for Ω - High Ω -3/CLA Free Range Broilers 3/CLA Free Range Broilers High 9 8 7 6 $/bird 5 4 3 2 1 0 6,000 18,000 54,000 Flock Size (number of birds) All Other Costs Total IP Costs Total Cost Due to Healthy Trait
Example of Example of Hormone- -free and free and Hormone Grass- -fed (High CLA) fed (High CLA) Grass Beef Beef
Production Costs for Beef with Production Costs for Beef with Healthy Nutritional Attributes Healthy Nutritional Attributes 1,800 1,600 1,400 1,200 $/head 1,000 800 600 400 200 0 Hormone Free Grass-fed (Enhanced CLA) Conventional Basic Costs Penalty from Lack of Scale Cost of Slower Growth IP Costs
Grass- -Fed Hormone Fed Hormone- -Free & Conventional Free & Conventional Grass Beef Production Costs (Excl. Calf Cost) Beef Production Costs (Excl. Calf Cost) 350 300 250 $/head 200 150 100 50 0 Grassfed Conventional Feeding Operations Processing Retail
Example of the Example of the Ω - Organic, High Ω -3 3 Organic, High Eggs Supply Chain Supply Chain Eggs
Production Costs for Organic and Production Costs for Organic and Ω - High Ω -3 Eggs 3 Eggs High 1.60 Egg Production Costs ($/dozen) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Conventional Organic-Omega-3 All Other Costs Costs due to IP Costs due to Omega-3
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