Welfare Implications of Introducing Biotech Traits in a Market with Segments and Segregation Costs: the Case for Roundup Ready® Wheat
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Agribusiness & Applied Economics Report No. 566 June 2005 Welfare Implications of Introducing Biotech Traits in a Market with Segments and Segregation Costs: The Case for Roundup Ready® Wheat William W. Wilson, Eric A. DeVuyst, Won W. Koo, Richard D. Taylor, and Bruce L. Dahl Department of Agribusiness and Applied Economics Agricultural Experiment Station North Dakota State University Fargo, ND 58105-5636 Acknowledgments Constructive comments were received on previous versions of this report from Drs. George Flaskerud, Dragan Miljkovic, and Cheryl Wachenheim. Funding for this research was provided by the Center of Excellence in AgBiotechnology and the Center for Agricultural Policy and Trade Studies at North Dakota State University, Fargo. We would be happy to provide a single copy of this publication free of charge. You can address your inquiry to: Carol Jensen, Department of Agribusiness and Applied Economics, North Dakota State University, P.O. Box 5636, Fargo, ND, 58105-5636, Ph. 701-231-7441, Fax 701-231-7400, e-mail [email protected]. This publication also is available electronically at: http://agecon.lib.umn.edu/. NDSU is an equal opportunity institution. NOTICE: The analyses and views reported in this paper are those of the author(s). They are not necessarily endorsed by the Department of Agribusiness and Applied Economics or by North Dakota State University. North Dakota State University is committed to the policy that all persons shall have equal access to its programs, and employment without regard to race, color, creed, religion, national origin, sex, age, marital status, disability, public assistance status, veteran status, or sexual orientation. Information on other titles in this series may be obtained from: Department of Agribusiness and Applied Economics, North Dakota State University, P.O. Box 5636, Fargo, ND 58105. Telephone: 701- 231-7441, Fax: 701-231-7400, or e-mail: [email protected]. Copyright © 2005 by William W. Wilson. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Table of Contents Page List of Tables................................................................ iii List of Figures ............................................................... iv Abstract .....................................................................v Highlights................................................................... vi 1. Introduction and Overview ................................................1 2. Studies on Welfare Distributions and GM Crops ...............................3 2.1. Welfare Studies on GM Crops ........................................2 2.2. Welfare Studies on GM Wheat .......................................7 3. Issues in GM (RRW) Wheat Impacting the Distribution of Welfare ...............11 3.1. Market Segments on GM Acceptance in Wheat: .........................11 Overview of the Issue .............................................11 Previous Studies..................................................11 Importer Acceptance and Aversion to GM Wheats ......................14 Approach Used in the Analytical Model...............................16 3.2. Segregation Costs ................................................20 Market Mechanisms, Testing, and Tolerances ..........................20 Approach Used in the Analytical Model...............................26 3.3. Dockage Removal Costs ..........................................27 Approach Used in the Analytical Model...............................30 3.4. Yield Increases ...................................................30 Assumption in the Empirical Model ..................................31 3.5. Adopter Cost Savings (Change in Costs and Limits on GM Adopted Acres) ...32 3.6. Non-Adopter Cost Savings .........................................33 3.7. Supply Function Shifts in HRS Producing Regions ......................35 4. Welfare Model ........................................................39 4.1. Model ..........................................................39 4.2. Assumptions/Treatment of Specific Features ...........................39 5. Results...............................................................45 5.1. Base Case Definitions and Alternative Models ..........................45 5.2. Base Case and Market Assumption Scenarios ..........................45 5.3. Sensitivities .....................................................52 6. Summary and Implications ...............................................54 6.1. Overview .......................................................54 6.2. Major Findings ...................................................55 6.3. Implications .....................................................57 6.4. Limitations ......................................................59 References..................................................................61 Table of Contents (Cont.) Page Appendix A: Supply and Demand for Protein in Hard Wheats ..........................70 A.1. Import Demand for HRS and CWRS..................................70 A.2. Supply for HRS and CWRS .........................................71 A.3. Supply/demand for Competitors to These Classes .......................75 A.4. World Production and Exports of Higher-protein HRS Wheats .............77 A.5. Summary .......................................................78 Appendix B: Comparison of Studies on Import Country GM Aversion ...................80 Appendix C: Mathematical Specification of the Analytical Model......................85 Appendix D: Approach and Assumptions in Wisner’s Analysis: Market Risks of RR Wheat Introduction ................................89 ii List of Tables No. Page 2.1. Economic Surplus Generation and Distribution: Argentine Soybeans ...............4 2.2. USDA Baseline Elasticities ................................................5 2.3. Estimated Welfare Effects for Selected Biotech Crops ...........................6 2.4. Comparison of Model Assumptions Used in Biotech Welfare Analysis ..............6 2.5. Impact of Biotech Crops by State ...........................................7 2.6. Assumptions and Impacts of R Wheat on Welfare .............................10 3.1. Concerns About Food Safety ..............................................12 3.2. Market Segments for RR Wheat By Acceptance ...............................17 3.3. Segregation Costs ......................................................25 3.3.1. Costs of Dockage Removal Prior to Export/Shipping ...........................30 3.4.1. Yield Impacts of RRW: RRW vs. Leading Competitive Treatment ................31 3.5.1. Sources of Cost/Values Due to RRW (Averages) ..............................33 3.6.1. Estimated Average Costs for ND Herbicide: Before and After RR Wheat Adoption ...36 4.2.1. Import Demand Parameters ...............................................40 4.2.2. Functional Characteristics for North American Hard Wheats (5-yr. Avg.) ...........41 4.2.3. Supply Parameters and Assumptions ........................................42 4.2.4. Grower Benefits at Calibrated Base Case Values at Different Tolerances ...........43 4.2.5. Grower Benefits of RRW Adoption by State/Province ..........................43 5.1. Comparison of Welfare, Changes in Welfare, Prices, and Market Shares under Selected Scenarios .................................................46 5.2. Equilibrium Market Share, by Scenario .....................................50 5.3. Comparison of Weighted Average Prices for Segregated Market Acceptance with Base Case.........................................................52 5.4. Sensitivity Results ......................................................53 iii List of Figures No. Page 3.1 U.S. Domestic Use and Exports by Segregation ...............................18 3.2 U.S. Average Exports by Segregation .......................................18 3.3 Canadian Domestic Use and Exports, by Segregation ..........................19 3.4 Canadian Exports by Segregation ..........................................19 3.5 North American Exports by Segregation .....................................20 3.6 Distribution of North American Market Segments.............................20 3.2.1. Costs of Segregation for Prior Studies and Model Assumptions ...................27 3.3.1 Average Dockage Levels in U.S. HRS Imports by Country ......................28 3.3.2. Cleaning Costs and Initial/Ending Dockage Content: U.S. .......................29 3.3.3. Cleaning Costs and Initial/Ending Dockage Content: Canada ....................29 3.6.1. Cost/A (Medium Rate) for ND Soybean Chemicals 1996-2003 ...................35 3.7.1. North Dakota Planted Acreage, 1971-2003 ...................................37 3.7.2. Saskatchewan Planted Acreage, 1971-2002 ..................................37 3.7.3. Estimated Supply Functions, by State/Province ...............................38 5.1. Changes in Welfare by Scenario ...........................................47 5.2. Change in Producer Welfare by Scenario ....................................47 5.3. Change in Consumer/Import Welfare by Scenario .............................48 5.4. Change in Consumer Welfare by Scenario ...................................48 5.5. Changes in Prices .......................................................51 5.6. Supply of Wheat by Region, Segmented Market Acc. vs. Base Calibrated ..........51 5.7. Sensitivity: Changes in Prices .............................................54