Vomitoxin, a toxin associated with a fungal disease called scab, only occurs when scab is present. Since 1993, scab and vomitoxin have affected wheat and barley crops in the Northern Great Plains, which includes North Dakota; Minnesota; South Dakota; and Manitoba, Canada. Crops in the Red River Valley region (the eastern part of North Dakota, the western part of Minnesota, and a corner of northeast South Dakota) have been the most severely affected. The mold that produces vomitoxin grows primarily on grains, particularly on wheat and barley, and can cause vomiting in farm animals that ingest vomitoxin-contaminated feed grains. The Food and Drug Administration (FDA), which is responsible for ensuring food safety in certain foods—including grains—has not issued any guidance on vomitoxin in barley or barley products. However, it has issued advisory levels for vomitoxin in wheat and wheat products and feed grains for animals. The scab and vomitoxin epidemic has added to the financial stress of farmers in North Dakota and the rest of the Northern Great Plains. North Dakota suffered a drought in 1988 and floods in 1993 and 1997. The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) estimates that in the barley-producing regions of North Dakota most affected by scab and vomitoxin, 768 (or about 14 percent) of the farmers stopped farming between 1996 and 1998. Although this figure includes farms that failed because of flood, drought, and other reasons, FSA officials stated that scab and vomitoxin were the primary reasons for leaving farming. Barley is economically important to North Dakota agriculture. Traditionally, it is second only to wheat in acreage planted and total crop income. For example, in 1992, the last year before the scab and vomitoxin epidemic, North Dakota’s farm income from all crops totaled $2.2 billion, of which $1.2 billion (about 54 percent) was from wheat and $237 million (about 11 percent) was from barley. Furthermore, for the last 50 years, North Dakota has been the leading barley producer in the United States; in 1997, it accounted for 27 percent of the nation’s total barley production. Most farmers sell their barley to grain dealers, who then resell it to maltsters and brewers. To determine the price they will offer farmers for their barley, including the need for discounts, grain dealers have the barley tested for vomitoxin. Most testers of vomitoxin in North Dakota use a test kit called Veratox because it is relatively quick, inexpensive, and practical for commercial use. The high pressure liquid chromatography (HPLC) and gas chromatography (GC) tests, which are used by researchers for purposes such as advancing research on vomitoxin, are also used by maltsters and USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) to check Veratox test results. These two reference methods are generally not used by commercial testing facilities and grain dealers because they are more costly, time-consuming, and complex to operate. GIPSA is the USDA agency that oversees federal grain inspections and has several key associated responsibilities. It authorizes certain commercial testing facilities to perform tests following its official procedures and standards. It also approves various testing methods, such as the Veratox kit, for use by these authorized facilities. Approved test methods, for which GIPSA provides training, must meet the agency’s performance criteria. GIPSA also monitors the consistency of test results across its authorized facilities. For example, GIPSA conducts quarterly reviews of the test results from its authorized testing facilities. For these reviews, GIPSA uses the HPLC test method as a reference for, or check on, test results from these facilities. GIPSA considers the scab and vomitoxin epidemic to be a serious problem and has taken actions to address vomitoxin testing issues, such as conducting a study in 1998 to assess the extent to which sampling methods can affect vomitoxin test results. However, GIPSA oversees only a portion of commercial grain testing nationwide. Commercial testing facilities unaffiliated with GIPSA and large grain elevators where in-house testing with the Veratox kit is cost-effective also perform vomitoxin testing. The North Dakota Barley Council estimates that 40 percent of commercial vomitoxin testing in North Dakota occurs at GIPSA’s authorized facilities; the remaining 60 percent occurs at either the unaffiliated testing facilities or large grain elevators. GIPSA has no oversight responsibility for vomitoxin tests performed by these other entities. Currently, GIPSA has four authorized agents in North Dakota that operate six commercial testing facilities. In addition, North Dakota has about nine commercial testing facilities that are not affiliated with GIPSA and between 12 and 20 grain elevators that test for vomitoxin. From 1993 through 1997, we estimate that North Dakota barley farmers suffered cumulative revenue losses from scab and vomitoxin of about $200 million (in 1997 dollars) —equal to almost 17 percent of the $1.2 billion in total barley revenues farmers received during this period.The losses from these diseases varied significantly, both over the years and across the regions of the state, with the Red River Valley suffering the greatest losses. However, crop insurance payments for scab- and vomitoxin-damaged barley covered only a very small portion, less than 2 percent, of these cumulative losses. U.S. maltsters and brewers, the traditional buyers of North Dakota’s malting barley, have reacted to scab and vomitoxin by expanding their imports of malting barley from Canada by about 380 percent. From 1993 through 1997, we estimate that North Dakota farmers lost about $200 million (in 1997 dollars) in revenues as a result of declines in both production and price discounts. These losses were equal to almost 17 percent of the $1.2 billion in total revenues barley farmers received during these years. About 70 percent of these losses, or $139 million, were from reduced barley yields (in bushels per acre) and from farmers’ leaving more barley unharvested. For example, between 1992 and 1997, average North Dakota barley yields dropped from a pre-disease level of 65 bushels an acre to 45 bushels an acre. Also, as shown in figure 1, from 1993 through 1997 (the years of the epidemic), the number of acres planted with barley fell from 2.9 million to 2.4 million and the number of harvested acres of barley fell from 2.4 million to 2.25 million. Differences between the amount of acres planted and actually harvested were the largest in 1993 and 1996. For instance, in 1993, North Dakota farmers harvested about 500,000 fewer barley acres than they had planted. Acres (000) Price discounts for barley contaminated with vomitoxin also played a key role in reducing farmers’ revenues. From 1993 through 1997, price discounts because of vomitoxin accounted for about 30 percent, or $61 million, of total revenue losses. The relationship between vomitoxin and price discounts is complex. Discounting in the marketplace stems from the U.S. brewing industry’s desire to use little or no vomitoxin-contaminated barley. In general, U.S. brewers send price signals that reflect their specific quality and quantity requirements to merchandisers and maltsters. These price signals are subsequently incorporated into price discount schedules that reflect buyers’ reluctance to purchase barley with vomitoxin unless they receive a highly discounted price. Grain elevators use these schedules, in conjunction with other quality premium or discount factors, to determine an overall price quote to farmers. Price discount schedules for barley vomitoxin can change over time, sometimes on a daily basis, depending on market conditions. Price signals for malting barley come largely from the four large firms that dominate the U.S. brewing industry. One of these firms represents nearly half of the market. A limited number of buyers in a given industry, such as the brewing industry, can influence the market price for a given commodity. According to industry experts, although vomitoxin can cause excessive foaming during the malting process and in finished beer products, brewers require discounts for malting barley primarily because they are concerned about the potential for a negative public perception of beer containing vomitoxin. The industry is concerned that consumers will switch brands or purchase other alcoholic beverages if it is reported that beer contains vomitoxin. As a result, brewers are willing to pay top prices for vomitoxin-free barley, but only highly discounted prices for barley contaminated with vomitoxin. Table 1 shows an example of a price schedule for barley, incorporating discounts for different levels of vomitoxin. Although discounting strategies vary, grain dealers generally begin discounting the price of vomitoxin- contaminated barley at 0.6 ppm. This first discount, usually the largest of several, ranges from about 40 cents to 60 cents a bushel. As shown in table 1, this first discount would result in a price of about $2 per bushel. Grain dealers apply subsequent discounts of about 5 cents to 15 cents for concentrations of vomitoxin that range from 1.1 ppm to 3.0 ppm. At vomitoxin concentrations above 3.0 ppm, dealers generally purchase barley as feed grain, which receives the lowest price, about $1.75 per bushel. The American Malting Barley Council reported that for 1997 only 9 percent of all midwestern malting barley had a vomitoxin level that fell into the premium price category of 0.5 ppm or less. Along with steep price discounts, vomitoxin has had the effect of shifting the amount of malting versus feed grain barley produced in North Dakota.