Michigan State University Extension
Ag Experiment Station Research Report - RR552098
01/08/99
January 1998 Research Report 552
Michigan Agricultural Experiment Station Michigan State University
By: Elizabeth Ransom, Gerad Middendorf and Lawrence Busch* Department of Sociology Michigan State University Research funded by the Rural Development Administration, Rural Business-Cooperative Service of the USDA, the Michigan Agricultural Experiment Station, and the National Science Foundation
*Research Assistant, Research Assistant, and University Distinguished Professor, respectively.
Table of Contents
Executive Summary List of Abbreviations Acknowledgments Introduction
Part I New Biotechnologies in Agriculture
Plant Biotechnology
Herbicide Resistant Crops
Disease Resistant Crops
Insect Resistant Crops
Nitrogen-Fixing Bacteria
Plant Products and Quality
Food Biotechnology
Fermented Foods
Food Ingredients
Food Diagnostics
Animal Biotechnology
Bovine Somatotropin
Porcine Somatotropin
Health and Reproductive Technologies
Transgenic Animal Biotechnologies
Part II The State of Cooperatives Today
Part III Issues For Cooperatives
Agricultural Restructuring: Biotechnology,
Consolidation and Globalization
Contract Farming and IP Crops
Value Added
Transgenic "Pharming"
Research Environment: Issues of Access
Strategic Alliances
Agricultural Cooperatives vs. Investor Owned Firms
Cooperative Obligations to Members and the Public
The Labeling Debate
Conclusions
References
Executive Summary
The new biotechnologies will have a unique impact upon agricultural cooperatives. To take advantage of the benefits and to deal with the consequences of these new technologies, cooperatives need to develop distinct strategies.
Cooperatives face special problems with respect to biotechnologies because they are different from investor owned firms in their ownership structure, decision-making processes, methods of financing, close ties with producers, social embeddedness, and their history as parts of social movements. How cooperatives choose to deal with the new biotechnologies is not a trivial matter, since as a group they represent about one-quarter of the entire market for agricultural products. The choices facing cooperatives represent an unprecedented milieu of opportunities and challenges, and the technological paths they choose will undoubtedly define the kind of organizations they will become.
This report examines the economic, social, and ethical issues raised by the new agricultural biotechnologies. There is a central question: What are the strategies that cooperatives employ or might employ to be prepared to deal with the consequences of these new technologies?
The Technologies
The major thrust taking place in plant biotechnology research and development is herbicide resistant crops, although there is also significant activity in disease and insect resistance and in identity preserved crops. As of mid-1995, 38 different plant species with nearly 200 different engineered properties had been field tested. Still, some 30 to 50 percent of industry research and development spending is concentrated on herbicide resistance. Crops into which herbicide resistance has been engineered include cotton, soybeans, canola, and corn. Food biotechnologies also have the potential to bring about significant changes in the agrifood system, especially in the processing and food manufacturing sectors. The new technologies involve genetically manipulating microorganisms (e.g., bacteria, yeasts, and molds) to improve sensory characteristics such as flavors and aromas, refine efficient processing characteristics, enhance nutritional value, and increase shelf life, among other qualities. The major areas of development are in fermented foods, food ingredients, and diagnostic tools. The goals of research efforts are to increase the consistency and uniformity of the strains used in the food industry and to develop the ability to produce the strains independently of their original sources.
Unlike plants and bacteria, animals are sentient beings, which creates very different issues for biotechnology development. There are many fronts on which animal biotechnologies are emerging. The most recent involves two animal hormones, bovine somatotropin (BST) and porcine somatotropin (PST). There are also many developments in transgenic animal research. In February 1997, it was announced that a lamb had been cloned successfully using a cell nucleus taken from an adult ewe's udder. Prior to this discovery, scientists thought cloning of mammals was only possible using reproductive cells. In addition to the cloned lamb, transgenic animals which have been produced include rabbits, chickens, sheep, pigs, cows, monkeys and fish. The purposes for their creation vary widely but four stand out: pharmaceutical manufacturing, the development of research animals, human tissue and organ harvesting, and food production.
Cooperatives
While these new technologies are being deployed, the total number of cooperatives and the total membership in cooperatives is declining. For the past three decades, there has been an average decrease of about 150 cooperatives per year. Cooperatives numbered 6,125 in 1982, but as of 1995, the number had fallen to 4,006. At that time the 100 largest cooperatives accounted for 54.9 percent of the total business volume generated by US cooperatives. Memberships also fell from 5 million in 1983 to 3.8 million in 1995. However, as cooperatives decline in number it should not be assumed that they have become insignificant in the US agricultural landscape. A number of issues emerged out of interviews with leaders of more than 40 agricultural cooperatives around the US that vary by size, commodity, and geographic location. Among them is the further shift to contract farming and a push toward adding value to farmers' commodities. With the emergence of identity preserved (IP) crops developed through biotechnology, contract farming will likely continue to increase. Whether the benefits of contract farming outweigh the costs will vary among cooperatives and among individual farmers.
Adding value is increasingly viewed as the direction to take to increase net earnings in agriculture. Some cooperatives are adding value by providing a better package of services to the farmer, while other cooperatives are pursuing value added with farmers' commodities. The largest cooperatives are doing both. The new biotechnologies can aid in adding value, but it is likely they will be used through contracts with investor-owned agribusiness firms. Many cooperative leaders view cooperatives as being in a position to serve as a link between farmers and industry. Therefore, they see cooperatives' positions as secure. However, private industry eventually may attempt to eliminate the "middle-men" (cooperatives) or only deal with a few very large cooperatives that enhance their return on investment.
Examples of biotechnologies that further the shift to contract farming and represent added value to agricultural commodities are those engineered for the pharmaceutical industry. Contracting in transgenic "pharming" is a new area created by biotechnology developments and is thus far relatively unexplored by cooperatives. Due to the high costs of pharmaceutical research, the most likely role in transgenic pharming for cooperatives is the position of contract negotiator between farmers and industry. Whether cooperatives are able to or want to take advantage of this potential new market remains to be seen.
Cooperatives' difficulties in raising equity, relative to the deep pockets of investment-oriented multinationals, is particularly relevant in discussing the avenues available to them to pursue biotechnology development. The lack of accessible equity and the relatively small amount of money returned to the organizations compared to conventional agribusiness firms, tends to limit cooperatives' capacities to position themselves competitively. Therefore, cooperatives have joined private industry in strategic alliances for research and development. However, as this occurs, of concern are the ramifications for members and the public when cooperative leaders express the attitude that, "the only time we are a cooperative is the night of the annual meeting." In the short term, are farmers gaining a share in the market, but sacrificing their long term interest? Do cooperatives represent entities which will participate in debates, such as food labeling, with the public interest in mind or only with an interest in earnings?
Biotechnology developments have the ability to change the economic and social environment in agriculture. Cooperative leaders must be aware that the decisions they make today not only shape the present, but also set the stage for future actions.
List of Abbreviations
BIO Biotechnology Industry Organization
BMP Beefy Meaty Peptide
BST Bovine Somatotropin
Bt Bacillus Thuringiensis
BXN Calgene's transgenic cotton, tolerant to the
herbicide Bromoxymil
CP gene Coat protein gene
DNA Deoxyribonucleic acid
EPA Environmental Protection Agency
FDA Food and Drug Administration
GIBiP Green Industry Biotechnology Platform
GRAS Generally Recognized as Safe
HFCS High Fructose Corn Syrup
HRCs Herbicide Resistan Crops
IOF Investor Owned Firm
IP Identity Preserved
LLC Limited Liability Companies
MSG Monosodium Glutamate
OECD Organization for Economic Cooperation and
Development
PCR Polymerase Chain Reaction
PST Porcine Somatotropin
RB-CS Rural Business-Cooperative Service
rBST Recombinant Bovine Somatotropin
rDNA Recombinant deoxyribonucleic acid
RMB PC-2 Rhizobium Meliloti
rPST Recombinant Porcine Somatotropin
TGA Transgenic Animal
USDA United States Department of Agriculture
ACKNOWLEDGMENTS
This research was made possible by generous support from the Rural Development Administration, Rural Business-Cooperative Service of the USDA (Research Agreement No. 58-RDA-CS-4-0030), the Michigan Agricultural Experiment Station, and the National Science Foundation (Grant No. SBR9514719). We would like to thank Thomas Gray, Bruce Hamaker, Susan Harlander, Maynard Hogberg, James Ireland, and Allen Tucker for reading sections of this manuscript and making extensive and useful comments. Michael Tresca assisted with various editing and formatting tasks. Numerous cooperative leaders and members gave their time generously through lengthy interviews. Opinions, findings, and conclusions are solely those of the authors and do not necessarily reflect the views of the sponsors or reviewers. INTRODUCTION Since the approval of the first products of agricultural biotechnology in the food system in the early 1990s, debates have continued over the economic, social, and ethical consequences of the "biorevolution" in agriculture. The often exaggerated claims and predictions of the various participants on all sides of the debates over agricultural biotechnology have not been, by and large, borne out. The biotechnology industry declares itself one of the "cornerstone industries of America's future economic growth" (Biotechnology Industry Organization 1996), and promises technologies that will feed the world. Meanwhile critics warn that agricultural biotechnology's primary fruits will be "Frankenfoods" and environmental havoc, spawned by technologies over which we will surely lose control. However, the story of the first several years of commercial agricultural biotechnology has been neither of these. Rather, it is a complex story of successes and failures, caution and haste, hyperbole and understatement.
What is clear is that agricultural biotechnology, and the debates surrounding it, are with us for the foreseeable future. As of 1994, annual federal spending on agricultural biotechnology research had reached $234 million, an increase of 245 percent over the 1985 level. As a whole, the biotechnology industry - of which agricultural biotechnology represents only a modest portion - spent $7 billion on research and development in 1994. These efforts have led to an increasing level of sales for publicly traded agricultural biotechnology companies ($12.3 million in 1994, a 158 percent increase over 1993).
In addition to the highly publicized approvals of recombinant bovine somatotropin (rBST) in 1993 and the antisense tomato in 1994, companies have introduced successfully a number of other products into the market. In 1996, two-million acres of Roundup Ready soybeans were planted, as were 1.8 million acres of Bacillus Thuringiensis (Bt) cotton. A biotechnology-produced version of the enzyme chymosin is now used in approximately 60 percent of all hard cheese products. As an indicator of how companies are positioning themselves, Monsanto recently agreed to purchase Holden's Foundation Seeds, Inc. (a major seed corn producer) and two of its distributors for $1.02 billion (Nature 1997). This decision comes on the heels of the December 1996 approval of the Monsanto's Bt corn - as well as its purchase last February of a 40 percent stake in DeKalb Genetics - and ensures the company a crucial distribution network for this and future genetically engineered products. Clearly, industry leaders are betting on agricultural biotechnology's commercial success.
Yet, the story of the early products of agricultural biotechnology is a mixed one. Both Calgene and Monsanto have been losing money on their new product introductions. Moreover, after the failure of Bt cotton to protect the 1996 crop against bollworm, some are wondering if biotechnology products will be able to perform as their promoters claim. On another issue, scientists in Denmark have shown that herbicide tolerance engineered into crop plants can be transferred quite easily into weedy relatives of the crop. Their research showed the transfer of tolerance to the herbicide Basta from oilseed rape to its weedy relative, Brassica campestris (Mikkelsen, Andersen, and Jorgensen 1996). Findings such as these add credence to the concerns raised about the environmental consequences of biotechnology.
Finally, even scientists are beginning to question the conventional wisdom regarding public perception of biotechnology - i.e., that "negative attitudes and intransigence toward biotechnology products result merely from fear of technology because of scientific illiteracy, and that the remedy is education" (Golub 1997). The assumption is that more science education and higher levels of science literacy will bring the public into agreement with the science community. This has been shown to be quite the opposite in Europe, where there are higher levels of science literacy and even greater public resistance to some biotechnologies. In fact, the European Parliament recently adopted a resolution calling for genetically modified products to be labeled and sold separately - a controversy that arose, in part, from the fact that 1996 exports of US soybeans to the European Union contained a small portion of Monsanto's Roundup Ready soybean (Butler 1996).
While the new agricultural biotechnologies can be viewed as just another set of tools being used in agriculture, they also must be viewed as more than that, because they will generate or accelerate social changes as well as technological changes. The new biotechnologies do have the ability to further ongoing agricultural restructuring, but they also may impede and/or take restructuring in new directions by raising questions of access, risk for producers and consumers, and increasing global competition. Linked to the increasingly competitive agricultural environment are issues concerning the shift of research to the private sector and the increasing role of intellectual property rights, mergers and joint ventures, increasing demands for value added, globalization of technologies, the broadened range of technology choices, and the consequences for everyone involved.
In this report we examine the economic, social, and ethical issues created for agricultural cooperatives as a result of the new biotechnologies. There is a central question we pursue: What are the strategies that cooperatives employ or might employ in order to be prepared to deal with the consequences of the new biotechnologies? We begin by discussing current developments in plant, food, and animal biotechnology. In each case we attempt to identify the status of the technology in terms of its commercial development, some of the technological innovations that make it possible, and some indication as to its potential for widespread development and use. This is followed by discussion of a number of issues that emerged out of interviews with leaders of more than 40 agricultural cooperatives around the US that vary by size, commodity, and geographic location.
To serve the needs of cooperative managers and members, as well as other readers, we have designed the report around the specific technologies and issues facing agricultural cooperatives. The sections are intended to be read either sequentially or independently, depending on the interests and needs of the reader.
Part 1 - New Biotechnologies in Agriculture
Biotechnology may be broadly understood as "any technique that uses living organisms or parts of living organisms to make or modify products, to improve plants or animals, or to develop microorganisms for specific uses" (Busch et al. 1991:1). However, in this bulletin we are interested in a more limited set of technologies, which we designate as "new" biotechnologies. This more recent set of tools includes rDNA (recombinant deoxyribonucleic acid) techniques, cell fusion techniques, new bioprocesses for commercial production, monoclonal antibody production, plant and animal cell culture and tissue culture, and embryo transfer, splitting and sexing (Baumgardt 1988:25; Busch et al. 1991:1). Especially used in food processing are fermentation techniques, biosensor applications, and deoxyribonucleic acid (DNA) probes (Harlander 1988:41). Some of these techniques are explained in more detail as we discuss their applications in the text that follows.
PLANT BIOTECHNOLOGY
As of mid-1995, 38 different plant species with nearly 200 different engineered properties had been field tested. The traits being tested in plants include herbicide resistance, disease resistance (which includes bacteria, fungi, and virus resistance), insect resistance, product quality and medicinal value. Tobacco, considered a "model plant" by scientists by virtue of its well-understood genetic structure and ease of manipulation, was the first genetically modified plant and represented more than a quarter of the field trials through 1989. Now scientists have begun to work heavily on crops with greater economic value, including potatoes, canola, maize, and tomatoes (Ahl Goy and Duesing 1995).
Herbicide-Resistant Crops
Herbicide-resistant crops (HRCs) were the first group of new agricultural biotechnology products to be made available to farmers. As Ahl Goy and Duesing (1995, 455) note, "genes conferring tolerance to herbicides were among the first to be identified and transferred." Herbicide tolerance continues to be the trait most commonly tested, constituting 34 percent of all field trials. Also, over the past 40 years, agriculture has seen a dramatic increase in the use of herbicides, with use being greater than the combined use of insecticides and fungicides (Krimsky and Wrubel 1995). By the year 2000, the estimated annual value of herbicide tolerant seed is expected to be around $2.1 billion (Lee 1993). As a consequence, currently 30 to 50 percent of industry research and development spending on biotechnologies is concentrated on HRCs.
Some of the most recent HRCs to be approved for commercialization include genetically modified cotton developed by Calgene in association with Rhone-Poulenc. The cotton lines, known as BXN, are tolerant to the herbicide bromoxynil, marketed by Rh™ne-Poulenc. BXN cotton has been genetically engineered with an enzyme that degrades the herbicide (Eck and Mark 1995).
Another HRC approved in 1994 for commercialization is a soybean which is resistant to glyphosate, the active ingredient in Roundup. Both the herbicide glyphosate and the resistant soybean line are produced by Monsanto. In 1995, approval finally came that allows application of glyphosate on the tolerant soybean plants (Eck and Redding 1995). Previously, glyphosate was only used as a pre-planting treatment.
In 1996, approximately 50,000 acres of Roundup tolerant canola were planted in Canada. Similarly, approximately 2 million acres of Roundup tolerant soybeans were planted in the US, which constitutes about 2 percent of the US soybean crop (Sehgal 1996; Ibrahim 1996). Monsanto and others are also working on developing tomatoes, cotton, sugar beets and corn which are resistant to glyphosate (Krimsky and Wrubel 1995; Lee 1993). Roundup is the highest selling weed killer in the world and accounts for 17 percent of Monsanto's total annual sales (Arax and Brokaw 1996). Monsanto sees an increase in profits from the sales of Roundup Ready seeds and the herbicide. DuPont has engineered cotton and canola which are tolerant to sulfonylurea, the active ingredient in DuPont's herbicides Glean and Oust (Lee 1993). One of the problems with sulfonylurea compounds is the residual left in the soil, which prevents many crops from being planted in the field in which the herbicide was used in previous growing seasons. Recently, DuPont developed a short-residual sulfonylurea herbicide, and, in turn, they developed soybeans that are resistant to it (Krimsky and Wrubel 1995).
Transgenic crops also have been developed to be resistant to glufosinate, the active ingredient in the herbicide Basta. These crops include soybeans, corn, and canola (Lee 1993).
In 1996 approximately 200,000 acres of Liberty tolerant canola were planted in Canada (Sehgal 1996). Registered by AgrEvo in both Canada and the US, the herbicide is sold in the US under the names Rely and Finale.
Finally, through the use of tissue culture, 14 corn varieties resistant to imidizoline, the active ingredient in Pursuit, became commercially available in 1993. As Krimsky and Wrubel (1995, 39) note, "American Cyanamid, which holds the patent and markets the herbicide, developed some of the varieties with Pioneer Hi-bred. Other resistant corn varieties were developed independently by Zeneca Seeds, Ciba Seeds, and Cenex/Land O'Lakes."
Disease Resistant Crops
Plants genetically engineered for disease resistance are the second largest category of field test permits issued by the US Department of Agriculture (USDA) as well as by the Organisation for Economic Cooperation and Development (OECD) countries. With plant pathogens responsible for an estimated 12 percent of crop losses or 900 million tons of pre-harvest yield, and the cost of the loss estimated at $90 billion worldwide, the desire for disease resistant crops is high (Krimsky and Wrubel 1995). Of the plant pathogens (viruses, bacteria, and fungi), the area which has received the most attention has been plants with viral resistance.
The first disease resistant crop to be released commercially was Freedom II squash, developed by Asgrow Seed Co., which incorporates coat protein with resistance to two viruses. Asgrow submitted data which showed that the amount of coat protein in the transgenic squash is less than the amount in non-transgenic squash. The company originally planned to market the seed primarily in Georgia and Florida where squash yield can be reduced by 50 to 80 percent by viral diseases (Krimsky and Wrubel 1995). However, Asgrow withdrew Freedom II from distribution after poor results from the field.
In California, at the ARS/University of California Plant Gene Expression Center, researchers have inserted genes into barley with the hopes of making the plant resistant to attack by barley yellow dwarf virus. Other field test permits have been given to study the use of viral coat protein genes (CP gene). In a virus, numerous coat protein molecules assemble to make the shell of the virus which surrounds the nucleic acid. By inserting the CP gene of a virus into a plant, scientists provide plants with resistance to that virus. The CP gene has been tested with alfalfa, cantaloupe, corn, cucumber, papaya, plums, potatoes, soybean, tobacco, and tomatoes.
Another location for research on disease resistance is the US Horticultural Research Laboratory in Orlando, Florida. Researchers there have found a way to develop citrus fruits and possibly other plants, such as pumpkin and squash, which resist fungi. The lab director explains that they are exploring putting "the genes for these enzymes, called chitinases and chitosanases, into the citrus and other plants that don't have them-or to manipulate the genes already present." Chitinases and chitosanases play a key role in degrading invading fungal pathogens, and they could also play a role in infecting insects which feed on the genetically altered plants (Stanley 1994). Thus far, researchers have discovered more than twenty different forms of chitosanases and chitinases in oranges and grapefruit. And, in Georgia, research has been conducted on bacterial pathogens. Although not yet commercially available, researchers there have developed peaches resistant to bacterial spot (Woods 1995).
The biggest impediment to developing and, more importantly, understanding the consequences of disease resistant crops, is the lack of "understanding the basic biological processes involved in plant resistance to pathogens" (Krimsky and Wrubel 1995, 93). Also, unlike weeds and insects, there is an enormous diversity in pathogens of crops. A plant resistant to only one disease would most likely be inadequate and also might allow or increase the possibility of virus adaptation (Greene and Allison 1994). A more durable plant or seed would be one resistant to multiple diseases. Apparently tests are being conducted to select for this, but nothing significant has been developed.
Finally, of concern in the development of disease resistant crops is the possibility of "new diseases," or an increase rather than a decrease in disease severity in transgenic plants. One possibility which has been observed in nature and in greenhouse experiments is transencapsidation (Greene and Allison 1994).
Transencapsidation occurs when an invading virus becomes enclosed in the coat protein of a virus of a different strain or species that had previously infected the plant and "in this way a nearby crop plant could be severely damaged by a pathogen that previously had never been a problem" (Krimsky and Wrubel 1995).
Insect Resistant Crops
Research and development of insect resistant crops has concentrated on the use of Bacillus thuringiensis (Bt) in crop plants. Bt, which first became available in the United States in 1958, is a soil bacterium which creates a crystalline particle during sporulation that contains proteins called delta-endotoxins. Forty Bt crystal protein genes have been sequenced, with many of the proteins having highly specific insecticidal activity (Krimsky and Wrubel 1995). Bt is apparently only effective in insects and can not harm mammals.
Monsanto has one of the most advanced programs in the development of insect resistant crops with Bt genes. Since 1988, the company has been conducting field tests on cotton, tomatoes, and potatoes. The first Environmental Protection Agency (EPA) approved and commercially available insect-resistant transgenic plant is Monsanto's Bt potato, NewLeaf. Through the use of a particular Bt crystal protein, NewLeaf is resistant to the Colorado potato beetle. Other commercially available Bt crops include Ciba-Geigy's Bt corn and Monsanto's Bt cotton. In 1996, roughly 1.8 million acres of Bt cotton, 200,000 acres of Bt corn, and 18,000 acres of Bt potato were planted in the US (Sehgal 1996). Bt corn and potato crops met with moderate success in the field, but Bt cotton did not succeed. Bt cotton worked well against budworm, but failed to kill bollworm (Benson, Arax and Burstein 1997; Gene Exchange 1996).
Other advances have been made by scientists working at Purdue University where it was announced that an insect-resistant seed has been engineered. The gene, which is inserted in the seed, prevents insects from feeding on the seed and is only active in the seed, becoming dormant as the seed germinates (Farm Industry News 1995). This new breakthrough is still a long way from being available commercially, but if and when it is available, it should save farmers considerable economic loss incurred during seed storage.
Finally, there has been some experimentation with making particular parts of a plant insect resistant. The ARS/University of California Plant Gene Expression Center has been experimenting with making the microscopic leaf hairs on tomato plants "repel, trap, or kill insect enemies" (Woods 1994, 4).
With the marketing of Bt potatoes, corn and cotton, an issue of concern to some scientists and farmers is the development of insect resistance. The general consensus is that insect resistance to Bt will occur; the issue is how quickly it will occur. For insect resistance to be slowed, a widespread integrated pest management program is necessary. Recently, through computer simulation, researchers developed an optimal way to slow resistance of the corn borer to transgenic maize. In the conclusion of their report they note that in order for their system to work, "its implementation will require significant educational effort" (Alstad and Andow 1995, 1896). With the industry driving the market for insect resistant crops, many fear that integrated pest management programs and other preventive measures, which would require extra time and effort, will be ignored in the race for profit.
A final point should be considered. Some experts argue that there is also a sense of urgency in creating herbicide, disease, and insect resistant plants because the US Environmental Protection Agency has banned or is considering the ban of certain insecticides, pesticides, and herbicides. As of the year 2001, methyl bromide will be taken out of production and removed from the market because it has been identified as being harmful to the atmosphere. Stanley (1994, 16) discusses the possible implications of the ban on methyl bromide, stating that "of the 64 million pounds used in the United States in 1990, more than 80 percent were used in agriculture." The author goes on to explain that "approximately $1.5 billion in agricultural losses might occur annually as a result of this ban" (16).
Nitrogen-Fixing Bacteria
For plants to grow they must have access to nitrogen in the soil. Although a large percent of the earth's air contains nitrogen, only certain plants containing rhizobia have the ability to transform this nitrogen for use. Legumes which have the ability to transform airborne nitrogen include peas, soybeans, alfalfa, beans, clover, and peanuts. These legumes have often been referred to as "green manure," because through nitrogen fixation, they replenish soil which has been depleted of nitrogen. There are also environmental benefits to nitrogen fixing plants. Due to the processing of the nitrogen within the plants' nodules, very little nitrogen run-off occurs into surface and groundwater; the same cannot be said of fertilizer applications.
One of the first genetic improvements scientists hoped for was the creation of nitrogen fixing in traditionally non-nitrogen fixing plants. For the most part this idea has been abandoned. Instead, recent research has focused on genetically improved strains of nitrogen-fixing bacteria. The most recent result, which is still awaiting approval for commercial release, is Rhizobium meliloti (RMB PC-2), developed by Research Seeds. This improved strain of bacteria has been developed for alfalfa. Among several reasons for the delay of approval for RMB PC-2, is that tests results do not seem to guarantee improved alfalfa yield (Adams 1995).
Another approach that is still a few years from marketing involves inserting genes into plants treated with ammonium fertilizers, thereby allowing them to absorb more ammonium (Olson 1995). Currently, plants only absorb small amounts of ammonium and the rest is converted by soil bacteria to nitrates, which then wash into water supplies. If plants could absorb more ammonium without harmful consequences, yields would be higher, less nitrate runoff would occur and, in theory, there would be no increase in fertilizer use. However, as Busch et al. (1991, 9) note, "on the other hand, nitrogen fixation research could lead to the development of plant varieties capable of utilizing synthetic fertilizers more effectively or absorbing greater quantities of them, thereby increasing production costs and environmental hazards."
Finally, scientists have a limited understanding of the four known classes of rhizobia. It is also now understood that certain rhizobia only reside within particular plants. The USDA has amassed a collection of approximately 3,900 rhizobia, with new strains being discovered and added to the collection every year (Adams 1995).
Plant Products and Quality
Developers maximize profits when they maintain ownership or control of the product from the seed to the final product. In most cases this will take the form of the developer contracting with farmers. This is particularly true with the final type of plant biotech-nology discussed, and the one likely to have the most impact on cooperatives, identity preserved crops (IPs). IPs have been engineered with specific altered traits. One of the first IP crops to be marketed was Calgene's Flavr-Savr tomato. The Flavr Savr was approved for use in October 1994 and was the first genetically modified plant product or transgenic whole food product available commercially. Calgene also recently commercialized Laurical, a high lauric acid canola. Laurical was designed to be used in the oil, soap, and cosmetics industries. To date, the limited production is being used in coffee whiteners and high energy snacks. The Green Industry Biotechnology Platform (GIBiP) database, which keeps track of biotechnology developments, predicts 10 to 20 other products are likely to be introduced into the market by the end of this century (Ahl Goy and Duesing 1995).
By 1997, Calgene's Flavr Savr was expected to be in competition with DNA Plant Technology's Endless Summer tomato, but after an unsuccessful commercialization of the product, Calgene pulled the tomato from the retail market. Calgene is currently in court litigation over the ownership of the "antisense" process. However, DNA Plant Technology's newer "transswitch" technology is a "simpler and less legally encumbered form of the antisense process" (Hoyle 1995, 540). This competition with Calgene's Flavr Savr was expected to cut Calgene's projected profits by reducing their share of the tomato market.
Tomatoes with higher solid to liquid ratio have also been developed to reduce shipping costs due to the less fragile nature of the tomato and reduce paste processing costs associated with evaporation of water. There would also be enhanced flavor, since most of the tomatoes' flavor comes from the solids. Although researchers have been successful in developing a high solids tomato, they have not been able to do so without reducing the yield of the tomato plant and the size of the tomato (Martineau et al. 1995). Therefore, the higher solids tomato is not ready for commercialization.
Many transgenic plant products are in the development phase, and many are on the verge of commercialization. Among other whole-food products close to commercialization are potatoes, which have higher solids and starch content. In the brochure advertising Monsanto's Bt potato, NewLeaf, the higher solid potato is discussed. They write, "A higher solids potato is in the early stage of research. Our goal is to provide the food industry with a potato that processes more efficiently and gives consumers french fries and potato chips that are tastier and absorb less fat" (NatureMark 1995).
Other products being developed include coffee with lower caffeine, garlic with altered flavor, soybeans with altered protein and fat, plants with altered amino acid composition, oilseeds with altered saturated fats, and edible canola with reduced saturated fat content and high stearic acid for margarine (Krimsky and Wrubel 1995; Jones and Harlander 1992).
Another group of biotechnology applications is the creation of products in plants or with plants which would be used for medicinal purposes or for processing in food and other industries. This area of plant/food biotechnology, so-called "pharmafoods," includes plants which have been genetically engineered to have specific pharmaceutical qualities. Examples of this include Agracetus' intention to use plants for the production of human pharmaceuticals (Wrage 1993). Agristar Inc. of Texas is reportedly developing transgenic plants with bacterial and viral genes as edible vaccines for cattle and pigs (Biotech Reporter, 1993). Moreover, microbial isolates are being used to produce vitamins (B12, C) in food products. Future applications of these technologies could include products such as genetically engineered bananas which contain human vaccines.
Recently, tobacco has reportedly been engineered to produce hemoglobin, the first time a plant has produced such a complex molecule (Phillips 1997). Because there is no evidence that plant viruses could be carried into animals or human beings, hemoglobin produced in plants is viewed as safe. This would allow the possibility of creating artificial disease-free blood.
Another possibility is the production of a malaria vaccine within the tobacco plant. Bialy (1995, 23) states, "It would be inexpensive-2000 kg of tobacco protein can be harvested per acre for approximately $10,000-and therefore could be manufactured in the countries where it is needed." Bialy also argues for the tobacco plant as a source of a highly useful enzyme for use in the paper and food industries. Through biotechnology, scientists could make plants produce large quantities of the enzyme, which then could be extracted, or possibly even use the whole plant, and apply it to aid in paper or food processing.
FOOD BIOTECHNOLOGY
Food biotechnologies also have the potential to bring about significant changes in the agrifood system, especially in the processing and food manufacturing sectors. We use the term "food biotechnology" to refer to any of the new biotechnological techniques applied to post-harvest food products to enhance in some way the food, its processing, or to test the food for pathogens or toxins.(1) We also use the term "new" to differentiate this set of technologies - namely rDNA techniques, genetic engineering, cell and tissue culture techniques, and new bioprocesses - from the practices that have been used to ferment foods for centuries. The new technologies involve genetically manipulating microorganisms (e.g., bacteria, yeasts, and molds) to achieve improved sensory characteristics such as flavors and aromas, efficient processing characteristics, nutritional value, and shelf life, among other qualities. Developments in food biotechnology, therefore, are of particular concern to cooperatives involved in food processing and manufacture, as well as those considering integrating toward these segments of the food system. The approach cooperatives take now to new food biotechnologies may have future implications for their access to these technologies, degree of control over inputs based on biotechnology, access to new markets, and long term competitiveness.
(1) For instance, the Flavr Savr tomato is a product of plant-rather than food-biotechnology because the genetic manipulation to delay the ripening process takes place at the level of the plant. By the same logic, milk from cows treated with rBST is considered a product of animal-rather than food-biotechnology.
The advantages found in food biotechnology are similar to those for plants: The gene pool is greatly expanded since genetic material can be taken from virtually any living organism, and the time to develop new strains is greatly reduced, due to increased precision. The added advantage of working with microorganisms is that their genomes are much smaller, thereby simplifying genetic manipulation. Moreover, the agrifood industry continues to strive for uniformity and consistency - key elements in food processing and manufacturing operations that must meet established standards. This is critical particularly for traditional sources of enzymes and yeasts used for foods which often present barriers such as limited scale and inconsistent supply. The new food biotechnologies make it possible to provide industry with a constant, uniform, and independent supply of microorganisms that can be produced on a commercial scale (Berger 1995).
Despite the fact that there are already various food products on the market that contain engineered components, they have tended not to receive the intense public attention that plant and animal biotechnologies have received. Rather than attempting to create an exhaustive list of the numerous products that are already on the market, this report examines a few of these recent developments in more depth.
Fermented Foods
Scientists are applying the tools of biotechnology as a means to improve strains of yeasts, bacteria, molds, and enzymes that are used to produce a variety of fermented foods, including milk, cheese, yogurt, wine, beer, bread, soy sauce, pickles, sausage, and sauerkraut. Cheese was one of the first groups of foods impacted by biotechnology.
Dairy products. Chymosin is an enzyme found in the stomach of unweaned calves. Although it is essential as a coagulant in cheese making, it is of limited availability and uneven quality. For these reasons, and for its commercial potential, it became an early target for rDNA research. Efforts by scientists have made it possible to produce chymosin from genetically engineered organ-isms. The resulting chymosin is of more uniform quality and can be produced on a larger scale for industrial cheese production. Recombinant chymosin was the first product from genetically engineered organisms to be used in fermented foods. The Food and Drug Administration (FDA) granted chymosin produced by genetically modified organisms as having GRAS (Generally Recognized As Safe) status, opening the door for its commercial development, in 1990. The enzyme has been commercialized under at least two names. The first is Chymogen, produced by Genencor International. The second is Chy Max, an enzyme produced through a fermentation technology by Pfizer FSG. According to BIO (Biotech- nology Industry Organization), Chymogen is used in approximately 60 percent of all hard cheese products (BIO 1996).
Starter cultures are another ingredient necessary for cheese production. Starter cultures function to produce acid which serves as a coagulant and preservative. They are also used to produce different cheese flavors and aromas. Although there are about eighteen different types, the range of cheeses is somewhat limited by the variety of starter cultures. Work is underway to develop biotechnologically modified enzymes from lactic acid bacteria (Berger 1995), and to modify peptides (Mulholland 1991), to improve cheese flavors and aromas (2) and derive new flavor compounds that may have greater consumer acceptance. For example, cheeses that are less bitter might be produced. This would expand greatly the possibilities of cheese flavors and reduce the time necessary to develop new flavors.
(2) The distinction between aroma and flavor is somewhat blurred in the literature, since the sensations are interrelated. Some authors (e.g., Berger 1995) use the terms aroma and "volatile flavor" interchangeably.
Other techniques in cheese making that are expected to be important to the industry include recombinant starter cultures to improve anti-pathogen activity and protein engineering to modify the activities of enzymes that have ripening functions (Law and Mulholland, 1991). Also on the market is a biotechnologically produced lactase that reduces the lactose content of milk for persons with lactose intolerance (American Dietetic Association 1995).
Wine and Beer. In wine making, introduction of new biotechnology applications has been limited. However, rDNA and enzyme preparation techniques have undergone significant development. Researchers are exploring the use of genetically modified wine yeast strains to improve fermentation and aging processes (Benitez et al. 1996; Subden 1995) as well as the clarification and filtration processes in wine making (Colagrande, Silva, and Fumi 1994). Among the more desirable characteristics of wine yeasts are rapid initiation of fermentation and a fast rate of fermentation (Benitez et al. 1996). New rDNA techniques provide a means of constructing and programming new strains of yeast. Yeasts are also largely responsible for the aroma of wines. For example, the aroma of a chardonnay emanates largely from the metabolism of yeasts (Berger 1995). With the ability to genetically modify yeasts, all of the above qualities are alterable.
In the brewing of beer, the research efforts seem to be directed toward overcoming the lengthy fermentation and aging process by using a genetically engineered yeast, although the industry has been conservative in dealing with new yeasts (Benitez et al. 1996; Stewart and Russel 1995). Since accelerating the fermentation process results in a loss of flavor, scientists are also working on using another yeast to compensate for the flavor loss (Berger 1995).
Food Ingredients
Flavors and Aromas. The dynamic that has created opportunities and demand for new aromas or "volatile flavors" is a combination of events and trends. As Berger (1995:5) notes, "The current tendencies toward light, less, and low-everything products and to minimally processed food have created new markets for volatile flavors. Reducing fat, for instance, will inevitably reduce the flavor contents, and minimized thermal treatment (microwave) will similarly only be compensated by an appropriate addition of volatiles...." These changes in food preferences coincide with recent advances in enzyme technology, bioprocesses and genetic engineering to create flavors and aromas through biotechnology. One of the primary challenges facing the developers of genetically modified flavors and aromas is the ability to scale up processes for commercial production.
The primary categories of flavors to be modified are sour, salt, sweet, and bitter. In addition, researchers are attempting to add beef and meat flavors to fat-reduced foods to compensate for the lost flavor. Probably the most widely used among these flavors and flavor enhancers is monosodium glutamate (MSG), which is produced using a genetically engineered bacterium (Cheetham 1993). Another example is the isolation of a peptide called "beefy meaty peptide" (BMP). If produced on a commercial scale, BMP "may provide the basis for adding a beefy taste to pre-cooked or frozen foods" (Linthicum and Anchin 1993). Other flavors include vanilla grown in fermenters from plant cells (American Dietetic Association 1995). This technology could reduce the need to extract vanilla from the beans. Fruit and beverage flavors also can be produced by using genetically engineered yeasts.
Sweeteners. As noted, high fructose corn syrup (HFCS) is the result of converting corn to a sweetener using biotechnologically produced enzymes. rDNA alpha-amylase, an enzyme used to produce HFCS, has been granted GRAS status by the FDA (American Dietetic Association 1995). Another sweetner is aspartame, a high-intensity sweetener produced by using biocatalysts or "enzymatic peptide synthesis." It has been produced for some time using chemical methods. However, genetically engineered microbes have been used recently to produce amino acids as the base material for the synthesis of Aspartame. Patented in the US in 1970 and approved by the FDA in 1981, Aspartame is marketed commercially under the name NutraSweet. According to Pantaleone and Dikeman (1993) it is used in approximately 5,000 food products.
Also, researchers are looking for new proteins that might be used as industrial sweeteners. The sweetest proteins known thus far, thaumatin and monellin, originate from two African plants and are reportedly 100,000 times sweeter than sucrose (Linthicum and Anchin 1993). In comparison, Aspartame is estimated to be 160 to 200 times sweeter than sucrose (Pantaleone and Dikeman 1993). Thaumatin has been approved as a food additive sweetener in Australia, Japan, and the UK and has GRAS status in the US (Linthicum and Anchin 1993). One of the goals of research in this area is to clone and express these proteins for use on an industrial scale.
Other Ingredients. Because of the possibilities raised by the new biotechnologies, there is a range of changes occurring in food ingredients. These include fortifying foods with vitamins (B12, C) using microbial isolates (Cheetham 1993), using xanthan gum as a thickening agent (Harding, Cleary, Ielpi 1995), enhancing the protein content of foods, and employing protein engineering to improve whipping performance for desserts, milk shakes, and mousses.
Food Diagnostics
Rapid Detection Systems. In response to consumer concern over the safety of the food supply, scientists have placed considerable emphasis on the development of rapid detection systems for food-borne pathogenic bacteria and toxins (Fung, 1995). The two leading techniques in rapid detection are DNA probes and the polymerase chain reaction (PCR) system. DNA probes can be used to evaluate the authenticity of food ingredients and to detect minute traces of toxic substances. For example, this technique can be used to detect spoilage in dairy products or detect a pathogen such as salmonella in poultry. It might also be used, for example, to determine if ground beef has been cut with poultry (Barnes, 1995). Because the PCR system allows scientists to repeatedly copy a single strand of DNA until enough material is produced for analysis, it also can be used for the early detection of bacteria and viruses in food manufacturing environments (Hofstra, van der Vossen, and van der Plas, 1994).
Biosensors. Biosensors can be enzymes, antibodies, or entire microbial cells that are immobilized onto solid surfaces and then used as analytical tools to detect a particular biological activity. The future uses of biosensors are potentially far-reaching. As Harlander (1991: 92) notes, "In the future, biosensors will be used on-line in food processing streams for monitoring fermentation processes, verifying the concentration of ingredients declared on food labels, and monitoring microbial contamination."
The types of diagnostic technologies discussed previously have the potential to be beneficial to consumers, especially if the testing methods can be simplified. In this way tests might eventually be performed by untrained persons, either in the manufacturing setting or at home. For example, consumers could verify the ingredients of food products at home using simple techniques such as dipsticks or treated blotters.
ANIMAL BIOTECHNOLOGY
Compared with plant and food biotechnology, animal biotechnology provides a whole new realm of issues. Unlike plants and bacteria, animals are sentient beings, which creates very different issues for biotechnology development.
There are many fronts on which animal biotechnologies are emerging. The most recent involves the animal hormones bovine somatotropin (BST) and porcine somatotropin (PST). There are also many developments in transgenic animal research.
Bovine Somatotropin
Bovine somatotropin (BST) is a polypeptide hormone which is synthesized by the anterior pituitary gland in cows. The major physiological function of BST is to increase body growth and milk production by increasing protein secretion and directing fat away from storage in body tissue. In the early 1980s, the ability to microbially reproduce BST through recombinant DNA techniques was developed. The process by which BST is synthesized involves four steps: (1) isolation of the gene responsible for natural BST production in dairy cows; (2) transference of this gene to bacteria cells (E. coli), (3) reproduction of the bacteria cells carrying the recombinant bovine somatotropin (rBST) gene through fermentation, and (4) separation of the manufac-tured rBST from the bacteria cells. rBST injections maintain a cow's milk production at or near the lactation peak, increasing the overall milk production in lactating cows. The amount of increased milk production varies with the type of cow, the lactation period of the particular cow and farm management. rBST is currently injected subcutaneously into cows biweekly beginning nine weeks after lactation. Still in development is administration of rBST by using an implant which slowly releases the hormone.
Benefits and Costs of rBST for farmers
The primary benefit of rBST is increased milk production. rBST-treated cows typically produce 10-25 percent more milk and have an increased feed efficiency of 5 - 15 percent. The increase in milk production per cow is projected to result in a reduced number of cows needed for milk production. For farmers, the increase of milk production through the use of rBST must be balanced with any additional costs incurred from using it.
Possible extra expenses to farmers choosing to use rBST include costs of the hormone, veterinary care, increased time spent on herd management, and increased feed inputs. Costs will be variable among farmers, with some farmers experiencing minimal extra costs. Others may simply choose to pursue other means of achieving higher profit, such as scale maximizing strategies, like increasing specialization, or through cost minimizing strategies such as intensive rotational grazing (Jackson-Smith et al. 1995).
Success in adopting rBST will be determined by a number of factors including: management ability, ability to purchase high quality feeds, and financial health of the business (Knoblauch 1988). An early concern for farmers was the impact increased milk production would have on federal price supports for milk. However, this has not been an issue as the US has had a minimal milk surplus the past few years. There also has been some concern that the use of rBST would drive small dairy farmers out of business. Because rBST is scale neutral (i.e., requires little capital input or operational changes and is available to most farmers), most farmers have equal access to the technology. However, there is an apparent scale bias in adoption patterns. There are several reasons for this farm level bias in adoption. Optimal use of rBST requires careful monitoring of animal health and nutrition needs, often coupled with the use of mechanized feeding technologies like Total Mixed Ration systems. A small fraction of dairy farmers have the management experience or technological support to efficiently maintain this high level of production from their dairy herd. As a result, many farms will not find rBST use to be profitable (Jackson-Smith et al. 1995).
Health and safety assessment of rBST
There are three primary areas of concern with the administration of rBST: 1) safety of animal products (milk and meat) for humans; 2) safety of the product for cows; and 3) environmental concerns. Concerns about the effects of human consumption include the increased levels of rBST residues in milk and the possibility of increased levels of antibiotics in milk (some studies claim rBST causes an increase in diseases and, in turn, there will be an increase in antibiotics used to counter the diseases.) However, other studies show that when orally ingested, growth hormone from animals is inactive in humans. Likewise, the overall composition of milk (fat, protein and lactose content) and meat from cows administered with rBST is not altered. In some studies cows administered rBST have shown increased frequency of mastitis. This is likely due to the higher level of milk production, since cows which naturally produce higher levels of milk also have a higher incidence of mastitis.
Environmental concerns include increased levels of manure, methane and urine, increased use of fossil fuels (e.g., to bring in increased feed inputs and to haul milk), increased use of water, and loss of soil. Environmental concerns are generally countered with the argument that increased milk production per cow will lead to decreased overall number of herds in the US, which will eventually balance out increased inputs and outputs. However, on those farms that remain in dairying, farm herd sizes will continue to get larger due to economies of scale. rBST, public policy and public opinion
The FDA does not require special labeling for milk produced from rBST-administered cows. Companies producing milk that is free of microbially reproduced rBST are allowed to mark their product as "rBST-free" with a proviso that their product also include a statement that milk from cows administered rBST show no significant difference from milk from non-rBST administered cows. Institutional opponents of rBST include small dairy farmers, some milk distributors, animal rights advocates and international development rights associations. Some consumers have shown concern regarding the use of rBST and have helped to create a market for rBST-free labeled products.
A USDA survey found that 940,000 dairy cows -- 10 percent of the nation's total -- were receiving rBST in early 1996. The Wall Street Journal estimates Monsanto's sales of Posilac "at about $90 million," with the USDA claiming Monsanto began making a profit from rBST in mid-1996 (Fritsch and Kilman 1996). Contrary to USDA findings, other sources speculate Monsanto is losing approximately $10 million annually on rBST (Stodghill 1996).
Porcine Somatotropin
Like BST, porcine somatotropin (PST) can be produced through recombinant DNA techniques. The major physiological function of PST is to increase the average daily weight gain of pigs and to create higher quality carcasses by decreasing back fat and significantly increasing lean tissue. Compared with rBST, very little attention has been given to rPST (recombinant porcine somatotropin). Some reasons for far less attention being given to this hormone include: the safety of the final product for human consumption has been confirmed; hogs are usually part of a more diversified production system (although this is changing), unlike dairying, which usually occupies a more central role in farm operations; hog production and pricing is not tightly controlled by federal programs, as is dairying; and PST has not been approved for commercialization because of health complications in pigs administered PST.
Health and Reproductive Technologies
Embryo transfers in cattle were among the first animal biotechnologies. The total number of registered Holstein calves derived from embryo transfer reached nearly 19,000 in 1990 (Hasler 1992). Today, embryo splitting is being used increasingly to produce multiple numbers of identical animals. DNA probes also have been developed to allow for the identification of certain traits in animals without going through the lengthy process of waiting for the offspring to be born. All of these biotechnology developments have been created to allow farmers to select out undesirable traits and to add or enhance desired traits within their livestock. New vaccines also have been developed that are more reliable with fewer side effects. Current research focuses on allowing the vaccination to be "turned off and on" and enhancing reproduction in the animal, either by increasing the size of the litter or increasing the number of viable sperm cells per ejaculation for artificial insemination. Also, probes are being used to identify and isolate stage-specific antigens expressed during infection. This eventually will help reduce infection in animals.
Transgenic Animal Biotechnologies
Transgenic animals (TGAs) are those genetically modified/ engineered animals into which foreign DNA was implanted into the fertilized egg or zygote. TGAs are classified into two types: 1) those in which DNA from another organism was introduced before the egg divided and 2) those in which foreign DNA was introduced into the embryo where cell differentiation had begun. The former is considered to be a transgenic animal because it is likely that the adult animal will carry the foreign DNA in its genome, while the latter is considered to be a chimera, where some cells will contain the foreign DNA and others will not (Krimsky and Wrubel 1995; Lee 1993).
The first transgenic animals were mice, created in 1976. However, it was not until 1980 that significant numbers of TGAs began to be produced. The biggest breakthrough in transgenic research was the announcement made in February 1997, that a lamb had been successfully cloned using a cell nucleus taken from an adult ewe's udder. Before this discovery, scientists thought cloning of mammals was only possible using reproductive cells.
In addition to the cloned lamb, the list of transgenic animals includes rabbits, chickens, sheep, pigs, cows, monkeys and fish. The purposes for their creation vary widely, but four stand out. These include pharmaceutical manufacturing, the development of research animals, human tissue and organ harvesting (for basic biological investigations), and food production (Krimsky and Wrubel 1995; Lee 1993). Pharmaceutical manufacturing, also called "transgenic pharming," is the leading transgenic animal investment and research area. Transgenic pharming has produced many successful research developments, including pigs which produce human hemoglobin, sheep which produce alpha-1-antitrypsin, a replacement for individuals who lack the alpha-antitrypsin amino acid, and goats that produce a drug called TPA (Ezzell, 1991). Recently, a Dutch biotechnology firm announced plans to invest $17 million in a facility for milking rabbits to produce a valuable enzyme. The Dutch company has spliced the gene for glucosidase into the rabbit genome, creating females that produce about 1 gram of the enzyme per liter of milk. The enzyme is used to treat a rare human genetic disorder called Pompe's disease (Science 1996).
Research animals have been developed through genetic modification in the hope of having animals mimic or duplicate many human diseases such as cystic fibrosis, AIDS, cancer, diabetes, and sickle-cell anemia (Krimsky and Wrubel 1995; Lee 1993). In 1987 a scientist at the National Institutes of Health began raising mice that carry the AIDS virus in one chromosome. It is hoped that research animals will allow scientists to learn more about the virus by observing the chromosome of mice and to test medication for treatment against the virus.
Although animal tissue has been used in humans, such as the use of pig heart valves to replace human heart valves, there has been no successful genetic modification of animal organs and tissues for use in humans. However, through trans-genic research, knowledge of the structure and function of the animal anatomy, be it gene, chromosome, or cell, etc., could be better understood and controlled and eventually applied to human anatomy. An example would be placing marker genes into embryos. Marker genes in cells would allow scientists to trace the "family tree" of a cell's lineage, which could help them better understand the development of particular parts of the body, such as the nervous system (Lee 1993). Marker gene technology also will allow firms to "own" or patent the animals so royalties can be collected from future generations of animals. For example, if an agribusiness invests heavily to produce a line of cows that produces 20 percent more milk, patenting that line will permit recovery of investment costs.
The area which has the potential for the largest impact on the agricultural sector is that which creates genetically modified animals for food purposes. However, this type of research is not without controversy, as Michael Fox (1994, 50), vice president of the Humane Society, states, "The social and economic consequences - to farmers, to the practice and structure of agriculture and to consumers - of creating transgenic farm animals have been given scant attention."
Current developments in transgenic animals for food purposes are many: pigs with the human growth hormone gene; livestock designed to tolerate extreme climatic conditions; transgenic sheep that grow faster than normal sheep; sheep and cows which produce milk that can be consumed by people who are lactose intolerant; chickens with growth genes of cows; and fish which grow faster and bigger and can survive better in different environments (Krimsky and Wrubel 1995; Lee 1993). There is also research being done to make animals more disease resistant. This would be most beneficial to farm animals, which are highly susceptible to the rapid spread of diseases due to close contact with other animals.
It might also be possible to create transgenic cows that produce higher levels of BST on their own, or pigs with higher PST production. Many believe that by genetically modifying the animals, rather than having to inject the animal with the hormone, consumer opposition would decrease. Presently TGAs are being used to create beef and pork with lower fat content. For example, transgenic pigs have been created with a cow growth hormone which causes them to grow faster with reduced body fat, but due to detrimental side effects these developments have remained in the lab.
Currently no genetically modified animals have been released. However, many developments and experiments are occurring in the lab; the closest to market is modified milk from transgenic animals. Perhaps one of the biggest questions which still looms large is public response to commercialization of transgenic animals and/or their products. Discussing the possibilities of animals producing pharmaceuticals for humans, Krimsky and Wrubel (1995, 199) state, "Some analysts see little distinction between the public's acceptance of bovine and porcine insulin (BST and PST) and human blood products derived from animal milk." How the public reacts remains to be seen.
This overview of plant, food and animal biotechnologies should give readers some idea of what has been commercialized and what is close to being commercialized. Purported possibilities of future biotechnology developments seem endless, but only a few biotechnology developments to enter the market have actually lived up to the pre-commercialization hype. Therefore, it seems fruitless to discuss all the future possibilities of biotechnology. What is beneficial is a discussion of how the current biotechnologies may impact agricultural cooperatives, especially since many biotechnologies differ from traditional technologies in their development, distribution and/or processing. To discuss the impact of biotechnologies on agricultural cooperatives, it is helpful to examine the state of agricultural cooperatives today.
Part 2 The State of Cooperatives Today Cooperatives have a unique institutional structure. Many cooperatives were formed in response to market failures. Unlike IOFs (investor owned firms), they are essentially nonprofit enterprises operating for the mutual benefit of their members. They are governed by special federal and state regulations and guided by cooperative principles. These institutional factors may limit cooperatives' access to debt and equity capital, and consequently constrain their ability to finance new products. They may also impose less obvious constraints on cooperatives' abilities to fulfill the other requirements which must be satisfied to be an effective marketer of value-added products. Nevertheless, some agricultural marketing cooperatives have become well-known for their food products and have had successful new product introductions (Hardesty 1992, 1).
The total number of cooperatives and the total membership in cooperatives has been on the decline over the past decade, with an average decrease of about 150 cooperatives per year for the past three decades. Cooperatives numbered 6,125 in 1982, but as of 1995, the number had fallen to 4,006. Memberships also fell from 5 million in 1983 to 3.8 million in 1995 (Vis. 1). Figure 1. Farms and Cooperatives, 1959-1995.
Note: Data for number of cooperatives begins in 1960. Sources: Data compiled from USDA (1986, 1993) and Bureau of the Census (1992, 1996).
The decline in the number of cooperatives and cooperative members may be attributed to several causes. First, the declining number of farmers has left fewer potential cooperative members. Second, many cooperatives have simply gone out of business due to market pressures. Third, others have merged or been acquired by other cooperatives, so as to increase earnings and member services. Fourth, a few cooperatives have converted into IOFs as a response to these same pressures.
However, as cooperatives decline in number it should not be assumed that they are not an important part of the agricultural economic landscape. Since the 1960s, agricultural cooperatives have controlled about 25 percent of farm marketing (Mooney, 1996).
Most cooperatives continue to be small and serve local areas, but there are several which are increasing in size and expanding across regional, national and international markets. In 1992, the one hundred largest cooperatives accounted for 54.9 percent of the total business volume generated by US cooperatives. The link of increasing size with increasing profit is a reflection of the general trends in agriculture and is something which can be seen in the biotechnology R&D industry, as well.
Today there are three official classifications of agricultural cooperatives: marketing, supply, and service. Marketing cooperatives are the largest category, with 2,074 so classified by the Rural Business-Cooperative Service (RB-CS) in 1995. Supply cooperatives are the second largest category with 1,458 listed in 1995. Service is the smallest category but the only category which has increased its numbers in recent years. This is due primarily to reclassification of some cooperatives formerly considered to be engaged in marketing. There were 474 service cooperatives in 1995.
The three categories used by the USDA for cooperative classification mask the diversity which exists among agricultural cooperatives. Agricultural economist Michael Cook has formulated seven alternative categories for cooperatives which help describe the various activities of cooperatives today, and provides an indication of a cooperative's size, money, and influence - all factors that are becoming key to participation in agricultural biotechnology. The focus below is primarily on bargaining, marketing, local associations, multi-functional regional, and new generation cooperatives (Table 1). With a few exceptions, multi-functional regional cooperatives are those which tend to participate in collaborative biotechnology development and marketing.
Forty-four cooperatives were involved in this study, with a total of 56 interviews conducted. The cooperatives ranged in size, from very small to very large, in number of years in operation, with some cooperatives having just started in the past five years, while others were among the first cooperatives founded in the US, and in commodity type. Together these 44 cooperatives are involved in a broad range of commodities, including grains, petroleum, potatoes, poultry, dairy, fruits, soybean processing, and numerous speciality crops such as nuts, sugar cane and tobacco. Interviews were primarily conducted with CEOs, general managers, or other hired staff members, including researchers. Board members participated in only a few of the interviews. Although this study is not a random sample of the cooperative landscape in the US, we have attempted to make the study represent the diversity which exists among cooperatives.
Table 1. Alternative Categories for Agricultural Cooperatives
Type of Cooperative Purpose/Function of Cooperative
Bargaining The functioning can be described as
twofold: (a) to enhance margins and
(b) to guarantee a market. Found
particularly in perishable
commodities.
Marketing Can be a single or multiple
commodity. Objectives are to bypass
the investor-owned firm, enhance
prices, and in general pursue goals
of increasing margin and avoiding
market power.
Local Associations Economic units operating in
geographical space. Founded to
provide a missing service or to
avoid monopoly power or to reduce
risk or to achieve economies of
scale. Before the 1920s, local
associations were the predominant
type of agricultural cooperative.
Today local associations still are
the largest type of cooperative in
number.
Multi-functional Usually perform a combination of
Regional input procurement, service
provision and/or product marketing.
Many integrate forward or backward
beyond the first handler or
wholesaler levels. May be
organizationally structured as
federated, centralized, or a
combination. There is little
probability of being a spatial
monopolist in their geographic
market. Originally founded to
achieve scale economies or provide
missing services.
New Generation Only a few of these exist. Result
of collective action-oriented
founders attempting to address
market failure situations, excess
supply price depression,
cooperative property rights
structural weaknesses and free
rider issues. Specific solutions
are established in their by-laws
and operating practices. The
initial organizers are as
investor-driven as they are
user-driven in adapting their
financial and governance policies.
Source: (adopted from Egerstrom 1994)
Part 3 Issues for Cooperatives
A number of issues emerged out of our analysis of the current situation and from interviews with leaders of cooperatives around the US. The cooperatives vary by size, commodity, and geographic location. It is clear that cooperatives face many choices. These choices are simultaneously technical, economic, social and ethical. The most important issues raised are agricultural restructuring, contract farming, value added, transgenic pharming, access to research, strategic alliances, cooperatives vs. investor-owned firms, and cooperative obligations. The import of each of these, for both cooperatives as organizations and for farmer-members, is discussed below.
AGRICULTURAL RESTRUCTURING: Biotechnology, Consolidation, and Globalization
The task ahead is finding options and opportunities to fit into an integrated global food system that is changing rapidly and is being imposed on food producers (Egerstrom 1994, 48).
Issue
Regardless of the commodity, most cooperative leaders agree that one of the biggest changes in agriculture in the last five years is consolidation, especially among IOFs but also among cooperatives. Consolidation has occurred in input supply, production, marketing and processing. With consolidation has come greater focus on global markets--for inputs, raw commodities and processed products. As an indication of this increased concentration in the agrifood system, consider that the top four firms in flour milling, soybean crushing, beef packing, and the broiler industry control 71, 76, 46, and 72 percent of those markets, respectively. Most of these companies are major players internationally, as well. The new biotechnologies are already making their mark on inputs, production and processing and will likely play a substantial role in accelerating these trends towards concentration and globalization in the future.
Consider first the use of the new biotechnologies in the input industries. Because biotechnology research and development are resource intensive activities, many companies in the biotechnology, agrochemical, and seed industries have found it advantageous to merge or acquire other companies. This allows companies to pool the human, financial, and scientific resources necessary to be viable players in this field. Thus, they can maximize the recovery on their investments, ensure access to necessary technologies, and minimize their vulnerability to litigation (Sehgal 1996). Some of the mergers and acquisitions which occurred in 1995-96 among industry giants include: AgrEvo acquired Plant Genetic Systems, CIBA merged with Sandoz to form Novartis, Empresas La Moderna acquired DNA Plant Technologies, Dow Elanco acquired 46 percent of Mycogen, and Monsanto acquired 54 percent of Calgene, 40 percent of DeKalb Genetics, 10 percent of Ecogen and 100 percent of Agracetus (Sehgal 1996; Lezner and Upbin 1997). Cooperatives will be hard pressed to compete in these increasingly concentrated input supply markets. The same is true for processing. One major cooperative, Ocean Spray (1995), writes in its annual report, "During the past year, we saw more consolidation in the food and beverage industry .... These developments will increase marketing pressure and create larger, well-financed competitors whom we will battle on the store shelves. We anticipate this trend will continue with only a few major players prospering by the end of the decade." Whether these "few major players" will include cooperatives remains to be seen.
Furthermore, in addition to the direct impact that the new biotechnologies may have on input supply and processing cooperatives, these technologies may also undermine the farmer base on which cooperatives depend. In particular, many of the biotechnology innovations discussed above include the possibility for an increase in the rapidity with which substitutes for existing agricultural products may be created. For example, not too long ago high fructose corn syrup captured from cane and beet sugar a substantial portion of the market for liquid sweeteners. A similar substitution process occurred with margarine for butter. As was the case in these earlier substitutions, the value of some farm products decreased while the value of others was raised. Some farmers found themselves growing highly valued commodities, while others found their traditional commodity markets reshaped greatly. Similarly, the new biotechnologies permit many new kinds of substitutions that could potentially put members out of business, or at least force them to move to alternative crops. A proactive stance among cooperatives will help both the cooperatives and their farmer-members prepare for these changes. Implications for Cooperatives This restructuring, both among cooperatives as well as in the investment-oriented input industries, is leaving fewer players in the market. Undoubtedly, it will have an impact on the kinds of technologies that are developed, which, in turn, suggests varying effects on cooperatives and farmers.
Consider first the implications of restructuring of the investment-oriented input industries for cooperatives. Those cooperatives not generating proprietary biotechnologies - or those not having direct access to them through alliances - will likely attempt to acquire these technologies in the market. Yet, the heavy consolidation taking place in the biotechnology, agrochemical, pharmaceutical, and seed industries may not bode well for cooperatives. To enhance their profitability, the major players in the input industries are attempting to integrate downstream by having direct access to farmers. If they are successful, they may push supply cooperatives out of the market.
On the marketing and processing side, the current situation is somewhat brighter. Many cooperatives have chosen to increase earnings by expanding internationally. Indeed, many of the larger agricultural cooperatives in the US are focusing on international linkages and markets (USDA 1997b). For example, Sun Maid markets raisins in 30 countries. Blue Diamond Growers exports two-thirds of its almond crop to about 100 countries. Smaller cooperatives also benefit from international linkages by gaining access to markets for their outputs. For example, Cooperative Elevator in Michigan markets part of its dry bean harvest to countries in Eastern Europe, Africa, and Asia. Grand Prairie Cooperative in Illinois sells part of its soybean harvest to Archer Daniels Midland who processes it into a meal and exports it to Japan and other markets.
The new biotechnologies will also contribute to the continued restructuring of farming. Many of the new biotechnologies will affect farmers in ways similar to previous agricultural innovations. For example, rBST, Bt crops, and virus resistant squash are similar to many extant agricultural technologies in that they are scale neutral (i.e., require little capital input or operational changes and are available to most farmers). These technologies may serve to reinforce the existing trend to larger and fewer farms, rather than fundamentally changing structural trends (Busch et al. 1991). Cooperatives and farmer-members are probably most prepared for these new technologies as they do not portend any major shifts of direction.
Nevertheless, both cooperatives and their farmer-members need to pay close attention to biotechnology developments, even when they are not directly focused on the commodities they grow, market or process. Consider, for example, that research on oilseeds may increase the substitutability of different kinds of oilseeds--soybeans, canola, safflower, but also palm and coconut. Thus, it is conceivable that palm oil with low levels of saturated fat might be developed, forcing down the price of domestically produced oils. This will put producers and marketers of these oilseeds into much more direct competition and may well force some farmers and some cooperatives out of the market. Most vulnerable to this type of scenerio are likely to be cooperatives and farmer-members who are focused on a single commodity. At the very least, they should remain aware of the technical developments that may produce sudden market shifts and be prepared to act swiftly to counter such changes with alternative commodities and/or marketing strategies.
In contrast, there are some biotechnologies which could take restructuring in a new direction by creating niche markets, thereby opening other alternatives to both cooperatives and farmer-members. These niche markets could take at least three forms. One group is likely to be created by identity preserved crops, such as high lauric acid canola, or the Flavr Savr tomato, which will segment existing markets for agricultural products. The second group of niche markets are those created in opposition to biotechnology, particularly for organic and non-genetically engineered food markets. An example of a profitable niche market in certain regions of the US is the "rBST-free" milk marketed and sold in opposition to the use of rBST. Finally some of the identity preserved (IP) crops and transgenic animals have the ability to open a third group: the creation of entirely new markets for agriculture, including new pharmaceuticals and specialty chemicals.
CONTRACT FARMING AND IP CROPS
Issue
The farmer level restructurings mentioned in the previous section, 1) fewer and larger farms, 2) creation of niche markets, and 3) new product markets, are not mutually exclusive. Individual biotechnology developments have the potential to be part of one or more of these restructuring categories. Identity preserved crops, as a way of adding value, offer a good example of biotechnologies that fall into more than one of the restructuring categories. Identity preserved crops have been engineered with specific altered traits. For the developers to maximize profits, they must maintain ownership or control of the product from seed to final product. In most cases this will take the form of the developer contracting with farmers. IP crops have the potential to create new (niche) markets for farmers. IP seeds will be genetically engineered by a company, protected by patenting or plant variety protection, then given to farmers to be grown on contract to specifications. The crop will then be returned to the company for processing. Examples of IP crops currently being contracted out to farmers are the Flavr Savr tomato, Calgene's high lauric acid canola, and Calgene's color-altered transgenic cotton. The same will occur for plants and animals being raised for medicinal purposes. In these cases, farmers will most likely have stringent standards to meet in order to raise plants and animals for pharmaceutical companies.
In recent years there has been a rise in contract farming in various commodities. For example, increases in contract farming exist in the hog and poultry industries. In a 1992 survey, "15 percent of farmers said they were growing on contract, and it is predicted that this will double by the year 2000" (Johnson 1995, 11). Some view these examples of contracting as early indicators of the direction agriculture is taking. The vice-president of Calgene's cotton division sees identity preserved production as an "important trend of the future" (Francisco 1996).
Implications for Cooperatives
Should agricultural cooperatives encourage IP crop contract farming among members? Can cooperatives gain access to these products? If they can, what would be gained and what would be lost in contracting?
Some contracts have potential advantages for farmers. For example, farmers may not have to incur a large debt to finance the crop under contract. Also, there is the potential for small to medium farms to stay active as full-time farms, since there is a guaranteed customer, often with a guaranteed price for the product. However, a negative aspect of contract farming is the loss of autonomy. Farmers are no longer able to decide what varieties they will grow, how they will grow them, or to whom they will sell, among other production and marketing decisions. Contract farming also may continue the shift to larger and fewer farms, because the contracting company will face increased transaction costs as the number of contracts into which it enters increases. For example, suppose that Calgene wishes to contract out 1,000 acres of their anti-sense tomato. The company would incur the lowest possible transaction costs by arranging one contract with one producer for the 1000 acres (although they may pursue more contracts so as not to be dependent on a single supplier). Assuming equal transaction costs for each contract, if the company enters into 10 contracts with 10 producers at 100 acres each, they would increase their transaction costs tenfold. It seems logical, then, that companies wishing to contract would seek out the larger, more heavily capitalized producers.
In short, if cooperatives ignore IP crops, investor-owned developers of such crops will surely lure away farmer-members. By gaining access to IP crops, cooperatives may be able to act as a buffer between IOFs and cooperative members, negotiating contracts and helping members meet quality standards. Some of the larger cooperatives may be able to develop IP crops themselves or in conjunction with IOFs, but to do so they will have to bear the risks associated with IP crop development. None of these choices are likely to be easy ones.
VALUE ADDED: The search for greater earnings
Issue
Our interviews with managers of agricultural cooperatives suggest that they are concerned about adding value to their products and are attempting to move their organizations in that direction. What this means to the cooperative depends on its particular location in the agrifood system, the commodities it produces and markets, and the plant, equipment, and technology it has at its disposal. In general, it can be said that the closer the product is to the raw commodity, e.g., fluid milk, the smaller is the net earnings that the cooperative receives. Likewise, the further down the food chain toward the final consumer, and the closer to its final form a product is, the greater the net earnings for the cooperative (e.g., a one pound package of shredded cheese). Thus, the strategy that some cooperatives have chosen is to integrate as much of the commodity chain into their operations as possible, i.e., from field to supermarket shelf. As a vice president at a farm supply cooperative notes, "If we don't add value, then we will be out of the chain." It appears that the crucial segments of that chain, in terms of adding value, are those nearest the final consumer. Referring to his cooperative's efforts to move toward the consumer end of the chain, an agronomist at a grain cooperative states, "We're headed in that direction as fast as we can get there; we're just trying to find out what avenues to take."
Biotechnologies are likely to play an increasing role in the push for value added, especially for those cooperatives that are involved in food processing and packaging. Genetically engineered enzymes for longer shelf life, new and improved flavors, and improved textures are just some examples of how these technologies will be used to add value. Yet, most value being added involves methods other than biotechnology. There are several examples. FarBest, a division of Countrymark, provides turkey and hogs for Louis Rich. Sunsweet is involved in prune packing because of the value added for their cooperative. Cherry Central of Michigan produces several labels of canned pie filling. And Land O'Lakes has a variety of processed dairy products on supermarket shelves.
Implications for Cooperatives
The large multi-functional regional cooperatives have been successful in adding value up and down the chain through vertical integration, although IOFs have generally been more effective at adding value than cooperatives (Hardesty 1992a, 1992b). The cooperatives that are more heavily capitalized in terms of plant and equipment, and are able to invest in new biotechnologies, will likely benefit the most. Perhaps this is due, in part, to cooperatives' historical connections to producers who market an undifferentiated commodity and to the challenges they face in terms of long-term investments in the plant and equipment required for processing and packaging.
Yet we need not think of value added as only the domain of the larger, heavily capitalized cooperatives with access to advanced technologies. Other strategies for adding value are proving to be viable. For example, a few dairy cooperatives have taken advantage of the niche market created for milk and dairy products from cows not treated with rBST. This can be thought of as a marketing strategy to add value to their product. In another case, to take advantage of its unique cultural practices that add value to the product, a cooperative produces organic wheat for markets in which they receive a higher price for their commodity. Other cooperatives, such as bison and pasta cooperatives, have used off the shelf technologies combined with close links to the farm to add value.
TRANSGENIC PHARMING
Issue
Transgenic pharming includes all plants and animals which have been genetically engineered to have specific pharmaceutical qualities. Cooperatives appear to be largely unaware of markets that might be tapped through these technologies. With the first clinical trials under way for a drug produced in the milk of transgenic goats, and more trials expected later this year by other drug companies, the commercialization of pharmed drugs appears to be in the near future (Nature Biotechnology 1996). To our knowledge, the only cooperative to pursue some aspect of pharming is Land O'Lakes.
Implications for Cooperatives
The pharmaceutical industry has just gone through major consolidation globally and continues to do so, leaving just a few industry giants controlling research (Nature Biotechnology 1996). The world pharmaceutical market is estimated at $197 billion in sales annually. Of this, the top 10 corporations account for 43 percent of the sales (RAFI 1996). This industry leaves little room for smaller investors, like most cooperatives, to participate in R&D. The few cooperatives that may form strategic alliances with pharmaceutical companies will most likely be among the largest ones and will likely function as suppliers of raw materials or middlemen for contract farming negotiations. If alliances are made between cooperatives and pharmaceutical companies, they will probably remain secret, at least until the point of commercialization.
In addition to the secrecy surrounding pharmaceutical research and alliances, another reason for the lack of interest or discussion in pharming among agricultural cooperatives is the issue of access. The pharmaceutical giants tend to have their own research facilities and staff; the cooperatives do not. Cooperatives might be aware of the industry, but they may not have the networks to establish relationships with the industry giants.
THE RESEARCH ENVIRONMENT: Issues of Access
Issue
One of the overarching concerns among those interested in agricultural biotechnologies is the issue of access. Biotechnologies, unlike many previous agricultural tools, are being developed predominantly in the private sector. This means that information about R&D will not be as freely available as it has been in public sector research. This is true even in many cases where the research is conducted by scientists at public universities. Moreover, there is also the added component of widespread use of new intellectual property rights to protect innovations. In 1978, 30 biotechnology patent applications were received. As of 1992, the number had surpassed 11,000 (Munasinghe 1996). While it has long been the case that one had to pay royalties to use a patented innovation, this is relatively new for biological tools. This erects a significant barrier for those who have relied on public agricultural research.
Very few cooperatives have large R&D budgets, and even fewer are prepared to vie for access to intellectual property rights. Most cooperative leaders interviewed held the view that they still have adequate access to research information, many citing public universities and commodity boards as their main sources. A CEO of one of the medium size Midwestern grain cooperatives said they would look to their regional cooperative to align themselves with respect to the new biotechnologies. In general, except for the very large cooperatives, it seems that most co-ops will take a cautious market-follower approach to biotechnology.
Implications for Cooperatives
Some cooperatives have a naive view of the changing structure of the research environment. One fruit cooperative CEO stated, "The research will still come from the university, and so it should be, because they are the ones that have the general welfare of the public in mind." Yet, cooperative leaders need to be aware of the changing research structure within academic institutions. This changing structure includes fewer federal and state dollars available for university research grants while the level of financing from private industry is increasing. This has an impact on who sets the research agenda. In addition to less public research information, there is a concomitant growth in what one author termed an "information gap" (Munasinghe 1996, 1165). The information gap occurs when researchers withhold their findings until patent approval is obtained, which can take as long as three years.
Another issue has to do with the differential availability of the products of biotechnology depending on the cooperative's primary commodity. It would seem that major commodities, for example corn, soybeans, milk, and cotton, are the most likely to attract interest and research investment from biotechnology companies. This is because if a successful product emerges the payoff is potentially high in the sense that the product can be used on large acreages and herds around the country. By the same logic, biotechnology companies would be less likely to invest in minor crops (e.g, almonds or plums) and animals. Ironically, public institutions are moving in a similar direction, as the larger commodity groups tend to have the greatest influence on their research agenda. The evidence to support this can be found in a quick review of the commodities that have been subject to biotechnology research and development. Not surprisingly, leaders of cooperatives that produce specialty commodities had less to report about biotechnology developments in their industries.
In plant biotechnology, not only is there a bias in private research toward those crops that are planted extensively, but there is also a bias toward annuals as opposed to perennials. Put simply, biotechnology companies prefer that their product be repurchased each year. Moreover, in some perennials, such as grapes and fruit trees, the productive life of vineyards and orchards is usually several decades. There are two points to make. The first is that cooperatives organized around specialty or marginal commodities will have to rely more heavily on their commodity organizations to generate funds for research on their commodity. Typically, the cooperative or individual members belong to a commodity organization, which charges producers a fee based on their sales. A percentage of the funds generated is earmarked for research. Members of the commodity board decide how to spend the research funds. Often the money is used to support research projects at a state university, but it might also be spent on research in the private sector. The second point is that some crops, by their nature - e.g., orchard crops and vineyards - are less likely candidates for biotechnology research on production. At the minimum, we can say that research, development, and use of biotechnologies in these areas will be slower. The larger cooperatives, which for the most part produce major commodities, seemed much more aware of the privatization of research, as might be expected, since it is the major commodities that have seen the most impact from biotechnologies. The largest cooperatives, with the largest R&D budgets, are trying to keep the lines of access open by investing in various research institutions. A vice president for farm supply and marketing in a large grain cooperative said, "We do not know where the next biotechnology research breakthrough will come from." This particular cooperative, while trying to maintain access, has been pressured by a research company to either invest more or risk losing access. Since cooperatives often lack sufficient capital to put towards biotechnology R&D, one response for survival has been to develop strategic alliances.
STRATEGIC ALLIANCES: Mergers, Joint Ventures, Cooperative Competition
Issue
Strategic alliances are not new, and in a period of continued consolidation, strategic alliances will continue to be the avenue taken by most cooperatives. In today's competitive agricultural environment, there are very few cooperatives that do not have some type of joint venture or that have not been a part of a merger. In many cases, individual farmers have transferred their membership to larger cooperatives or the smaller cooperatives have become members of federated cooperatives.
Implications for Cooperatives
The large amount of resources needed for biotechnology research ensures that cooperatives cannot pursue research without strategic alliances (Torgerson 1993). With a growing number of joint ventures, there is evidence of increasing secrecy among cooperatives, with many cooperatives not willing to make their annual reports public or discuss with whom they have made strategic alliances.
As cooperatives adapt to a changing environment by following the trend of strategic alliances, there is much concern that they may lose their distinctive qualities. For example, many see cooperatives as having shifted to a business structure which resembles investor owned firms (IOFs), with more emphasis on net earnings and less on member services (Campbell, 1993). Many cooperative leaders express a growing tension between the focus on earnings and the focus on member-services. One CEO of a fruit cooperative leader spoke of this tension: "We spend more time accommodating our growers. We feel we have an obligation to benefit members. Yet, when competition is tough, this focus on members becomes increasingly difficult." Hardesty (1992a) identifies this dilemma for cooperatives as one of being producer focused versus customer focused, with the latter viewed as the more profitable and necessary element needed in order to compete. Moreover, the structure of cooperatives makes it more difficult to generate equity capital for long term investment than is the case for IOFs. Indeed, many managers view the cooperative ideal of being producer focused as sacrificing the cooperatives' abilities to stay competitive. In fact, some cooperatives, or parts of cooperative operations, have restructured into IOFs or plan to move towards becoming more like an IOF (Collins, 1991; Schrader, 1989a).
There is also concern that as more cooperatives opt to align themselves with investment-oriented businesses instead of other cooperatives, the ability of non-investment-aligned cooperatives to function and compete in the market will be sacrificed. On