UK: GM Foods: Insurance Angle To The DEFRA Consultation Paper

DEFRA have produced a consultation paper in which it considers how to achieve co-existence of GM and non-GM crops. It also looks at who should pay compensation when the 0.9% GM tolerance level is breached. Whilst DEFRA did not see insurance as a solution to the compensation question in the short to medium term, insurers may wish to respond to the paper and give some consideration to development of new products in this area. Given that GM crops are grown elsewhere in the EU, GM is likely to be an issue that insurers will need to address, in any event, before 2009 when it is currently thought that there may be commercial cultivation of GM crops in the UK".

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DEFRA have produced a consultation paper in which it considers how to achieve co-existence of GM and non-GM crops. It also looks at who should pay compensation when the 0.9% GM tolerance level is breached. Whilst DEFRA did not see insurance as a solution to the compensation question in the short to medium term, insurers may wish to respond to the paper and give some consideration to development of new products in this area. Given that GM crops are grown elsewhere in the EU, GM is likely to be an issue that insurers will need to address, in any event, before 2009 when it is currently thought that there may be commercial cultivation of GM crops in the UK".

Genetically modified (GM) food is firmly on the political and environmental agenda, and it could increasingly become an issue for insurers.

In July the Department for Environment, Food and Rural Affairs (DEFRA) produced a consultation paper looking at measures to ensure the co-existence of GM and non-GM crops in the UK; measures that aim to keep GM presence below a 0.9% threshold.

The paper considers who should pay compensation for economic loss when the threshold is breached. The default position is that loss is defined as the difference in the value of a crop when it has to be sold as GM rather than non-GM or organic. Various options are explored for compensation payments being made by (1) the GM sector (GM farmers and seed companies); (2) a voluntary industry led scheme (with responsibility resting with the GM seed companies) or (3) a compulsory redress mechanism established by Government and funded by the GM sector.

DEFRA remained open to an insurance market developing products that provided cover for possible GM-related losses, but it did not see this as a solution in the short to medium term. Issues of insurance cover were therefore not explored. With commercial cultivation not taking place until 2009, there will be opportunities for insurers to consider developing new products to provide cover for economic loss depending on the redress mechanism adopted following the consultation period. Even though the availability of insurance was not discussed in the paper, insurers may wish to respond on the issue.

The losses that the paper proposed appear narrow. The redress mechanism would not cover a number of "additional losses", for example, testing costs, losses up the supply chain or losses flowing from the removal of an organic accreditation from a field or an entire farm. Regarding such losses, the report suggests that the remedy (in the case of supply chain claims) may be contractual or an organic farmer may be left to pursue a remedy through the courts. Insurers may also be called upon by their insureds to cover these types of losses.

Despite the use of GM material not having general UK public support, or more widely in the EU, it appears that commercial cultivation of GM crops in the UK will become a reality. The business of (re)insurers’ is, however, potentially global and given the cultivation of GM crops elsewhere in the world insurers are likely to need to deal with this issue before 2009.

The paper can be found by clicking here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 26/09/2006.