Economy-wide Impacts of Bt Cotton

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Economy-wide Impacts of Bt Cotton

• George B. Frisvold, University of Arizona
• Jeanne M. Reeves, Cotton Incorporated
• Cotton Economics and Marketing Conference
• Beltwide Cotton Conferences
• New Orleans, LA January 9 12

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Problem Statement

• 2005 global Bt cotton adoption reaches 8.5
  million hectares
• Most impact studies
• Restricted to farm-level or single country
• Dont consider price effects
• Dont consider trade effects
• Dont consider downstream markets such as
  textiles and apparel

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Alternative Approaches

• Falck-Zepeda, Traxler, and Nelson Two-region (US
  and ROW) cotton sector model
• Frisvold, Reeves, and Tronstad Three-region (US,
  China, and ROW) cotton sector model
• Elbehri and MacDonald Multi-region, multi-sector
  CGE approach using GTAP

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This Study Examines Bt Cotton Adoption Using a
9-region 9-sector Version of GTAP
Regions Sectors
USA Cotton
China Other Crops
India Livestock and Dairy
Australia Processed Food
Mexico Textiles
Argentina Apparel
South Africa Chemicals
EU Manufacturing
ROW Services
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Methods

• Change in unit costs can be decomposed into
  cost-per-acre effects and yield effects
• Cost per acre and yield impacts from empirical
  studies used to construct TFP shocks for GTAP
  simulations
• Shocks based on 2005 adoption rates and most
  recent studies of yield and cost impacts

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Estimated Total Factor Productivity Growth from
Bt Cotton
Productivity Growth
Bt Cotton Adopting Regions Bt Cotton Adopting Regions Bt Cotton Adopting Regions
USA 3.1 3.1
China 9.5 9.5
India 3.3 3.3
Australia 4.0 4.0
Mexico 7.5 7.5
Argentina 1.0 1.0
South Africa 3.2 3.2
Non-Adopting Regions
EU 0.0 0.0
ROW 0.0 0.0
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Percentage Change in Production from Global Bt
Cotton Adoption
Cotton Textiles Apparel
USA 2.2 -0.1 -0.1
China 2.5 1.2 0.6
India 1.5 0.9 0.7
Australia 8.3 -0.5 -0.1
Mexico 5.8 -0.1 -0.1
Argentina -0.5 0.1 0.0
South Africa 7.8 -0.3 -0.3
EU -4.5 -0.5 -0.2
ROW -2.2 -0.4 -0.1
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Percentage Change in Land Rents and Employment
Land Rents -- Sector Employment -- -- Sector Employment -- -- Sector Employment --
Region Land Rents Cotton Textiles Apparel
USA -0.1 -0.9 -0.1 -0.1
China -0.2 -6.7 1.3 0.6
India -0.3 -2.0 0.9 0.7
Australia 0.8 4.4 -0.5 -0.1
Mexico -0.1 -1.7 -0.1 -0.1
Argentina -0.1 -1.5 0.1 0.0
South Africa -0.4 6.2 -0.3 -0.3
EU -0.1 -4.6 -0.5 -0.2
ROW -0.1 -2.3 -0.4 -0.1
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Impact of Global Bt Cotton Adoption on World
Prices and Production (percent change)
World Price World Production

Cotton -3.09 0.35

Textiles -0.20 0.07

Apparel -0.07 lt0.01
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Welfare and Trade Impacts
Economic Welfare Trade Balance Trade Balance Trade Balance
Economic Welfare Cotton Textiles Apparel
USA 207.5 46.9 -89.3 -39.7
China 632.4 75.1 875.8 330.9
India 207.3 38.3 187.4 35.2
Australia 38.8 68.8 -4.8 -1.9
Mexico 65.9 37.1 -7.6 -19.5
Argentina 3.1 -2.9 1.0 -0.5
South Africa 3.0 2.4 -4.8 -0.9
EU 70.5 -32.4 -354.2 -117.9
ROW 151.8 -233.6 -609.9 -196.5
World Total 1,380.2
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Welfare Consequences of Not Adopting Bt Cotton (
US million)
Baseline Only US and China Adopt US Does Not Adopt
USA 207.5 214.8 14.4
China 632.4 642.9 634.1
India 207.3 -5.3 202.0
Australia 38.8 -1.4 47.3
Mexico 65.9 15.7 52.1
Argentina 3.1 -0.7 4.2
South Africa 3.0 1.7 3.1
EU 70.5 45.0 63.7
ROW 151.8 125.6 122.6
1,380.2 1,038.2 1,143.2
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Impacts of US Non-Adoption (US Impacts, Change)
Land Rents --Sector Employment-- --Sector Employment-- --Sector Employment-- --Sector Employment--
Land Rents Cotton Textiles Textiles Apparel
Baseline -0.13 -0.93 -0.93 -0.11 -0.05

US Does Not Adopt -1.16 -1.47 -1.47 -0.20 -0.07
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Conclusions

• Global economic benefits of Bt cotton adoption
  1.38 billion
• US benefits gt207 million
• Developing countries capturing most of gains
• World cotton price lower by 3 and land rents
  fall in most regions
• (technological treadmill effect)

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Conclusions

• Textiles and apparel
• employment, production, and trade balances
  increase in China, India, and Argentina
• decline elsewhere
• reductions greatest in non-adopting regions
• Costs of non-adoption
• Loss in economic welfare
• Lost jobs in cotton, textiles and apparel
  industries
• Lower agricultural land rents