Economic
- Global Demand for Wood is Rising
The future demand for wood is predicted to increase because of an increasing global population. The FAO (Food and Agriculture Organization of the United Nations) predicts that wood demand is rising over time, even when business put great efforts in being paperless (Kaskey J. 2009). The demand will increase in times when the forestry sector will experience uncertainties such as competing demand for land use. In 2009 about 4 percent of the world’s 8.5 billion forest acres were plantations, and 2.6 million hectares (6.4 million acres) of new plantations are added annually, according to the United Nations. By 2050 it is predicted that 10–15% of wood production forests will meet up to 80% of the world's industrial wood needs, this will be only possible with highly industrialized forestries. Genetic modified trees enable the industrial forestry sector to meet future demand while reducing pressure on forests. (Taylor G., Jansson S., Wullschleger S., 2002)
But there are economic disadvantages as well as advantages.
- Economic Benefits
As an Bloomberg article noted, GM trees have the potential to produce great economic benefits. Production costs are predicted to be lower and availability of wood products is predicted to be more constant over time. This means lower costs for the forestry industry and increased wood quality and volume for their costumers. With better understanding of the form, shape and physiology of trees, forests of GM trees will be grown more densely, or efficiently, making the logging process easier. The timber will also be better suited for wood products (and fuel), thus increasing its economic value. (Shanks I. and Teh M., 1999)
David Liebetreu, the vice president of International Paper Co. (the world’s largest pulp and paper maker) says that plantations of engineered trees would give International Paper a competitive advantage by providing a reliable supply of lower cost wood at a time when timberlands are dwindling because of development. International Paper Co. (U.S.) owns together with MeadWestvaco Corp. (U.S.) and Rubicon Limited (New Zealand and Australia) Arbogen. Arbogen is the world's largest producer of tree seedlings, with operations in 20 locations in four countries. So far, ArborGen's GM trees are not commercially available, but ArborGen estimates that yearly sales will be 350 million tree seedlings, bringing in about US$25 million a year. There is a potential the sales of GM trees explode once they get approved. ArborGen may boost yearly sales to $500 million in 2017. (Lang C., 2010)
Context Consulting, a consulting firm, which studied the grow capabilities and the growth potential of GM trees, analyzed the possible financial gains from GM trees. The following table gives an overview (Humphreys D. et. al, 2005)
| Innovation |
Benefits |
Operating Costs |
| Clone superior pine |
20% yield increase over 20 years | up to 20% increase |
| Wood density gene | Improved lumber strength | None |
| Herbicide tolerance gene | Reduce herbicide and weeding costs (potential savings: 45% per ha) |
None |
| Improve fibre characteristic | Reduce digester costs (potential savings: $10 per cubic meter) |
None |
| Reduced amount of juvenile wood | More usable wood (increase value $15 per cubic meter) |
None |
| Reduce lignin | Reduce pulping costs potential savings: $15 per cubic meter |
None |
Most genetic traits are controlled by several genes, and not by individual genes alone, therefore potential yield increases or cost savings are uncertain.
- Economic Disadvantages
High developing costs
The production of GM trees is a highly complex and expensive process. Because of the high costs involved the forestry sector will become increasingly dependent on biotechnology companies and GM seed companies. The problem are not just the high developing costs, also the patents involved in scientific discoveries are likely to raise the seed price and make GM trees expensive. The worst case scenario would be a monopole on GM seeds. The profit maximizing behavior of the firm would lead to a reduced supply of GM trees and therefore high market prices. This phenomenon has already taken place in the agricultural sector, where many small farmers went out of business due to the extra costs involved. They had to pay annual royalties to GM companies for seeds. ArborGen may charge 20 times more for its engineered trees than its cheapest seedlings and two to three times more than its best conventional products (Kaskey J., 2009)
Economic costs because of environmental risks
Environmental risks are very difficult to assess and quantify. The forestry sector could be seriously damaged through genetic contamination that results in weaker forest in the long-run. When forests are becoming weaker they are unable to fend off natural stresses, such as attacks from pests that have become resistant to the insecticides produced by GM trees. The problem is that nobody knows, if the environmental degradation is severe or only slight. If there is only a slight degradation restoration would be possible, but if the degradation is severe restoration will not be possible. Therefore the long-term costs of GM trees depend heavily on environmental risks, but just, if long-term risks are internalized. And this unlikely to happen. (Humphreys D. et al., 2005)
Market dependency
In the end consumers will decide if GM trees will be a success or not. If consumers have a low acceptance of them this will result in low demand, which lead to higher costs per unit. The increasing demand form consumers in Europe for timber that is certified as sustainable indicates growing consumer intolerance of unsustainable foresting. This suggests that large scale development of GM trees may not be profitable. The question is whether large furniture manufacturers are willing to pay more for timber and if they are able to hand over some of the additional costs to the final consumers. (Humphreys D. et al., 2005)
- What is the industrial forestry sector thinking?
The New Zealand Forest Research Institute made a global study on the state of forest tree genetic modification. One part of their study was a survey. They asked forestry business all over the world about what they think are commercial benefits and commercial risks of GM trees. The answers are provided in the following table and graphs. The most popular answers are at the top (Walter C., Killerby S., 2005)
| Commercial Benefits | Commercial risks |
| Increased wood production | Public resistance |
| Improved quality | High financial risk |
| Resistance to pests | Monopsony positions of the supplier |
| Resistance to diseases | Transgene instability |
| Reduced production and processing costs | Lack of operational data |
| Reduced chemicals for pulping | Plantation failure |
| New products | Quality issues |
| Adaptability | Monocultures/biodiversity |
| Remediation of toxic sites | Resistance development (insects) |
| Sterility | Eco-terrorism |
| Company shares increasing in value | Low risk if managed properly |
| Traits not available in current breeding population |
The following two graphs show the commercial benefits and risks anticipated from GM trees. The percentage number shows the percentage of companies in the forestry sector, which anticipate the particular benefit or risk with GM trees (Walter C., Killerby S., 2005) :
