Consequences of Biotechnology Policy for Competitiveness and Trade of Southern U.S. Agriculture

Journal of Agricultural and Applied Economics, Aug 2005 by Jolly, Curtis, Jefferson-Moore, Kenrett Y, Traxler, Greg

The effect of policy decisions on the competitiveness of genetically modified (GM) crops was examined. The United States has been an early innovator in the development and use of biotechnology crops and has expanded its export market share of the three major GM crops: soybeans, cotton, and corn. Cotton, soybeans, and corn are all grown in the southern states, but these states have an apparent comparative advantage only in the production of cotton, which may be strengthened with the adoption of genetically modified cotton. The influence of biotechnology on the competitiveness of soybeans and corn for the southern states through the introduction of genetically modified organisms (GMOs) is not clear but is probably negligible.

Key Words: biotechnology, competitiveness, southern agriculture

JEL Classifications: Q13, Q17, Q16, Q18

The emergence of practical biotechnology protocols for creating genetically modified plant organisms (GMOs) has transformed the system for supplying improved plant varieties to farmers in a few crops in a few countries. Although more than 200 million acres were planted to genetically modified (GM) crops in 17 countries in 2004, the area was highly concentrated among crops and countries. More than 97% of world GM area planted occurs in just five countries (United States, Argentina, Canada, China, and Brazil), and more than 99% of those areas is under crops containing two types of events (herbicide tolerance and insect resistance) in four crops (cotton, soybeans, corn, and canola) (Tables 1 and 2). Most countries of the world either do not have the capacity to deliver GM technology to their farmers or have some type of restriction on the commercialization of foods containing transgenes. There are large differences among countries in their experiences, public acceptance, and scientific and regulatory capacity to deal with biotechnology products. These differences and the fact that GMOs are concentrated in major traded crops have important implications for international trade. Biotechnology is any technique that uses living organisms or substances derived from these organisms to make or modify a product, improve plants or animals, or develop microorganisms for specific uses (Cohen). Modern biotechnology refers to the applications of new developments in recombinant DNA technology, advanced cell and tissue culture techniques, and modern immunology. Some of the most important applications of modern biotechnology are genomics, bioinformatics, plant transformation, molecular breeding, and diagnostics. The most controversial of these techniques is plant transformation that uses genetic engineering to move genes across species boundaries. Work in all of these areas is progressing in both plants and animals but progress toward commercial products has been greatest in plants.

Biotechnology science is evolving rapidly, spurred by large investments, primarily originating in the private sector (Table 3). An estimated 96% of investment occurs in industrialized countries, and 70% of that investment is undertaken by the private sector. The absence of private investment in developing countries is explained by the small size of their seed markets, the difficulty in protecting intellectual property (IP), the lack of regulatory infrastructure, and the scarcity of good crop varieties in which to incorporate the genetic events. Most of the world's GM area is under feed and oil crops. The delivery of food crops is a new experiment (Table 4). It is not yet known whether consumer resistance to GM food crops, such as rice, wheat, and food maize will be an obstacle to the spread of those crops.

Cotton is an important crop to southern farmers since most of the U.S. production takes place in the southeast and southwest. Soybean is produced mainly in the Midwest, but a few southern states produce significant amounts of soybeans. Corn production has been affected by biotechnology, but low production and yields received from corn in the southern states are indicators that the southeastern states have a slight comparative disadvantage in the production of corn relative to other states and its competitiveness relative to other crops is weak. On the basis of cost reduction, increase in market shares, and resource allocation, we will investigate whether biotechnology has influenced the competitiveness of southern agriculture.

The adoption of GM crops has brought significant gains to those adopting the crops. Regions and nations have all benefited from the adoption of these crops. Studies by Falck-Zepeda, Traxler, and Nelson calculate the annual distribution of benefits among cotton producers, consumers, and germplasm suppliers for the 1996-1998 period using a standard economic surplus model (Alston, Norton, and Pardey). The estimated amount and distribution of benefits from the introduction of Bacillus thurigiensis (Bt) cotton fluctuates from year to year, but total annual benefits created averaged approximately $215 million. The average benefit shares were 45% to U.S. farmers, 36% to germplasm suppliers, and 19% to cotton consumers. Frisvold, Tronstad, and Mortensen use a different modeling approach to calculate aggregate welfare changes from the introduction of Bt cotton in the same period. They estimate a smaller amount of average total benefits ($181 million), a smaller share of benefits to U.S. farmers (20%), and more to U.S. consumers (27%).