The Economics of Biotech Crops in Developing Countries


Developing countries accounted for 38 percent of the worldwide acreage of biotech crops in 2005 according to the International Service for the Acquisition of Agri-Biotech Applications (ISAAA). A recent review of peer-reviewed research of on-farm experiences with commercial cultivation of biotech crops in developing countries provides comparisons across countries and identifies factors that influence the economic value of biotech crops. The study titled “Economic Impact of Transgenic Crops in Developing Countries” by Dr. Terri Raney, Senior Economist in the Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations in Rome, Italy was published in Current Opinions in Biotechnology.

Peer-reviewed analyses of commercial cultivation of insect-resistant (IR) cotton have been completed for Argentina, China, India, Mexico and South Africa. Average yield increases ranged from 11 percent to 65 percent. Yield increases were smallest in Mexico where Bt cotton provided resistance to a narrow range of pests. The greatest benefits were in South Africa.

Pesticide cost reductions ranged from 41 percent to 77 percent, with Mexico having the largest decline in pesticide costs. Pesticide costs declined by 67 percent in China, 58 percent in South Africa, 47 percent in Argentina and 41 percent in India. Seed costs had a wide range of increases from 530 percent in Argentina, 165 percent in Mexico, 95 percent in China, 89 percent in South Africa and 17 percent in India.

Profits in China for IR cotton were 340 percent of the levels for non-IR cotton as the 23 percent revenue increase and 67 percent reduction in pesticide costs far offset the almost doubling of seed costs. South Africa showed similar results with profits for IR cotton at 299 percent of the level for non-IR cotton as the 65 percent increase in revenue and 58 percent decline in pesticide costs offset the 89 percent higher seed costs. Profits in India were 69 percent higher for IR cotton as the 33 percent increase in revenue and 41 percent decline in pesticide costs offset the modest 17 percent increase in seed costs. Profits were 31 percent higher in Argentina as the sharply higher seed costs were offset by a 34 percent increase in revenue and a 47 percent decline in pesticide costs. In Mexico the reduction in pesticide costs offset the higher seed costs and resulted in a 12 percent increase in profits.

The study for India had data for four major cotton growing states. Andhra Pradesh had a 3 percent decline in revenue and 13 percent higher total costs for a 40 percent decline in profits. Tamil Nadu had a 44 percent increase in revenue and a 5 percent increase in total costs resulting in profits that were 229 percent of the profits for non-IR cotton, while Karnataka had a 67 percent increase in revenue combined with 19 percent higher costs resulting in profits that were 172 percent of the level for non-IR cotton.

The review noted that biotech crop benefits are influenced by public policies, agronomic conditions and private markets in a country. The lack of locally adapted cultivars may have played a role in the low cotton yields in Andhra Pradesh state in India. In 2003 when the analysis was done only four IR cotton varieties were available for the entire country. In 2005 the number of approved IR cotton varieties had increased to 20 and acreage was 13 times larger than in 2003 at 3.2 million acres according to the ISAAA.

China is the leader among developing countries in national research capacity for biotech crops with two biotech systems for insect resistance. These have been incorporated into local cotton varieties and provide competition for Monsanto cotton varieties. The researchers attribute this competition with helping to keep biotech seed costs lower than in some other developing countries. In Argentina intellectual property rights have been strictly enforced and IR cotton seed price increases have been higher.

The experiences of IR cotton production in the Makhathini Flats of KwaZulu Natal province of South Africa show the importance of functioning input and product markets. A local cooperative provided seed on credit along with technical advice and had the only cotton gin in the area. When another gin opened into the area the cooperative stopped providing seed on credit. Cotton production in the area has declined sharply.

Some of the reviewed research provided analysis by size of farm. In China about 7.5 million small farmers grew biotech cotton. Farms with less than 1.2 acres of cotton had the largest yield increases, and mid-size farmers, 1.2-2.5 acres of cotton, had the largest reductions in total costs. The percent gain in net income of these two groups was more than twice as large as that for farms with more than 2.5 acres of cotton. The South African research showed that low income farmers had economic gains and health and environmental benefits from less pesticide use.

Peer-reviewed research in developing countries for other crops is much more limited. Argentina has peer-reviewed studies on herbicide tolerant soybeans, and Argentina and South Africa have peer-reviewed studies on IR corn. The South African research reported that small corn farmers had higher yields, while larger farmers benefited from higher yields, lower pesticide costs and increased incomes. The researchers noted that providing seed at affordable prices is critical to increased biotech production among small producers.

The author of the review concluded that national institutional capacity in research and regulations are prerequisites for access to innovations at competitive terms. Seed supply markets and effective intellectual property rights management are also important. Without these conditions, access for low income producers will remain a formidable challenge.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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