Project Summaries

07-144  Project Manager: J. M. Reeves

BIOTECHNOLOGY AND COTTON

David Zilberman, University of California

The overall objective of this research is to analyze how changes in the regulation and intellectual property and availability of genetically modified (GM) traits will affect the economics of cotton, its price, output, land and other resource use. The second objective is to analyze the economic factors that will affect adoption of genetically modified varieties of cotton under various conditions. The locational differences that affect adoption of Bt cotton will affect the relative gains and losses from the technology and how its introduction will affect the price and total output of cotton.

In 2012, this study has been concentrated on assessing the aggregate effects of biotechnology on cotton and other agricultural products. Much of the literature studies the impacts of GM technology on cotton through small studies that look at impacts based on farm level data in certain regions. Then those studies use the results obtained to test predictions and theories. In particular, theories suggest that introduction of pests controlling biotechnology will reduce pesticide use when it replaces pesticides and increase yields when it addresses pest problems that were previously controlled ineffectively. Indeed, case studies show that adoption of Bt cotton increased yields by 10-15% in developed countries like the U.S. and by 30-80% in developing countries. However, there have not been any studies that estimate the overall effect of GM cotton. Similarly, theory suggests that GM cotton will tend to expand the total acreage of cotton, especially in locations with prevailing yield effects, and switch cotton from locations where the yield effect is low to locations where the yield effect is high. However, there has not been much evidence to support this theory.

This study has developed a new econometric approach to assess the yield effect of cotton on a national level. Using data from the Food and Agricultural Organization of the United Nations (FAO) on output and acreage of cotton and other major crops over a long period of time as well as data on GM cotton from other sources, estimates of the yield effect of cotton under various assumptions were made. It was found that average cotton yields increase due to GM technology by 10-25% in developed countries and 30-70% in developing countries. The average impact on yield per acre varies from 25-45%, and the aggregate supply effects of GM on cotton will be estimated in 2013.

The estimation of the supply effect of GM on cotton is quite challenging. While regression analysis is very effective in estimating the yield effect, it is not effective on measuring changes in yield due to the profitability of cotton compared to other crops, which normally leads to changes in the total acreage of cotton. A model that is part of this study has been developed that assesses the evolution of cotton acreage over time, and this model has shown that in some countries cotton acreage has increased. It is assumed that these increases are a result of adoption of GM technology, as increased productivity has increased cotton production in areas that were unprofitable before due to pest problems. At the same time, in other regions like the United States where the yield effect has been less substantial, cotton has lost out to other crops whose acreage has been increasing. Altogether, this study has shown that because of GM technology, cotton acreage has increased by about 15%, but there has been expansion in developing countries and reductions in acreage in the U.S.

To garner a reliable estimate of the impact of GM on cotton, the impact of GM on competing crops like corn and changes in relative crop prices must be evaluated. This requires use of a multi-market model that is under development this past year and will be finished by the end of this coming year. Several scenarios under different assumptions about the yield effect of GM and the impact of GM on cotton acreage are being assessed. Early results suggest that because of GM, there has been between 15-30% increase in the supply of cotton, which may result in a 10-40% reduction in cotton prices depending on price elasticities as well as the scenario being considered. These early estimates have to be further refined as model is improved.

One has to recognize that GM adoption not only reduces the price of cotton but also reduces the price of alternative crops like corn, where the price effect of GM is between 15-40%. Since the yield effect of GM varies across location, substitution from cotton to corn has been in locations where the price effect of GM on cotton was relatively low while the price effect of GM on corn was relatively high, which is mostly seen in the U.S. While GM may have reduced the price of cotton, it has also substantially reduced the cost of production of cotton because of savings related to pesticides and yield increases. The net impact on profitability is unclear, but it is likely to be positive. As better modeling tools are developed and more data obtained, more refined results will be available next year.

 

Project Year: 2012
 

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