Economics: What have Economics: What have Transgenics Meant for U.S. Transgenics Meant for U.S.

Farmers? Farmers? Paul D. MitchellPaul D. Mitchell

Agricultural and Applied Agricultural and Applied EconomicsEconomics

University of Wisconsin-MadisonUniversity of Wisconsin-Madison

ASA-CSSA-SSSA International ASA-CSSA-SSSA International Annual MeetingAnnual Meeting

November 13, 2006November 13, 2006

Indianapolis, IN USAIndianapolis, IN USA

Economic analyses of the Economic analyses of the benefits of transgenic cropsbenefits of transgenic crops

Transgenic adoption in 2006Transgenic adoption in 2006 Are transgenics valuable?Are transgenics valuable? Why do farmers value transgenics?Why do farmers value transgenics? How valuable are the non-monetary How valuable are the non-monetary

benefits of transgenics?benefits of transgenics? Who captures the value of transgenics?Who captures the value of transgenics? Remaining issues economists can Remaining issues economists can

addressaddress

Adoption of TransgenicsAdoption of Transgenics

More rapid than comparable More rapid than comparable technology changestechnology changes

USDA NASS Acreage Report data bestUSDA NASS Acreage Report data best By state, by crop, by type: herbicide By state, by crop, by type: herbicide

tolerant, insect resistant, stacked, and tolerant, insect resistant, stacked, and all biotech: www.nass.usda.govall biotech: www.nass.usda.gov

Go to Go to PublicationsPublications, then , then AcreageAcreage

StateState CornCorn SoybeanSoybeanss

CottonCotton

ARAR 9292 9494

ILIL 5555 8787

ININ 4040 9292

IAIA 6464 9191

KSKS 6868 8585

MIMI 4444 8181

MNMN 7373 8888

MSMS 9696 9898

MOMO 5959 9393 9797

NENE 7676 9090

NDND 8383 9090

OHOH 2626 8282

SDSD 8686 9393

TXTX 7777 7070

WIWI 5050 8585

USUS 6161 8989 8383

StateState CottonCotton

ALAL 9595

ARAR 9494

CACA 5757

GAGA 9696

LALA 9494

MSMS 9898

MOMO 9797

NCNC 9898

TNTN 9393

TXTX 7070

USUS 8383

2006 percent 2006 percent planted acres planted acres planted with planted with transgenic seedtransgenic seed

StatStatee

CornCorn SoybeanSoybeanss

CottoCottonn

ARAR 00 -2-2

ILIL 1919 66

ININ 1414 33

IAIA 44 00

KSKS 55 -5-5

MIMI 44 55

MNMN 77 55

MSMS 00 22

MOMO 44 44 22

NENE 77 -1-1

NDND 88 11

OHOH 88 55

SDSD 33 -2-2

TXTX 55 77

WIWI 44 11

StateState CottonCotton

ALAL 33

ARAR -2-2

CACA 44

GAGA 11

LALA -1-1

MSMS 22

MOMO 22

NCNC 33

TNTN -3-3

TXTX 77

Additive percentage Additive percentage increase in increase in transgenic planted transgenic planted acres from 2005 to acres from 2005 to 20062006

-10

-5

0

5

10

15

20

25

0 50 100 150

% transgenic 2005

% p

oin

ts i

ncr

ease

200

6

corn

soyb

cotn

fit

RR22 = 0.57 = 0.57

Cotton and soybeans have saturated market at 85%-Cotton and soybeans have saturated market at 85%-95%95%

Corn has more growth yet: IL and INCorn has more growth yet: IL and IN

Are transgenics valuable?Are transgenics valuable? Adoption data would seem to say YES!Adoption data would seem to say YES! Yield Trial and Survey DataYield Trial and Survey Data

Fernandez-Cornejo and Caswell (2006) Fernandez-Cornejo and Caswell (2006) summarize 29 studies of both typessummarize 29 studies of both types

HT crops yield: mixed with more positiveHT crops yield: mixed with more positive HT crops returns: split 50:50 HT crops returns: split 50:50

positive:nonepositive:none Bt crops: yield increasedBt crops: yield increased Bt cotton returns: increasedBt cotton returns: increased Bt corn returns mixed: It Depends!Bt corn returns mixed: It Depends!

My work on Bt cornMy work on Bt corn

Bt corn increase net returns, depending Bt corn increase net returns, depending onon pest pressure, yield potential, tech fee, pricepest pressure, yield potential, tech fee, price Simple tool based on historical ECB dataSimple tool based on historical ECB data

Yield effect from isoline trials in IowaYield effect from isoline trials in Iowa Control for ECB tunneling, still have 1.65% Control for ECB tunneling, still have 1.65%

yield increase for Bt even if no ECB damageyield increase for Bt even if no ECB damage Source:1Source:1stst generation ECB control, secondary generation ECB control, secondary

pest control, differential genetics?pest control, differential genetics?

Expected % Yield Loss due to ECB by WI Crop Districts

3.7%3.0%

3.4%

4.7%4.6% 3.7%

5.4% 5.1% 4.8%

Why do farmers value Why do farmers value transgenics?transgenics?

Fernandez-Cornejo and Caswell (2006) Fernandez-Cornejo and Caswell (2006) based on ARMS 2001-2003 surveysbased on ARMS 2001-2003 surveys

HT and Bt cottonHT and Bt cotton Increased yields: 59-67%Increased yields: 59-67% Save mngmt time/easier practices: 15-Save mngmt time/easier practices: 15-

26%26% Decrease pesticide input costs: 11-17%Decrease pesticide input costs: 11-17%

Bt corn (ECB only)Bt corn (ECB only) Increased yields: 79%Increased yields: 79% Save mngmt time/easier practices: 9%Save mngmt time/easier practices: 9% Decrease pesticide input costs: 6%Decrease pesticide input costs: 6%

How valuable are the non-How valuable are the non-monetary benefits of monetary benefits of

transgenics?transgenics? Marra and Piggott (2006)Marra and Piggott (2006)

Decompose willingness to pay for trangenics Decompose willingness to pay for trangenics crops (above tech fee) into its componentscrops (above tech fee) into its components

US RR soybeans, North Carolina HT cropsUS RR soybeans, North Carolina HT crops Convenience 53-58%Convenience 53-58% Operator/worker safety 21-22%Operator/worker safety 21-22% Environmental safety 20-25%Environmental safety 20-25%

CRW Bt CornCRW Bt Corn Improved standability 34%Improved standability 34% Time savings; Equipment savings; Time savings; Equipment savings;

Operator/worker safety; Environmental safety: Operator/worker safety; Environmental safety: Each 14-19%Each 14-19%

Who gets the value of Who gets the value of transgenics?transgenics?

Price et al. (2003) analyze Price et al. (2003) analyze World Social SurplusWorld Social Surplus If willing to pay $15/ac for Bt corn, but actually If willing to pay $15/ac for Bt corn, but actually

pay $10/ac, have $5 of surpluspay $10/ac, have $5 of surplus Comparable version for seller’s tooComparable version for seller’s too Transgenics decrease crop prices, change seed Transgenics decrease crop prices, change seed

demands, affect world consumers and farmersdemands, affect world consumers and farmers Price et al. build system to analyze these issues, Price et al. build system to analyze these issues,

plus compare their results to others’plus compare their results to others’ Three crops: Bt cotton, RR cotton, RR soybeansThree crops: Bt cotton, RR cotton, RR soybeans

Price et al. (2003)Price et al. (2003) Bt Cotton: $212-300 million in 1997Bt Cotton: $212-300 million in 1997

US farmers 29-39% (small yield effect on US farmers 29-39% (small yield effect on cotton price and pesticide costs drop)cotton price and pesticide costs drop)

US consumers: 14-17%US consumers: 14-17% Monsanto 21-29%Monsanto 21-29% Delta and Pine Land 4-6%Delta and Pine Land 4-6% Rest of World farmers and consumers 19-22%Rest of World farmers and consumers 19-22% Big losers: ROW farmers lose $135-235 millionBig losers: ROW farmers lose $135-235 million Big winners: ROW consumers $181-291 millionBig winners: ROW consumers $181-291 million Decreased world cotton price 0.5-0.8 ¢/lbDecreased world cotton price 0.5-0.8 ¢/lb

Price et al. (2003)Price et al. (2003) RR Cotton: $231 million in 1997RR Cotton: $231 million in 1997

US farmers 4% (high tech fee and seed US farmers 4% (high tech fee and seed price and lower cotton price)price and lower cotton price)

US consumers 57% (Big Winners)US consumers 57% (Big Winners) Monsanto 5%Monsanto 5% Delta and Pine Land 2%Delta and Pine Land 2% Rest of World farmers and consumers Rest of World farmers and consumers

33%33% Big losers: ROW farmers lose $733 millionBig losers: ROW farmers lose $733 million Big winners: ROW consumers $809 millionBig winners: ROW consumers $809 million Decreased world cotton price 2.5 ¢/lbDecreased world cotton price 2.5 ¢/lb

Price et al. (2003)Price et al. (2003) RR Soybeans: $308 million in 1997RR Soybeans: $308 million in 1997

US farmers 20% (small yield increase, small US farmers 20% (small yield increase, small herbicide savings, lower price)herbicide savings, lower price)

US consumers 5%US consumers 5% Monsanto 28% (not including Roundup Monsanto 28% (not including Roundup

sales)sales) Seed companies 40% (minus licensing fees)Seed companies 40% (minus licensing fees) Rest of World farmers and consumers 6%Rest of World farmers and consumers 6% Big winners: Seed companies & MonsantoBig winners: Seed companies & Monsanto Decreased world soybean price 1.2 ¢/buDecreased world soybean price 1.2 ¢/bu

Bt corn: My guessBt corn: My guess Bt corn has a yield increasing effect, Bt corn has a yield increasing effect,

which suppresses prices somewhich suppresses prices some Bt corn tech fees transfer some, but Bt corn tech fees transfer some, but

not all, Bt value to companiesnot all, Bt value to companies Companies supply Bt competitivelyCompanies supply Bt competitively Not lots insecticide used beforeNot lots insecticide used before Winners: consumers and farmersWinners: consumers and farmers Losers: ROW farmers (price effect)Losers: ROW farmers (price effect) Companies: get some surplus, but not Companies: get some surplus, but not

lotslots

SummarySummary Adoption saturation in soybeans and cotton, Adoption saturation in soybeans and cotton,

corn continuing to increasecorn continuing to increase Adoption data and many analyses show Adoption data and many analyses show

transgenics are valuable: how much?transgenics are valuable: how much? Source of value is more than yield/profit: Source of value is more than yield/profit:

time/management convenience, safetytime/management convenience, safety Who gets benefits varies among cropsWho gets benefits varies among crops

Bt cotn: 1/3 farmers 1/3 innovator 1/3 consumersBt cotn: 1/3 farmers 1/3 innovator 1/3 consumers RR cotn: 90% consumers 5% innovator 5% farmersRR cotn: 90% consumers 5% innovator 5% farmers RR soyb: 20% farmers 70% innovator 10% RR soyb: 20% farmers 70% innovator 10%

consumersconsumers

Remaining Economic IssuesRemaining Economic Issues

Raise three that economists can play Raise three that economists can play role inrole in

Transgenics and pesticide useTransgenics and pesticide use Resistance management and Resistance management and

mitigationmitigation Transgenics and IPMTransgenics and IPM

Transgenics and Pesticide Transgenics and Pesticide UseUse

Do transgenics reduce pesticide use?Do transgenics reduce pesticide use? Economic models using experimental Economic models using experimental

data or econometric analyses of survey data or econometric analyses of survey datadata

Fernandez-Cornejo and Caswell (2006)Fernandez-Cornejo and Caswell (2006) Debated, but generally find (small) decreaseDebated, but generally find (small) decrease

Lots potential for transgenics to reduce Lots potential for transgenics to reduce pesticide usepesticide use RW Bt corn and 2006 IL and IN adoptionRW Bt corn and 2006 IL and IN adoption Insect Resistant SoybeansInsect Resistant Soybeans Why Bt sweet corn and not Bt potatoes?Why Bt sweet corn and not Bt potatoes?

Resistance and TransgenicsResistance and Transgenics

When will resistance/field failures occur?When will resistance/field failures occur? Weed shifts due to RR systemWeed shifts due to RR system Roundup resistant mare’s tailRoundup resistant mare’s tail Expect more with long-term widespread Expect more with long-term widespread

useuse Secondary pest problems due to Bt cotton Secondary pest problems due to Bt cotton

without refuge in China (Wang et al. 2006)without refuge in China (Wang et al. 2006) Bt crops in USA—no resistance yet!Bt crops in USA—no resistance yet!

Resistance ManagementResistance Management Why no weed resistance management?Why no weed resistance management?

Use economic incentives to promote?Use economic incentives to promote? Is the compliance assurance program Is the compliance assurance program

(CAP) sufficient for IRM in Bt crops?(CAP) sufficient for IRM in Bt crops? Do we need something different/stronger?Do we need something different/stronger?

With multiple pests, multiple toxins, With multiple pests, multiple toxins, multiple crops, does refuge still work?multiple crops, does refuge still work?

Economics of resistance mitigation Economics of resistance mitigation plansplans Ecological-Economic model to determineEcological-Economic model to determine

IPM and transgenic cropsIPM and transgenic crops

Why no IPM for transgenic crops?Why no IPM for transgenic crops? Bt and RR crops over 10 years, no IPM!Bt and RR crops over 10 years, no IPM! NC IPM Grant: IPM for RW Bt corn t control NC IPM Grant: IPM for RW Bt corn t control

rotation resistant Western CRWrotation resistant Western CRW Regional ECB population forecast to make Regional ECB population forecast to make

regional recommendations for Bt useregional recommendations for Bt use Economics of regional/areawide pest Economics of regional/areawide pest

management via transgenicsmanagement via transgenics Regional pest suppression via Bt cotton in Regional pest suppression via Bt cotton in

AZAZ

CitationsCitations USDA NASS Acreage ReportUSDA NASS Acreage Report

www.nass.usda.govwww.nass.usda.gov→→PublicationsPublications→→AcreageAcreage USDA-ERS reports: www.ers.usda.govUSDA-ERS reports: www.ers.usda.gov

First Decade of Genetically Engineered First Decade of Genetically Engineered Crops in the U.S. (F-C and Caswell 2006)Crops in the U.S. (F-C and Caswell 2006)

Size and Distribution of Market Benefits Size and Distribution of Market Benefits From Adopting Biotech Crops (Price et al. From Adopting Biotech Crops (Price et al. 2003)2003)

Regulating Agricultural Biotechnology: Regulating Agricultural Biotechnology: Economics and Policy, Just et al. 2006Economics and Policy, Just et al. 2006 Marra and Piggott, Wang et al. Marra and Piggott, Wang et al.

Questions?Questions?

Paul D. MitchellPaul D. Mitchell

Agricultural and Applied EconomicsAgricultural and Applied Economics

University of Wisconsin-MadisonUniversity of Wisconsin-Madison

427 Lorch Street427 Lorch Street

Madison, WI 53705Madison, WI 53705

608.265.6514608.265.6514

pdmitchell@wisc.edupdmitchell@wisc.edu