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Economic Issues in Agricultural Biotechnology

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Economic Issues in Agricultural Biotechnology Economic Issues in Agricultural Biotechnology. Edited by Robbin Shoemaker, with contributions from Joy Harwood, Kelly Day-Rubenstein, Terri Dunahay, Paul Heisey, Linwood Hoffman, Cassandra Klotz-Ingram, William Lin, Lorraine Mitchell, William McBride, and Jorge Fernandez-Cornejo. Resource Economics Division, Economic Research Service, U.S. Department of Agriculture. Agriculture Information Bulletin No. 762. Abstract Agricultural biotechnology has been advancing very rapidly, and while it presents many promises, it also poses as many questions. Many dimensions to agricultural biotechnology need to be considered to adequately inform public policy. Policy is made more difficult by the fact that agricultural biotechnology encompasses many policy issues addressed in very different ways. We have identified several key areasagricultural research policy, industry structure, production and marketing, consumer issues, and future world food demandwhere agricultural biotechnolo- gy is dramatically affecting the public policy agenda. This report focuses on the economic aspects of these issues and addresses some current and timely issues as well as longer term issues. Keywords: Biotechnology, economics, adoption, patents, research policy, markets, market segregation, and identity preservation. Note: The use of commercial or trade names does not imply approval by USDA or ERS. Acknowledgments The authors want to thank the tireless efforts of the editor, Linda Hatcher, for doing a great job and keeping the project on track. We also want to thank Vic Phillips for his creative design. Finally, we want to thank the contributors for their input into this document and their attempts to keep it current and to the numerous reviewers for their helpful comments and suggestions. Washington, DC 20036-5831 February 2001 Contents Page Summary.................................................................................................................iv Introduction.............................................................................................................1 Background..............................................................................................................3 Important Changes in the Agricultural Input Industry........................................3 Forces Driving Changes in the Agricultural Input Industry Plant Breeding and Biotechnology ...................................................................6 Trends and Contributing Factors........................................................................10 Farm-Level Effects of Adopting Genetically Engineered Crops Preliminary Evidence from the U.S. Experience............................................10 Enhanced Output Traits and Market Coordination ...........................................16 Implications of Testing and Segregating Nonbiotech Crops for Grain Grades and Standards......................................................................................23 Public Policy Considerations ...............................................................................28 Consumer Acceptance .......................................................................................28 Public and Private Agricultural Research .........................................................36 Meeting World Food DemandThe Role of Biotechnology...........................47 Conclusion .............................................................................................................53 List of Boxes Page Milestones in Molecular Biology and U.S. Agricultural Biotechnology ............9 Genetically Engineered Products: Transgenic Agricultural Products Approved for Unregulated Release as of May 1999 ...............................................................................................18 Examples of Transgenic Products in the Pipeline .........................................19 Genetically Engineered Fruits, Vegetables, and Livestock...............................21 Biotechnology and the Environment...................................................................32 Seed Technology ....................................................................................................39 Apomixis ...........................................................................................................40 The Technology Protection System (Terminator)..........................................42 World Food Demand: Medium-Term Prospects................................................48 ii ✥ Economic Research Service/USDA Economic Issues in Agricultural Biotechnology / AIB-762 List of Figures Figure Page 1 Public and private agricultural research expenditures in the United States, 1960-96 .............................................................................4 2 Allocation of private research and development spending, 1960 and 1995 ..........................................................................................4 3 Strategic options for vertical coordination ...............................................17 4 Share of cereals area in developing countries planted to improved varieties ..................................................................................50 List of Tables Table Page 1 Adoption of genetically engineered U.S. field crops, 1996-98................13 2 Top five reasons U.S. farmers gave for adopting herbicide-tolerant soybeans/cotton and Bt cotton, 1997........................13 3 Effects of herbicide-tolerant and insect-resistant field crops on economic returns, crop yields, and pesticide use, 1997....................14 Survey results on consumer attitudes toward biotechnology: 4 In agriculture ........................................................................................29 5 To improve foods .................................................................................29 6 To make plants resistant to pests or herbicides....................................30 7 In animal production ............................................................................30 8 In agriculture as a health hazard ..........................................................30 9 Regulation of agricultural biotechnology by agency ...............................31 10 U.S. corn seed market shares....................................................................37 11 U.S. soybean area market shares ..............................................................37 12 U.S. cotton seed market shares.................................................................37 13 U.S. wheat area market shares..................................................................38 Economic Issues in Agricultural Biotechnology / AIB-762 Economic Research Service/USDA ✥ iii Summary The issues associated with agricultural biotechnology Research Policy Issues are complex and varied. Biotechnology poses many In one form or another, however, agricultural biotech- outstanding possibilities for agriculture and other nology is here to stay, despite the changes that will be important areas like medicine, the environment, and determined by demand-side factors. Supply-side fac- biodiversity. While biotechnology could greatly tors will also affect the direction and pace of biotech- expand our frontiers of knowledge and production nology innovation in the long run. Intellectual property potential, many issues must be addressed as we move rights (IPR) and market concentration in the agricul- forward. The array of issues includes the legal, the eth- tural input industries are intertwined areas that are ical, and the economic. This report addresses some of shaped by public policy. The ways in which IPR and the economic issues confronting agriculture. market concentration influence innovation are not well The complexity of issues stems from the creation and understood. In general, public policy affecting agricul- management of the science, the ownership in intellec- tural biotechnology is less well developed than it is for tual property, the economic nature of the industry information technology. Open but informed debate on undertaking the research, the interaction between pub- these issues is necessary to assess barriers to entry at lic and private research, and the marketing of products. key points in the flow of new technology and to devise Adding to the complexity are concerns about the appropriate public policy responses. implications of biotechnology for new agricultural The response of public-sector agricultural research to products, markets, and contractual arrangements increased private-sector research investment is some- between producers, processors, and marketers. The what better understood, although also subject to acceptance of the technology depends critically on the debate. Public-sector agricultural research increasingly perceptions and attitudes of consumers, both domestic targets basic science and applied science with a public and foreign, and on the expected impacts on food safe- good component. Good examples include natural ty, health, and the environment. The degree of foreign resource research and research on food safety. Even in acceptance can significantly affect international trade areas increasingly dominated by the private sector, and may create the need to segregate and identify such as plant breeding, there are appropriate topics for genetically engineered (GE) products. public-sector research to pursuefor example, funda- The science and its manifestation in new products and mental issues concerning gene interaction, regulation, markets has been
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