The impact and management of biotech on developing countries

1
The impact and management of biotech on
developing countries

• David Zilberman, University of California
• Gregory Graff, University of California
• Matin Qaim, University of Bonn
• Cherisa Yarkin, University of California

2
Presumed Points of Failure

• Productivity Biotechnology aims to solve
  problems of the North will not make a difference
  in the South.
• Access Biotechnology is controlled by
  corporations will not be accessible on feasible
  terms to poor peasants.
• Risks Damage to environment and human health,
  contamination of native genetic materials, and
  loss of crop biodiversity

3
Ag biotech and development

• Ag biotech was developed in the north, with
  application to crop and varieties of developed
  countries
• It mostly served to reduce pesticides use and
  improve profitability.
• Is the first generation of biotech appropriate to
  developing countries
• -will it increase yields?
• How will it affect crop biodiversity?
• We will address these issues here

4
Theory Impacts of ag biotechnology vary

• The impacts of ag biotechnology on yield depends
  on
• where it is applied
• How it is applied
• What was used before
• The management of the crop before and with
  biotech depend on
• socio economic situations and
• institutional arrangement associate with
  biotechnology
• Two important factor
• The extent of use of chemicals
• The varieties that are being modified

5
Productivity Yield-Increasing Potential

• Yield potential output x (1 - damage)
• damage f (pest, pest control)
• Combination of high pest pressure and minimal
  existing use of pest control ? potential for
  yield-increasing effect
• Attractive features of pest-control agricultural
  biotechnologies
• Simplicity of use
• Reduction in use of chemicals or labor
• Expansion of weather conditions where crop grow

6
Technology, variety changes and yield effect

• Adoption of GMO may entail a switch from local
  variety to generic variety
• This switch may reduce yields
• Yield gain Reduction of pest damage of generic
  variety
• - Difference in net yield between traditional
  and generic

7
Example 1

• Potential yield local variety 4 ton/ hectare
• Potential Yield generic variety 3 tons/ hectare
• Damage 50
• Bt reduce damage by 100
• Yield effect of modified local variety
• 4 - 4(1 - .5) 2
• Yield effect of generic variety
• 3 - 2 1

8
Productivity Evidence for Bt Cotton Gains

• Bt cotton in
• United States yield effect 0 15
• China yield effect 10
• South Africa yield effect 20-40
• India yield effect 60 80
• In every country have reduction in chemical usage

9
Some Indian Stories

• Field trials in 2001-2 has yield effect of 80
  with generic variety and 87 with local GMV
• Pesticides use decline by 70
• No wonder yield loss can be 60
• In 2002-3 when actual cotton was planted yield
  effect was between -10-30
• Law pest pressure
• In some locations a wrong variety was introduced
• The yield gain in 2003-4 was higher-higher pet
  damage

10
Robin hood and GMV

• In Gujjarat a local breeder introduced illegally
  Bt cotton with spectacular result
• A unholy alliance of environmentalists and
  companies wanted the cotton to be burned
• Farmer demonstrated and the cotton saved and Bt
  legalized

11
Bt as insurance

• It is meaningless tp speak about yield effect
  since pest damage is a random variable and yield
  effect varies
• A switch to generic GMV may reduce yield in a
  good year but increase it substantially in a bad
  one
• Bt increases mean yield but reduces variance and
  especially down side risk-where pesticides are
  costly and yield losses still may result in
  bankruptcy

12
Example 2
Potential yield 6 local variety 4 generic
variety Damage 25 with 50 probability 50
with 50 probability Bt eliminates pest damage
Adoption of generic Bt Reduces yield from 4.5
to 4 with 50 probability Increases yield from
3.0 to 4 with 50 probability Adoption of local
Bt Increases yield from 4.5 to 6 with 50
probability Increases yield from 3.0 to 6 with
50 probability
13
Biotech risk and farm size

• The gain in terms of risk bearing cost is main
  reason for adoption even in US
• Small farmers that have little access to
  insurance and formal credit market may be
  beneficial of lower risk
• Seed technology has minimal economics of scale,
  reduce need to invest in pest control equipment
  and reduce monitoring time- thus may be appealing
  to small farmer if affordable and Modification is
  done with a good variety

14
Predicted yield effects of pest controlling
Biotech
15
More complete view of adoption

• Farmers may be risk averse- they consider the
  both the mean and risk effects of new GMVs
• They consider local GMV and generic GMVs
• Credit availability is a constraint
• Heterogeneity within and between farms is a
  reason of differentiated behavior
• We may see
• Full adoption/Diversification
• Expansion to areas where the crop is not grown
• Change in economics of insurance

16
Access

• Intellectual Property Rights (IPR)
• Registrations

17
Access Biotechnologies in the South

• Most IP is generated by research in the North
• Transfer of public sectors rights to the private
  sector provides incentives for development and
  commercialization
• Companies have little incentive to invest in
  applications specific to the South

18
Access Biotechnologies in the South

• Companies are willing to give technologies for
  use in South good PR
• Companies worry about liability, transaction
  costs
• Universities with rights to technology will also
  be open to transferring to South applications
• Needed institutional mediation IP clearinghouse

19
Access Objectives of clearinghouse for IPR

• Reduce search costs to identifying set of
  technologies accessible
• Reduce transaction cost for the commercialization
  of innovations
• Increase transparency about ownership of IPR
• Provide mechanisms to manage negotiation of
  access to IPR
• Improve technology transfer mechanisms and
  practices (mostly in public sector institution)

20
Access Model of a clearinghouse for IPR
Member organizations
IP providers
Non-member organizations
Direct licensing transactions
Assignment, license, or option for full or
limited fields of use
Re-packaging
Pooled sub-licensing
Single patent sub-licensing
IP users
Non-member IP users
Non-member IP users
Member organization IP users
21
Access Reducing Regulatory Constraints

• Registration should be efficient. Excessive
  requirements may be used as a source of political
  economic rent seeking.
• Borders are arbitrary. Countries can take
  advantage of regulatory clearances granted
  elsewhere and concentrate on addressing unique
  local problems and risks.
• Countries should develop regional alliances for
  regulation and establish mechanisms for easy
  transfer of regulatory information.

22
Regulatory design-tougher is not better

• Regulation has a role risk control and screening
• Post regulation monitoring can correct
  mistakes-irreversibility happens -but not always
• Tough regulation may lead to
• Concentration
• Delay of introduction of technologies
• Reduced research and investment and retardation
  of technology
• Need to optimize regulation

23
Impacts of regulation strategies

• For plant that reproduce sexually- once a GMV
  variety is developed(an event) the gene is
  inserted to others through back crossing
• Tough regulation of each variety lead to reduce
  choice and switching away from local varieties-a
  small number of varieties will be used and much
  of the potential of innovation lost
• Regulations of events increase choice -cost of
  modifying specific varieties smaller

24
Regulation and pace of change

• Varieties may change rather fast with
  conventional breeding
• Slow regulatory process may result in insertion
  of GMVs in older varieties and loss of benefits
  obtained through conventional breeding-
• Slow regulatory process slow innovation as it is
  reducing returns to and thus investment in
  innovation

25
Environment

• Risks
• Agricultural biodiversity

26
Environment Sound Basis for Risk Analysis

• Is the Precautionary Principle a sound basis for
  risk analysis?
• There are always trade-offs between risks and
  benefits, and between risks and risks.
• In Africa, does risk of genetic contamination
  exceed risk of starvation?
• Agricultural biotechnology should be evaluated in
  comparison to pesticides and other real
  alternatives.
• In tropics, increased productivity would reduce
  pressure for deforestation.

27
Bio tech and environment

• GMO leads to gains in terms of pesticides use
  reduction and reduce acreage as yields increase
• Gene flow is a potential problem- need to be
  monitored
• The risk depends on the gene inserted-Bt and
  vitamin C producing genes may be rather benign -
  but genes can produce toxins-regulations should
  vary

28
Gmos are not perfect-

• Gmos have problems-resistance buildup, damage to
  secondary pests, genetic contamination.
• Refugia, monitoring of impacts, restriction of
  use in some locations can address these problems
  partially-but alternatives have problems and
  risks that have to be considered.
• Agricultural biotech is in its infancy- built up
  of human capital and accumulation of -will lead
  to eliminations of many bug and lead to better
  technologies

29
Environment Sound Basis for Risk Analysis

• Risks and benefits should be quantified.
• Sound reliability factorsi.e. confidence
  intervalsshould be used to standardize risk
  estimates.

30
Environment Relative to Modern Breeding Biotech
Can Enhance Crop Biodiversity

• Main premise Agbiotech allows minor modification
  of existing varieties and under appropriate
  institutional setup can be adopted while
  preserving crop biodiversity
• Conventional breeding involves often massive
  genetic changes, and adjustments to accommodate
  biodiversity are costly and
• Well functioning IPR system can lead to crop
  biodiversity preservation
• Field data support this claim

31
Table 1. Number of available varieties for
different GM technologies in selected countries
(2001/2002)
32
Environment Biodiversity scenarios in the field

• Strong IPRs, strong breeding sector, and low
  transaction costs. (US) Private technology owner
  will license the innovation to different seed
  companies, who incorporate it into many or all
  crop varieties, so that crop biodiversity is
  preserved.
• Strong IPRs, strong breeding sector, but high
  transaction costs. (EU) If an agreement cannot be
  reached, companies will bypass breeding sector,
  directly introduce GM crop varieties that are not
  locally adapted.

33
Environment Biodiversity scenarios in the field

• Weak IPRs and a strong breeding sector. (China)
  Many different GM varieties are available Farmers
  and consumers are beneficiaries. SR social
  optimum.
• Weak IPRs and a weak breeding sector. (Africa) If
  foreign GM crop varieties are even introduced,
  are done directly without adaptation. A loss of
  local crop biodiversity.

34
Biotech Could Enhance Crop Biodiversity

• Conventional breeding led to wholesale
  replacement of land races with elite line
  monocultures
• Biotechnology could provide precise improvements
  to traditional land races
• Could lead to reintroduction of new
  technologically competitive land races -
  Jurasic garden

35
Conclusions

• Agbiotechnology has significant potential for
  developing countries the challenge is to realize
  that potential
• Productivity yield effect of biotechnology tends
  to be larger in developing countries
• Access institutions can reduce IP and regulatory
  costs for developing countries
• Risks crop biodiversity can be preserved and
  could even be restored with biotechnology

36
Ag bio tech is only part of the solution

• Ag biotech is more than Gmos.
• It will evolve- alternative molecular approaches
  will be developed-but
• knowledge will not be accumulated without
  experience
• Development may be dependent on public and
  private sector funding
• Ag biotech must be pursued as part of a portfolio
  of technology and knowledge tools aiming to
  enhance productivity and environmental
  sustainability of agriculture.

37
Consider

• 250 million Americans are the guinea pigs for
  agricultural biotechnology. Northern countries
  also took the risk with cars and with modern
  chemicals.
• Africa missed the Green Revolution will it also
  miss the Gene Revolution?

38
Epilog Differences in attitudes US vs EU- is
it consumers attitudes?

• U.S. relative advantage in Biotech threatens
  European dominance in chemical pest control
  markets

39
Innovative capacity Forward citations to US
agbiotech patents
By nationality of lead inventor and grant date of
cited patent
North American
European
Japanese
40
Innovative capacity Forward citations to US
agrochemical patents
By nationality of lead inventor and grant date of
cited patent
North American
European
Japanese
41
Market incentives Global crop protection
market, sales US millions
agchem
agbio/ seed
Others
Japanese corporations
agchem
US corporations
agbio/ seed
European corporations
agchem
Data Sources Wood Mackenzie Agrochemicals, in
Chemistry Industry, November 1993 and Phillips
McDougall, AgriFutura Newsletter, March 2002
42
Innovative capacity comparing citation based
indices of patent quality
43
Behavioral evidenceDouble standards for the
precautionary principle?

• Double standards applied to intra-EU trade
  relations and external EU trade relations
  (Majone, 2003)
• As applied to chemicals vs. biotechnologies?
• Possible metrics?
• Sources?

44
Behavioral evidenceConspicuous industry absence
from policy process?

• When GM products came to the market in Europe,
  we were faced with contradictory statements or
  even silence both from regulators and from
  industry. This contributed substantially to the
  lack of confidence now present.

- Dirk-Arie Toet Nestec Ltd., 2001
45
The US and EU can fight over control of Pest
control markets Developing countries should not
pay the price
China and India will benefit from biotech- But
what about Africa?