Using simulation for economic policy analysis in the global agricultural supply chain

The purpose of this paper is to demonstrate how discrete dynamic simulation can be used to measure the impact regulation has on business processes and therefore operational-contractual costs in global agricultural supply chains. In particular, we examine how regulation of genetically modified organisms (GMOs) in the European Union (EU) affects the cost of contracting for soybean supplies between farmers and grain elevator firms in the U.S. Using a simulation model of business processes at a grain elevator operation, we examine how sensitive contract costs are to changes in a purity threshold for non-GMO content set by EU regulation. Results indicate elevator business processes are extremely sensitive to changes in non-GMO thresholds. Even at small changes in purity, contracting costs varied between $0.04-0.09 cents per bushel. The implication is regulation of GMOs might protect EU consumer rights, but protection may be costly and borne by agribusinesses in the U.S. agricultural supply chain