Impact of New Technologies

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GMOs in Food Economic Impact on Various
Stakeholders in the EU and in the World This
presentation can be downloaded at
http//www.biw.kuleuven.be/aee/clo/euwab.htm Email
koen.dillen_at_biw.kuleuven.be
Course Social and Ethical Aspects of
Biotechnology, VUB, Brussels, 29 November 2007.
Koen Dillen Erik Mathijs Eric Tollens
Centre for Agricultural and Food Economics,
K.U.Leuven
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Introduction

• GM experience gap EU vs. ROW ?
• EU has chosen the option to wait through the 1998
  moratorium and current coexistence regulation
  process, postponing release
• This option has a value and a cost, i.e.
  potential welfare effects forgone
• The trade-off of both needs to be assessed
• in order to know the ex post implications of our
  decision in the past, i.e. 1998
• in order to know the ex ante implications of
  future decisions to be taken

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IntroductionSystemic Approach is Needed
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Upstream
Downstream
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Introduction

• Most of the recent agbiotech innovations have
  been developed by private sector (upstream),
  mostly because of very stringent regulations and
  as such high costs for legislation
• Therefore, the central focus of societal interest
  is not on the ROR of RD, but on distribution of
  benefits among stakeholders in the technology
  diffusion chain
• But what are the  benefits  and  costs 
  arising from GM crops?

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Introduction4 Quadrants of Research in B/C
Analyses

• ethical pros, perception of sustainable and
  environment-friendly agriculture
• less damage on honey bees due to less pesticide
  use
• increase biodiversity in field (herbicide
  tolerant beet)

• yield increase
• pest control cost decline
• labour savings
• non-pecuniary benefits like management savings
  and ease of use
• market effects like price declines and consumer
  surplus

• technology fee
• other variable costs associated with the
  introduction of GM crops (irrigation)
• market effects like price declines

• ethical cons, perception of non-sustainable and
  non environment-friendly agriculture

• decline of environmental externalities due to
  less pesticide use

• gene flow, outcrossing and weediness
• development of resistance (insects, weeds)
• decline biodiversity (less varieties)
• impacts on non-target species (lepidopteran,
  birds, wildlife, )

• health benefits (Bt crops)

• fixed cost engendered by e.g. identity
  preservation system on the farm

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Introduction

• EUWAB-project (European Union Welfare effects of
  Agricultural Biotechnology)
• Pre-coexistence (although some work on
  coexistence as well)
• What have we learned so far from ex post and ex
  ante agbiotech impact assessments in the EU?

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Global Case Studies
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Global Case Studies

• Farmers capture sizeable gains
• Size and distribution of welfare effects of the
  first generation of GE crops are function of
• 1. Adoption rate
• 2. Crop
• 3. Biotech trait
• 4. Geographical region
• 5. Year
• 6. National policies and IPR protection
• 7. Assumptions and underlying dataset
• On average, domestic farmers and consumers
  extract 2/3 of the benefits while 1/3 is captured
  by the seed industry

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Upstream Average 37
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Global Case Studies

• Hence, benefit sharing seems to follow a general
  rule of thumb
• 1/3 upstream vs. 2/3 downstream (Demont, Dillen
  et al.)

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Global Case Studies

• This 21 rule of thumb seems to be valid for both
  industrial and developing countries
• Typical for large exporting countries
  international trade of both the innovation
  (multinationals) and the commodity
• ? international spillover effects
• ? possibility of immiserising growth
  (Bhagwati, 1958)

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EU Case Studies

• De facto moratorium on GM crops October 1998
  May 2004 (Syngenta Bt 11 maize)
• 1998-2002 Adoption stagnated at 25,000 ha Bt
  maize in Spain, doubled afterwards
• 2007 6 Bt maize growing EU Member States Spain,
  Portugal, France, Czech Republic, Germany,
  Slovakia (but still only MON810)
• De facto moratorium and the postponement nowadays
  implies a cost to society deadweight cost or
  benefits foregone of GM crops
• But we need a representative EU case study to
  show this!

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GM crops in EU
Hectares 2005 2006 2007
Spain 53,225 53,667 75,148
France 492 5000 21,174
Czech Republic 150 1,290 5,000
Portugal 750 1,250 4,500
Germany 400 950 2,685
Slovakia 30 900
Romania 110,000 90,000 350
Poland 100 320
TOTAL 62,187 110,077
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EU Case Studies

• Preferable conditions of a good EU case study
• Crop representative for EU agriculture
• Crop problem representative for EU agriculture
• Important EU export commodity (spillover)
• Acceptance of GM variety realistic
• GM variety near commercialization
• Some impact data available, e.g. field trials
• Sugar beet fullfills most criteria
• And we have ex post impact evidence from Spain

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EU Case Studies
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EU Case Studies
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EU Case Studies

1. Bt maize resistant against European corn borer
   (ECB) Ostrinia nubilalis (Hübner) and
   Mediterranean corn borer (MCB) Sesamia
   nonagrioides (Lefebvre) in Spain (Demont and
   Tollens, 2004b)
2. Herbicide tolerant (HT) sugar beet in the former
   EU-25 (Dillen,Demont and Tollens, 2007)
3. Bt maize resistant against ECB in Hungary /Czech
   Republic(Demont et al., 2007)
4. Bt maize resistant against Western corn rootworm
   (WCR) Diabrotica virgifera virgifera LeConte in
   Hungary/Czech
5. Herbicide tolerant maize in Hungary/Czech
6. Herbicide tolerant sugar beet in Hungary/Czech
7. Herbicide tolerant oilseed rape in Hungary/czech

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Bt Maize in Spain
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Bt Maize in Spain

• 2 corn borers ? important losses in Spanish maize
  production 9 on average
• Syngenta ? 2 Bt maize varieties Compa
  CB Jordi CB
• Today only MON810 varieties
• Government ? 20.000 ha limit
  5,2 adoption (in this period)
• Analyze 1998-2003

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Bt Maize in Spain

• Farm level analysis
• - standard damage abatement function
• - damage stochastic (lognormal)
• - calibrated on real corn borer damage data
• Aggregation to national level
• - Alston, Norton Pardey (1995) (ANP)
• - small, open economy
• - Oehmke Crawford (2002) Qaim (2003) (OCQ)

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Bt Maize in Spain
Introduction HT Sugar Beets Bt
Maize Environment Conclusion
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Herbicide Tolerant Sugar Beets

• Effective weed control crucial
• Yield losses up to 100 due to weed competition
• Glyphosate and Glufosinate-ammonium
  broad-spectrum post-emergence herbicides, low
  toxicity
• Introduction of genes from soil bacteria in beet
  genome ? Roundup Ready (Monsanto)
• Broad-spectrum weed control
• Less applications
• Less volume active ingredient
• More flexibility in timing

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Herbicide Tolerant Sugar Beets

• Farm level analysis
• - assume standard HT replacement programs
• - compare costs with observed programs
• -model the heterogeneity among farmers
• -some farmers rationaly decide to adopt, others
  not choose not to
• -calculate the optimal technology fee

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Herbicide Tolerant Sugar Beets

• Uniform monopolistic price setting
• Part of monopolistic rent accrues to farmers
• Third degree price discrimination
  preferable-gtBt-maize, Bt cotton

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Herbicide Tolerant Sugar Beets

• Data ex ante
• - No adoption of the new technology
• - No farm level impact data, only field trials
• - Assumptions 1. Yield impact
• 2. Form of the density curve
• - Sources expert opinions, literature, economic
  theory, national surveys, Eurostat
• - Stochastic simulation (monte carlo)

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Bt Maize in HungaryEuropean Corn Borer (Ostrinia
nubilalis Hübner)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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Bt Maize in HungaryWestern Corn Rootworm
(Diabrotica virgifera virgifera LeConte)
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WCR in Czech Republic
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Methodology

• Micro-economic level
• Develop bio-economic pest damage abatement models
• Calibrate on real field data (surveys, expert
  opinions, literature)
• Model heterogeneity
• Pre-coexistence
• Incorporate uncertainty
• Macro-economic level
• Model GM crop adoption through partial
  equilibrium displacement model (EDM)
• Incorporate market structure and response
• Incorporate trade policies
• Incorporate uncertainty

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Data

• Ex ante no adoption data available
• Data mining, combine different data sources
• National and international statistics
• National and regional farmer surveys
• Field trials
• Expert opinions
• Literature
• Assumptions
• Economic theory
• Importance of modelling data uncertainty and
  conducting sensitivity and scenario analyses

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Results
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Discussion

• Total benefits per hectare are fairly robust
  measure of value or size of the innovation
• This value is distributed among input industry
  and farmers (who share it with consumers)
• Market power of input industry is constrained by
  5 factors
• Farmer heterogeneity (e.g. Bt maize)
• Uncertainty and irreversibility
• Competition from chemical industry
• Competition within biotechnology industry
• Coexistence regulation (EU)
• Immiserising growth unlikely due to
• Smaller scale heterogeneous innovation pattern
• Common Agricultural Policy (CAP) protecting
  farmers against eroding world prices

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Discussion
Non-Pecuniary Benefits of HT Crops Management
Flexibility and Convenience
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Discussion

• Coexistence, the last hurdle to GM crops?
• European Commission (2003)
• Coexistence refers to the ability of farmers to
  make a practical choice between conventional,
  organic and GM genetically modified crop
  production, in compliance with the legal
  obligations for labelling and/or purity
  standards. The adventitious presence of GMOs
  genetically modified organisms above the
  tolerance threshold set out in Community
  legislation triggers the need for a crop that was
  intended to be a non-GMO crop, to be labelled as
  containing GMOs. This could cause a loss of
  income, due to a lower market price of the crop
  or difficulties in selling it. Moreover,
  additional costs might incur to farmers if they
  have to adopt monitoring systems and measures to
  minimise the admixture of GM and non-GM crops.
  Coexistence is, therefore, concerned with the
  potential economic impact of the admixture of GM
  and non-GM crops, the identification of workable
  management measures to minimise admixture and the
  cost of these measures.

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Discussion

• What is coexistence? A cost or an incentive?
• Ex-ante measure
• The right to choose (farmers consumers)
• Gene flow, pollen drift, contamination,
  commingling
• Coexistence is only relevant
• if there is a significant long-term domestic or
  international (export) consumer demand for non-GM
  crops (e.g. not cotton)
• if this demand translates into market signals
  (e.g. price premiums for non-GM crops)
• if there is a significant farmer demand for
  cost-reducing transgenic crops (e.g. not
  ECB-resistant Bt maize in Belgium)
• Costs proportional to economic incentives

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Discussion

• Coexistence costs borne by 2 incentives
• Farmer profits of GM crops (GM rent)
• Price premium of identity preserved (IP) crops
  (IP rent)

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rupture point
co-existence costs
IP rentseeking
GM rents
clustering, reallocation of land
adoption
Phase I
Phase II
Phase III
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Coexistence measures

• Definitions
• Isolation distances rigid minimum distance
  rules between GM and non-GM crop fields of the
  same species and imposed on GM crop producers
• Buffer zones flexible segregation measures by
  using field surroundings (which serve as
  cross-pollination zones) with non-GM crops of the
  same species, planted on (negotiable between
  farmers)
• Donor fields (System 1)
• Recipient fields (System 2)
• and planted and cultivated by
• Owner (System a)
• Neighbor (System b)

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ArcView Modelling

• Hypothetical adoption of GMHT OSR in Beauce
  Blésoise region in Central France
• Sample square of 100 km² 6 area
• GIS dataset of sample square 1,508 field
  polygons covering 4,233 ha
• Constrained randomization process
• Generate 10 random allocations of GM and non-GM
  OSR fields in the landscape
• Subject to
• OSR planting density 26 ( 2x regional one)
• GM adoption rate 50
• Represents most stringent scenario of coexistence
  in a single season

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Results

• The domino-effect caused by rigid coexistence
  regulations

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Results

• The domino-effect caused by rigid coexistence
  regulations

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omic Incentives Results Conclusion
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Results

• The domino-effect caused by rigid coexistence
  regulations

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Domino-effect
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Conclusion (coexistence)

• Rigid regulations may impose severe burden on GM
  crop production in Europe
• Even under low demand for IP crops, and hence,
  low demand for coexistence
• Costly, not proportional to incentives and hence
  not consistent with ECs objectives
• Flexible measures are preferable as they are less
  costly and proportional to incentives
• Should be negotiable between adopters and
  non-adopters as both farmer segments have
  economic incentives to ensure coexistence in
  long-run

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Conclusion (coexistence)

• Trade-off between GM and IP rent depends on
  market signals from consumers
• IP incentive only sustainable if consumers
• Have strong sustainable preferences for non-GM
• Are willing to pay significant IP price premiums
• Otherwise no coexistence issue strictu sensu and
  cost pure regulatory burden
• EU policy makers under absence of clear market
  signals for IP, we recommend to shift regulatory
  rigidity from ex ante ? ex post
• To avoid jeopardizing economic incentives for
  coexistence of GM/non-GM in Europe

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Conclusion

• System approach needed
• Case by case
• Producers capture an important part of the
  benefits of transgenic crops most often between
  2/3 and 3/4
• Governments trade policy can influence the
  impact of biotechnology (e.g. sugar sector)
• Coexistence only relevant when 2 incentives are
  both present at the same time GM rent IP rent

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The End

• http//www.biw.kuleuven.be/aee/clo/euwab.htm
• Video request marie.cerovska_at_mze.cz
• Email koen.dillen_at_biw.kuleuven.be

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