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Size and Distribution of Market Benefits From Adopting Biotech Crops
Gregory K. Price, William Lin, José B. Falck-Zepeda,
and Jorge Fernandez-Cornejo
Technical Bulletin No. (TB1906), November 2003
The adoption of biotech crops, particularly herbicide-tolerant
soybeans and cotton, has been rapid since their commercial introduction
in 1996. Biotech crops can offer producers distinct advantages
over conventional varieties, such as potentially higher yields
and lower pest control costs. But producers are not the only
ones to benefit. Biotechnology developers and seed companies
charge technology fees and seed premiums to adopters who plant
biotech varieties. In addition, U.S. and foreign consumers enjoy
lower commodity prices that result from biotechnology-induced
increases in food supplies, though biotech-wary consumers may
feel excluded from these gains.
What Is the Issue?
Much debate has centered on how benefits from agricultural
biotechnology are shared among stakeholders. Different studies
estimate significantly different portions of the total biotech
benefit "pie" shared by U.S. farmers, biotechnology
innovators (those who develop, manufacture, and sell biotech
crop seed), U.S. consumers, and producers and consumers in other
countries. But to what extent do these estimates vary as a direct
result of methodological approaches, assumptions regarding the
responsiveness of production and consumption to changes in commodity
prices, which crops are analyzed, study period, and the choice
of data source on farm-level consequences of biotech crops'
adoption?
How Was the Study Conducted?
This study seeks to determine the sensitivity to changes in
various research assumptions and data sources of the estimated
size and distribution of benefits from adopting Bacillus thuringiensis
(Bt) cotton, herbicide-tolerant cotton, and herbicide-tolerant
soybeans in 1997. The stakeholders considered are U.S. farmers,
U.S. consumers, biotechnology developers, germplasm suppliers,
and foreign producers/consumers. We focus on specific and readily
quantifiable market benefits accruing to these stakeholders.
We use a model in which the benefits from the sale and adoption
of each biotech crop's seed are measured as changes to economic
welfare in both the seed input and commodity output markets.
The framework accounts for monopoly profits, resulting from
intellectual property rights protection, that accrue to the
innovators in the input market. The model also measures economic
welfare changes (from higher production efficiency and lower
commodity prices) for producers and consumers in a competitive
commodity market.
The change in economic welfare from each biotech crop stems
from an increase in commodity supply, which is the result of
biotech-induced yield increases and savings in pest control
costs. Our estimates of market benefits from agricultural biotechnology
are based on data sources that isolate these farm-level effects.
The change in supply is integrated into the rest of the model
to calculate pre- and post-biotech prices and quantities in
an international setting. While our analyses use 1997 data,
the analytical framework is, by and large, applicable to today's
market conditions.
What Did the Study Find?
Both total benefits and their distribution among stakeholders
are sensitive to analytical assumptions. Estimated market benefits
of agricultural biotechnology—in a base scenario using
representative data and reasonable assumptions about market
responsiveness—ranged from $213 million to $308 million
for each of the three biotech crops in 1997. Gains ranging from
$212.5 million to 300.7 million (depending on the data source)
were associated with the planting of Bt cotton. Herbicide-tolerant
cotton improved total welfare by an estimated $231.8
million, while the adoption of herbicide-tolerant
soybeans yielded $307.5 million in benefits.
The estimated benefits reported in this study represent 2-5
percent of the respective U.S. crop values in 1997.
In our base case, U.S. farmers received about a third of the
total benefit from adopting Bt cotton (previous studies estimated
the share at around 50 percent), and just 20 percent of the
estimated total benefit from adopting herbicide-tolerant soybeans—at
the lower end of the benefit range in previous studies. With
herbicide-tolerant cotton, a small U.S. farmers' share (4 percent)
can be attributed to the premia paid for biotech seed (versus
conventional seed) and low cotton prices in 1997, which offset
the benefit of higher yields. Biotechnology innovators captured
about 30 percent and 68 percent of the estimated total benefits
from the adoption of Bt cotton and herbicide-tolerant soybeans.
For herbicide-tolerant cotton, we estimate that U.S. consumers
and foreign producers and consumers received the bulk of the
estimated benefits.
By using the same model to re-estimate the benefits under different
assumptions about market responsiveness, the results demonstrate
their sensitivity to what an analyst accepts as reasonable expectations
of how changes in supply affect U.S. and world prices. Supply
responsiveness affects the estimated benefits overall, and affects
the benefits to U.S. farmers more than the benefits to U.S.
consumers. For example, doubling the supply sensitivity reduces
the estimated total benefit by about half in the case of herbicide-tolerant
soybeans and causes U.S. soybean producers' share of the estimated
total benefit to disappear.
Year-specific variables, such as pest infestation levels and
weather, also affect the size and distribution of benefits.
This suggests that multiyear analyses will yield more reliable
estimates of the market benefits from biotech crops than single-year
estimates.
Although not included in this study's benefit estimates, important
market benefits—such as the ease of pest management associated
with herbicide-tolerant crops and the insurance value of insect-resistant
crops—can affect the results. In addition, potential nonmarket
benefits, including effects on the environment and human health,
could influence the benefit estimates. Other environmental effects
of biotechnology—such as pesticide toxicity levels, length
of persistence in the environment, and impacts on nontarget
species— would influence total net benefits of biotech
crops, but also are not part of our assessment.
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