The International Consortium on Agricultural Biotechnology Research (ICABR)


The Economics of Value Enhanced Transgenic Crops: Status, Institutional Arrangements and Benefit Sharing

Greg Traxler, Norbert Wilson, Kenrett Jefferson, Josť Falck-Zepeda
Dept. of Agricultural Economics, Auburn University

First generation genetically modified plant varieties (GMVs) decreased farm input costs and in some cases also increased crop yields. Second generation GMVs that modify one or more output characteristic to add value to the commodity are now appearing. The area devoted to value enhanced crops remains relatively small, and nontransgenic varieties accounted for more than 95% of the 3.3 million acres of value enhanced grains and oilseeds planted in the US in 1998 (Penn).

Previous studies have measured the distribution of benefits among farmers, consumers and industry for Bt cotton in 1996-98 and herbicide tolerant soybeans in 1997 (Falck-Zepeda, Traxler, and Nelson, 1999; 2000a; 2000b). In each of these studies farmers obtained a larger share of total economic benefits than either industry or consumers, with farmer shares ranging from 29% - 60%. The implication of these studies is that farmers can do well even in monopolistic input markets. However there is no guarantee that farmers will do as well from second generation GMVs in which farmers, at least initially, will be obliged to sell their output trait GMVs under monopsonistic conditions. The price received for value-enhanced organisms will determined from a demand derived by their value in production of food or feed products. Quality assurance and consolidation in the seed-grain markets will also affect prices received by farmers (Boland et al, 1998 ; Muirhead). For example, no market exists at present for high lysine corn (Boland et al, 1999). To capture any benefits from the derived demand for the output trait, the trait developer may be required to create a new market by forging vertical linkages with processing or merchandising firms, adding to the biotechnology firm/seed firm linkage that was required in the past. Farm prices will be the result of negotiation between farmers and merchandising firms.

In this paper, we propose to estimate the distribution of benefits from output trait GMVs using a standard economic surplus approach (Alston, Norton and Pardey), modified to account for conditions of imperfect competition (Moschini and Lapan; Falck Zepeda, Traxler and Nelson, 2000a). Benefits will be partitioned as accruing to domestic (U.S.) and Rest of World (ROW) consumers, domestic and ROW producers, industry suppliers of biotechnology inputs, and the purchasers of the enhanced output.

We propose to examine the benefits from high oil corn which is a commodity developed through conventional breeding but which required vertical coordination between Pioneer Hi-bred and Continental grain to bring to market. The case study is useful because it is a product already on the market and should lend insight into the effect of monopsonistic output market combined with a monopolistic input market on benefit distribution. The distribution of benefits for less widely grown biotechnology produced products such as high lysine corn, will also be examined. Tracking the distribution of rents over time and across types of innovations will allow us to establish a direct (measurable) link between research investments and output and will help explain the strategic decisions made by the life sciences and other biotechnology firms.

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