Gmos in Philippine Agriculture: an Economic Analysis

GMOS IN PHILIPPINE AGRICULTURE: AN ECONOMIC ANALYSIS

POLICY PROBLEM: How to address the GMO (Genetically modified organism) issue, specifically in agriculture. POLICY ISSUE: Should the Philippines pursue the promotion of GMOs in agriculture?

Ulysses J. Lustria Jr.

2006

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I.

Introduction There is a continuous and heated debate on GMOs especially in the international level. Powerful stakeholders such as Greenpeace and biotech companies are very much involved.

Domestically, we are already feeling this intense battle regarding GMOs. Some say that GMO is the answer to food shortage and security. However, others, such as some non-government organizations and consumers, oppose its use due to perceived health and environmental risks.

The policy issue this paper seeks to answer is whether we should pursue the promotion of GMOs in agriculture. However, we would confine ourselves to an economic analysis of the issue.

So, what exactly is all this hullabaloo on GMOs? Before answering this question, we should first level off on what “GMO” means?

Strictly defined, a Genetically Modified Organism (GMO) is an organism produced from genetic engineering techniques that allow the transfer of functional genes from one organism to another.
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Organisms modified in
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this way, are also referred to as being transgenic.

An example of a GMO is the so-called “Golden Rice” which contains three foreign genes: one from the bacterium Erwinia uredovora and two coming from daffodil plant, Narcissus pseudonarcissus.
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These genes complete

the biochemical pathway that produces beta-carotene - a substance for combating vitamin A deficiency, which is responsible for 500,000 cases of irreversible blindness and one to two million deaths worldwide each year.
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Broadly defined, GMOs include all organisms which have been genetically altered whether through genetic engineering or through conventional/traditional breeding.

The focus of this paper, however, is on the strictly defined GMO, whose development and promotion remains controversial.

In modern GMO technology, genes can be moved both within or between species. It is the movement of genes between species which is of the greatest concern. GMO technology thus gives the ability to add, subtract, alter or exchange an individual gene or a group of genes, which are known to influence an individual characteristic.
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Now that we know what GMOs mean, let us try to answer the first question: What is all this hullabaloo about GMOs?

Pro-GMO groups assert that GMOs have many benefits (both existing and potential) and deserves to be promoted and developed. The benefits to farmers are higher crop yields, reduced farm costs (e.g., no labor costs for spraying), increased farm profit, improvement in the environment (e.g., less pesticide use), and varieties that can grow in poor conditions.
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The benefits to consumers are the expected lower prices. GMO products are expected to have lower prices due to increased productivity (e.g., higher yields) and lower production costs. Other examples of benefits are: more nutritious foods (e.g. Golden Rice), healthier oils (from soybean and Canola), potatoes with higher starch content, and edible vaccines in maize and potatoes. 3

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Another benefit is that there would be no need to clear forests to produce agricultural land. Crops grown in existing areas will made more productive as well as those grown in poor soils or stressful environments.
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The anti-GMO groups raises questions on health risks, environmental risks, ethical and moral questions, and economic risks. They raise the need for regulation and labelling, and cite the lack of public consultations on GMO issues. 6

On health risks, they say that GMOs are unnatural and GM food (or Frankenfood, to extremist opposition) has possible negative health effects.
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The specific food safety risks are: toxins and poisons, increased cancer

risks, food allergies, contamination (e.g., of product for human consumption by another similar product which is not fit for humans), and antibiotic resistance. 7

On environmental risks, there is concern on the potential effect of the spread of GMOs in nature, that biological diversity could be destroyed. On these grounds, even tests to gauge the safety of GMOs are opposed.

The specific environmental risks are: increased pesticide residues, genetic pollution, damage to beneficial insects, creation of superweeds, creation of superpests, creation of new viruses and bacteria, and genetic bioinvasion (e.g., superior GMOs will destroy indigenous species). 7

It is argued that long-term testing in complex environments will often be required before scientists can achieve even a basic understanding of the effects of releasing GMO products on agriculture, crop varieties, soil foodweb communities, plants, aquatic systems and biodiversity. 8

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Even some scientists are wary of the technology. Dr. Joseph Cummins, professor emeritus of genetics at the University of Western Ontario says, “ modified viruses could cause famine by destroying crops and (sic) human and animal disease of tremendous power.” Dr. Michael Antoniou, senior lecturer of molecular pathology in London adds, “ (Genetic engineering) results in disruption of the genetic blueprint of the organism with totally unpredictable consequences.” “… genetically-engineered foods… may produce an immediate effect or it could take years for full toxicity to come to light.” 3

On ethical and moral grounds, anti-GMO groups ask questions such as, “does man have the right to play God?” They also say that biotechnology reduces all life to bits of information (genetic code) that can be rearranged at whim by scientists. 7

On the economic aspect, they claim that multinationals will use patented GM technology to control food supply and that the adoption of GM crops do not really significantly increase the income of farmers.

Also, there is concern that the higher concentration of biotechnology research and development in developed countries will widen the income disparity between developed and developing countries, and between large and small farmers.

There is also the issue that our potential in carving a market niche for premium-priced GMO-free products, Philippine-produced, would be lost if we would produce GMOs in our farms.

They also ask that appropriate regulation and labelling be implemented. GMO products should not enter the market without proper regulatory

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(along with needed legislation) measures already in place. Mandatory labelling of GMO products is one of their major demands.

Another issue raised is lack of public consultations on GMO issues. Why is there seeming haste in the promotion and development of GMOs in the Philippines?

There is continuing heated debate on the GMO issue. Given this environment, what is the stand of the government and non-government organizations?

The Government Stand

The Government already has a policy statement on the use of modern biotechnology and its products. 9 In the policy statement, a paragraph states, “We shall ensure that all technologies … will provide farmers and fisherfolks the opportunity to increase their over-all productivity and income; enhance the welfare of consumers; promote efficiency, competitiveness, and improved quality standards of local industries – all within the paramount objective of attaining safety and sustainable development, including its human, social and environmental aspects.” Another paragraph states, “… concerned agencies are hereby directed to address the current issues associated with the local and global dimensions and trends of modern biotechnology, including its potential health, environmental and social impacts. Towards this end, they shall conduct public consultations with representatives from civil society, government and business; formulate departmental directives and regulations on the access to and use of the products of modern biotechnology; coordinate activities and programs on research, development and application; and allocate appropriate resources for the

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upgrading of capacities and capabilities to effectively regulate the technology and its products, including but not limited to product testing and labeling.”

This shows that the government recognizes the potential value of GMOs and would promote its use subject to requirements still to be determined. However, it appears that the government has “hastened” the process by permitting the field trial of BT (Bacillus thurigenensis) corn in various sites. This has been opposed by LGUs whose areas are the test sites. They cite insufficient or lack of consultations with concerned LGUs and civil society.. It was only the National Biosafety Council of the Philippines (NBCP) which approved the field testing.
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The Non-government Organizations’ Position

The abovementioned issues raised by anti-GMO groups are the supported issues of some NGOs in the Philippines. These NGOs have already mobilized against GMOs. Even as early as 1997, a Philippine NGO has already involved itself in such global protests such as the “Global Days of Action Against Gene-Foods or the Pure Food Campaign. 1

At present, they are involved in protests against the ongoing field trials on Bt corn in the Philippines.

II.

Framework

This paper would confine itself to the assessment of the economic impact of GMOs to Philippine agriculture.

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To begin, we should first determine where we are now in the GMO market. From here, we could determine if we could handle GMO technology safely (e.g., minimize risks).

The second step is to determine whether we should go forward and promote GMOs in Philippine agriculture or not. The question of going forward or not could be answered first by determining the benefits to farmers and consumers: “Would farmers and consumers really benefit in terms of profitability and lower prices and other benefits?”

Assuming that GMOs are beneficial or are going to be beneficial, we should then assess the GMO market by comparing it with the perfectly competitive market model (focusing on departures from overall efficiency).
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From this comparison, we could then see if the Philippines should join

the GMO-producing countries.

If we find out that the GMO market has many market imperfections, we would determine what we can do about these. From here, we could base our decision to promote or not to promote GMOs in Philippine agriculture.

Based on this assessment, we could also answer questions such as: “Would the Filipino farmer get the short end of the deal and become dependent on multinational companies for these GMOs? Might we be losing a potential market niche for GMO-free agricultural products if we adopt GMOs in the country?”

III.

Assessment

Where are we now?

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This question has already been partly answered in the introduction of this paper. The government has already given its stand on biotechnology and has openly supported GMOs through the NBCP’s approval of field trials for Bt corn. On the other hand, LGUs and NGOs are protesting.

In addition, it is worth noting that the Philippines has already been penetrated by GMO products. They are right in our supermarket shelves. (See annex A)

Further, the Philippines is already a signatory to the 2000 Cartagena Biosafety Protocol which, among other things, proposes to establish a Biosafety Clearinghouse for collecting, sharing, and disseminating information on risk assessment and management. 7

We already have a regulatory system in place and we are already into laboratory and field testing. 7 Several international and local research institutions in the Philippines have already started GMO research.

In other words, we are already much a part of the GMO market in the international and domestic arena. Should we then go forward and promote GMOs in Philippine agriculture?

With the assumption that we could handle GMO technology (given the regulatory system in place, the international agreements, and technical capability of concerned institutions), should the Philippines already join the GMO-producing countries?

First, we should look at economic and other benefits.

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Benefits to Farmers

Available studies (1998 and 1999) show mixed results on the profitability of GM crops as compared to their conventional counterparts. (The analysis is based on the available studies, which mainly concerns Northern America and is limited to the most adopted GM crops – soybeans and corn. Canola has also been included.) 1

Herbicide Tolerant soybeans allow for cost savings due to reduced use and cost of herbicides. This could offset the higher seed price. However, the yield of GM soybeans is still lower than for conventional varieties. Comparing returns per hectare or per labor unit, no significant difference appears between the two types of crop.

For Bt corn, significant yield gains have been observed. However, the cost effectiveness of Bt corn depends on growing conditions, in particular on the degree of infestation in corn borers. Applications of insecticide have decreased globally. Some studies show increased total costs for Bttechnology, first for seeds but also for weed control and fertilizer. Results regarding profitability are contrasted. None can be considered as significant.

There are no clear-cut results for comparing the profitability of Herbicide Tolerant Canola with non-GM crops. The unclear results are further magnified by the studies’ assumption of equal prices for the compared goods (GMO and non-GMO.) If prices of GMOs are lower, profit margins could be lesser.

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The boxed article below seems to reinforce these mixed results. Are GMOs profitable? (genetically modified organisms) 11 Issue: Dec, 1999 GMOs (genetically modified organisms), especially Roundup Ready soybeans, are popular. A study by Iowa State University economist Mike Duffy says they weren 't any more profitable than non-GMOs in 1998. Duffy recently analyzed a survey of 800 Iowa farmers by the National Agricultural Statistics Service and found return to land and labor nearly identical for GMOs and non-GMOs in 1998. GMO beans, for example, had lower herbicide costs but lower yields. Net return was $144.50/A for GMO beans vs. $145.75 for non-GMO varieties -- a statistical wash. Doyle Karr of Pioneer Hi-Bred International says some GMOs have higher yields than others and Pioneer wouldn 't introduce a GMO variety unless it also competes in yields. "The bottom line is there 's some value there," he says, or farmers wouldn 't be buying GMO seed. Duffy says the study wasn 't a yield comparison but an unusual systematic look at the real returns.

Recent studies on Bt cotton (2001), however, showed significant economic benefits for farmers in China, Argentina, and South Africa. For example, for the 1999/2000 growing season in Argentina, there was an additional benefit of $65.05/ha. This was due to higher yield, better quality, and savings from less insecticide applications used ($27.55/ha).
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Further, there are other “utility” benefits from using GMOs. For example, there is the so-called “convenience effect” which leads farmers to use GMO crops. With GMOs, the inconvenience of weeding and/or spraying chemicals can be avoided. This results in savings on labor costs and time. 1

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The abovementioned results show that economic benefits to farmers are uncertain. However, the GMOs are continuously being developed and improved. The benefits, as shown by Bt cotton, cannot be ignored.

Economic Benefits to Consumers

The economic benefits to consumers are the expected lower prices. GMO products are expected to have lower prices due to increased productivity (e.g., higher yields) and lower production costs. Examples of other benefits are: more nutritious foods (e.g. Golden Rice), healthier oils (from soybean and Canola), potatoes with higher starch content, and edible vaccines in maize and potatoes.

Developing countries, where there is low income, high population growth rates, and malnutrition, would be the most to benefit with cheap and nutritious food that GMO technology could possibly provide.

GMO Market vs. Perfectly Competitive Market

Given that benefits (existing and potential) from GMOs are significant, should the Philippines join the GMO-producing countries. This can be answered by studying the GMO market by comparing it with the perfectly competitive market (focusing on departures from overall efficiency – imperfect competition, externalities, imperfect information, and public goods).

A. Imperfect Competition

In the GMO market (specifically the crop sector), there is increased concentration on the input side (e.g., seed market). Multinational biotech companies are acquiring seed companies or concluding business

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agreements with them. They have also entered into new agreements with genomic companies to increase their research and technology portfolio. Some biotech companies (there are seven main players to begin with) have also merged (Novartis, DuPont, Zeneca, and Rhone-Poulenc formed Aventis). 1

On the whole, biotech companies form an oligopoly for supplying inputs for crop production.1

Further consolidation is happening. On the downstream side, some have even entered agreements with food processors. Also, there are already several “gene to supermarket shelf” clusters such as Monsanto/Cargill/Continental – GM seeds production to grain exporting, and Novartis/ADM – development of specialty corn hybrids.

These developments raise the question of increased dependency of farmers on a limited number of suppliers for crop production. Farmers risk being “squeezed” between two (more or less) oligopolistic industries (upstream and downstream). Hefferman (1999) drew conclusions on the future role of farmers: “ the farmer becomes a grower, providing the labour and often some capital but never owning the product as it moves through the food system and never making the major management decision.” This is reinforced by the fact that GM seeds are often sold and sown under contract. Further, if market segregation (GMO vs. GMO-free) and identity preservation (through labelling, patents, explicit mention of the origin and ingredients of the product) is done, GM or even non-GM crops, will increasingly be grown and sold using contracts.
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Compared to a perfectly competitive market, the GMO market only has a small number of firms. With their control of inputs, they could control prices. Not all firms are price-takers. Thus, there is imperfect competition.

B. Externalities

In the GMO market, there are externalities, both positive and negative. One positive externality is the lesser clearing of forests for agricultural land. An example of a negative externality is the potential development of insect resistance to Bt crops (which up to now there is no consensus among the scientific community, industry, and environmental NGOs).

These externalities carry social costs (as well as benefits) which cannot be ignored.

C. Imperfect Information

In the GMO market, it seems that information is imperfect. For example, GMO products enter our country without labelling.

D. Public Goods

In the GMO market, the issue of treating GMO technology as a public good is present. It is being argued that patenting should not be done. As one research group says, “Patenting the results of genetic engineering raises some of the greatest controversies. It can be, and is argued, that to claim as a human invention a genetic sequence, or a product, which was part of creation, is inappropriate. No one can claim to have invented a living thing. The current debate covers views ranging from a total rejection of patenting in biotechnology through acceptance of man-made genes or

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the final products of transgenes, e.g. new vaccines or oils made in plants, to the view of patenting as merely a means of regulating commerce.” 2

Another public good present in the GMO market is agricultural research. Although the private sector (multinational corporations) is more active, government research institutions are also becoming more active in GMO technology.

Can we do something with these market imperfections?

These abovementioned imperfections (or departures from overall market efficiency) can be dealt with. Some policy considerations or recommendations we could look into are:

1. Imperfect competition as well as imperfect information, externalities and public good issues could be addressed in the global trade and multilateral organizations (e.g., WTO, ASEAN) and various agreements (e.g. GATT).

2. The government should also actively promote consultations with LGUs, NGOs, farmers and consumers. To paraphrase what one scientist said in a recent research seminar, we should try to be sensitive to people’s views and culture. She cited, as an example, that now we are even considering the religious/cultural reaction of Muslims on GMOs. 12

3. Although government has a role in informing the public, industry could be encouraged to communicate the direct consumer benefits of GMO technology. At present, consumers perceive the risks of GMOs to be far greater than the evidence suggests, and they do not perceive themselves to be recipients of any benefits of the technology.

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4. On the public goods issue, one option in patenting is to establish temporary patents wherein after x number of years, the GMO product would become a common good. With this, there is an incentive remains for inventors and the private sector to invest on GMO development and promotion. Enough time should be allowed to enable them to recoup their investments and earn some profits.
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5. Domestically, the Philippines could strengthen its regulatory system to minimize externalities. There is a suggestion that on-field trials could also be done under a closed environment to prevent the spread of GMOs through the air. This is through appropriately designed greenhouses.

6. It could also consider mandatory labelling of GMO products (which anti-GMO groups are demanding).
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Opposition is expected from pro-

GMO groups because GMOs would have a higher price since labelling is an additional cost.

By large margins, consumers favor labeling of food products that contain GMOs and, by equally large margins, believe that the benefits of GMOs flow exclusively to the large multinational corporations that have controlled the development of the technology and its use.
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7. Legislative measures should also be considered. There is a series of bills and resolutions in Congress but there seems to be no urgency in pushing them. This includes a bill of Secretary Montemayor, which requires mandatory labelling of GM foods.
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One legislative measure worth considering also is in the area of valuation of externalities. This is to provide appropriate compensation to those who would be affected by negative externalities.

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8. We should also strengthen our research and development efforts in biotechnology to minimize if not eliminate economic dependency on multinational companies for GMOs. As DA Secretary Leonardo Montemayor states, “ We are already importing a substantial volume of corn and soybean from the US, Canada and Argentina that contain GMOs. But we cannot be on that level. We have to have our own system, our own way of implementing that policy.”
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This view is also supported by the wide agreement that government should provide public goods such as in agricultural research.
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9. The Philippines should also study the possibility of maintaining a GMOfree area, say, Mindanao. Mindanao seems to be a good site because it does not have a problem in production, which is what GMO crops are aimed to solve. The primary problem in Mindanao is not production but distribution.
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Applying the theory of comparative advantage, Mindanao could become an exporter of GMO-free products to countries/continents which value highly GMO-free products such as Europe. We could carve a market niche because Europe refuses to import GMO crops from the US and other exporters. The potential profit is very large. To illustrate, American corn producers are now losing some $200 million in exports annually due to the European market.
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10.The government should also encourage or support a comprehensive study leading toward an action plan on the GMO issue. This should cover the economic, social, religious, and political aspects of the issue.

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IV.

Conclusion The policy issue in this paper is “should the Philippines pursue the promotion of GMOs in agriculture?”

The answer is yes, not only because we are already in the GMO market, not only because of the benefits, but also because we can deal with the GMO market imperfections.

We could join the GMO-producing countries if we could act on the policy considerations/recommendations we have cited.

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Other References: 1. 2. 3. 4. 5. 6. 7. 8. 9. Amerasinghe, Nihal. Poverty, Food Security, and Agricultural Biotechnology: Challenges and Opportunities. A draft paper. June 2001. OECD Observer. Various articles on biotechnology. March 1999. Zamora, Oscar, B. The Need to Require Mandatory Labelling of Genetically Engineered Food Products. A comment paper. Quijano, Romeo F. Health Hazards of Genetically Modified Organisms. Lopez, Bernardo, V. Who Benefits from GMOs? Upshot. Businessworld. August 30, 2001. General, Honesto, C. Commies’ sham case versus Bt corn. Questions of Policies. Philippine Daily Inquirer. September 17, 2001. Bocobo, Dean Jorge. World food security depends on biotechnology. Commentary. Philippine Daily Inquirer. 2001. The Changing Character of Technology and Its Impact on Research and Extension. A chapter. Librero, Aida, R. and Burgos, Mildred, M. Technology Assessment for Agriculture: A Conceptual Framework and Methodology. . Chapter 1 of the book: Technology Assessment for Agriculture in the Philippines. Edited by Aida R. Librero. 1990. Tolentino, V. Bruce, et al. Strategic Actions to Rapidly Ensure Food Security and Rural Growth in the Philippines. Draft paper. March 29, 2001.

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References: 1. 2. 3. 4. 5. 6. 7. 8. 9. Amerasinghe, Nihal. Poverty, Food Security, and Agricultural Biotechnology: Challenges and Opportunities. A draft paper. June 2001. OECD Observer. Various articles on biotechnology. March 1999. Zamora, Oscar, B. The Need to Require Mandatory Labelling of Genetically Engineered Food Products. A comment paper. Quijano, Romeo F. Health Hazards of Genetically Modified Organisms. Lopez, Bernardo, V. Who Benefits from GMOs? Upshot. Businessworld. August 30, 2001. General, Honesto, C. Commies’ sham case versus Bt corn. Questions of Policies. Philippine Daily Inquirer. September 17, 2001. Bocobo, Dean Jorge. World food security depends on biotechnology. Commentary. Philippine Daily Inquirer. 2001. The Changing Character of Technology and Its Impact on Research and Extension. A chapter. Librero, Aida, R. and Burgos, Mildred, M. Technology Assessment for Agriculture: A Conceptual Framework and Methodology. . Chapter 1 of the book: Technology Assessment for Agriculture in the Philippines. Edited by Aida R. Librero. 1990. Tolentino, V. Bruce, et al. Strategic Actions to Rapidly Ensure Food Security and Rural Growth in the Philippines. Draft paper. March 29, 2001. 10. 19