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Economic impacts of biotechnology and trade policies

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Magnitude of boost to unskilled labor from the health benefit of 2nd generation GM crops is speculative Difficulties of adapting and diffusing GM varieties for SSA ... – PowerPoint PPT presentation

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Title: Economic impacts of biotechnology and trade policies


1
Economic impacts of biotechnology and trade
policies
  • Kym Anderson
  • University of Adelaide, Australia, CEPR and World
    Bank
  • kym.anderson_at_adelaide.edu.au
  • www.econ.worldbank.org/programs/trade/biotech
  • Conference on Transgenic Plants for Food Security
  • Pontifical Academy of Sciences, Vatican, 15-19
    May 2009

2
Outline
  • A few simple economic propositions
  • Empirical results, using a multi-country model,
    of 3 case studies of effects on developing
    countries of prospective adoption by some or all
    countries of
  • GM cotton
  • 1st generation GM maize and soybean (and
    prospectively rice and wheat)
  • 2nd generation GM Golden rice

3
A few simple economic propositions
4
How can transgenic crops boost food security in
developing countries?
  • FAO definition of food security
  • Everyone always having access to the
    minimum amount of basic food that is necessary
    for survival
  • Having the wherewithal to grow, or to purchase,
    a minimum basket of food

5
So transgenic crops can boost food security in
developing countries if
  • (a) it improves a households net earnings,
    including in the form of subsistence food
    production,
  • or
  • (b) it lowers the price and/or improves the
    quality of the food bought by the household

6
Does that GM technology have to come from a
private RD firm?
  • No, but if new seeds are more productive, or can
    reach the farmer at a lower cost or sooner if
    developed by the private sector than by the
    public sector, then its worth allowing private
    firms.
  • N.B. (i) in developing countries, the public
    sector spends an average of only 0.3 of the
    value of agric output on RD,
  • N.B.(ii) in the US, private ag RD spending is
    now as large as public agric RD spending

7
If the new technology comes from the private
sector, wont it extract all the benefits?
  • No, they have to pass some of the economic
    benefit to farmers in order to attract them away
    from their current technology
  • But tougher regulatory hurdles adds to RD
    expense and so diminishes the number of private
    suppliers, and hence competition

8
In what ways are farmers affected by a profitable
new transgenic seed?
  • In countries where theyre allowed to adopt it,
    early adopters benefit from its higher
    productivity, net of the cost of the new seed
  • But if many adopt, world price of product falls
  • so those farmers not allowed to adopt are worse
    off
  • and net buyers of that food are better off
  • Take home message 1 both net sellers and net
    buyers of food are affected by transgenics,
    regardless of whether their country adopts

9
First case study Prospective effects of GM
cotton adoption by more developing countries
10
Modeling approach
  • We use the GTAP model of the global economy (a
    wonderful example of an open access research
    tool, see www.gtap.org)
  • We ignore biotech and seed industries gains, and
    simply assume potentially profitable GM seeds
    become available for farmers to purchase and grow
  • so we underestimate substantially the gross gain
    to biotechnology-producing countries and hence
    the world
  • We ignore any producer or consumer externalities,
    positive or negative

11
Estimate of welfare effects from Bt cotton
adoption as of 2001
  • Even without South Asia and SSAfrica embracing
    this biotechnology, the global welfare gain to
    farmers downstream users from all other
    countries adopting GM cotton exceeded US1billion
    per year, assuming a total factor productivity
    (TFP) gain of 5
  • Adoption by SAsia and SSAfrica would raise that
    global benefit to 2.3b (assuming 15 TFP gain by
    those late adopters)

12
Prospective welfare effects from Bt cotton
adoption (2001, assuming 15 TFP gain in SA
SSA)
Welfare (m/yr) of From South Asia Sub-S. Africa (excl. RSA) WORLD
GM cotton adoption by all except SSA 964 -18 2018
Global GM cotton adoption by all including SSA 970 187 2323
13
We understate gains because
  • Health of SAsia and SSA farmers and their soil
    and water would improve (less need to spray)
  • Nearby food crops may benefit from less bollworm
    infestation from cotton crop
  • N.B. Benefits to textile firms in developing
    countries (DCs) from lower world cotton price are
    included in previous slide
  • more jobs, higher incomes, less poverty, hence
    more food security in many more DCs

14
Welfare effects of completing GM cotton adoption
versus removing all cotton subsidies tariffs
Welfare (million/yr) of From South Asia Sub- Saharan Africa
Global GM cotton adoption 970 199
Global removal of cotton subsidies and import tariffs -96 147
Global GM cotton adoption and cotton subsidy/tariff removal 911 370
15
Take-home message 2a
  • Prospective gains from GM cotton adoption to
    Central Asia, Sub-Saharan Africa and South Asia
    are 10, 13 and 23 times greater than the global
    gains when expressed as a percentage of regional
    GDP

16
Take-home message 2b
  • GM cotton adoption in SSAfrica could do far more
    for the region than removal of rich-country
    cotton subsidies and would also boost the gain
    from any future subsidy reform

17
Second case study Prospective effects of GM
maize oilseed adoption by more developing
countries
18
The GM food issue is more complex than the GM
cotton issue
  • First-generation GM food crop varieties provided
    lower prices for buyers of food and animal feeds
  • So GM adoption by North and South America has
    already benefitted consumers in other developing
    countries (DCs), via lower world prices of food
    but especially so in those DCs that allow imports
    of GM food

19
First-generation GM crop varieties (continued)
  • However, DC producers of competing foods, if
    denied the opportunity to adopt, are worse off,
    because of lower price
  • Hence allowing them to adopt boosts the chances
    that country will gain from the technology and
    more so the sooner it approves and the lower the
    regulatory cost of doing so
  • Important caveat the above ignores moratoria by
    3rd countries

20
Modeling approach
  • We again use the GTAP model of the global economy
    (www.gtap.org), but modify it to separate the
    markets for GM and non-GM crop varieties
  • We again ignore biotech and seed industries
    gains, and simply assume potentially profitable
    GM seeds become available for farmers to purchase
    and grow
  • So again underestimating the gross gain to
    biotechnology-producing countries (who could be
    DCs)
  • We ignore any producer or consumer externalities
    (positive or negative) and the value consumers
    place on their right to know if their food
    contains GMOs

21
Global welfare effects of GM corn and oilseeds
(assumes 5.0-7.5 TFP gain), with without EU
moratorium
Economic welfare of (billion/year) NA,ARG RSA EU15 World
NA, ARGRSA adopt (a) no moratorium 1.4 0.3 2.3
(b) EU moratorium 0.9 -3.2 -1.2
All countries adopt 1.2 0.6 4.0
22
What would happen if China and India adopted GM
food?
  • They would also apply it to rice and perhaps
    wheat
  • So with same TFP boost (5.0-7.5)

23
Global welfare effects of GM corn, oilseeds, rice
and wheat, with without EU moratorium
Economic welfare of ( billion per year) NA,ARG RSA EU15 China India SSA World
NA, ARG, RSA, Ch. and India adopt (a) no moratorium 1.5 0.4 1.51 0.0 4.3
(b) EU moratorium 1.0 -4.7 1.48 0.0 -0.9
All countries adopt 1.4 0.8 1.57 0.2 7.5
24
Take-home message 3
  • Adoption of 1st generation GM food in China and
    India would have huge payoff to them, and would
    be affected hardly at all by an EU moratorium
    most of gains would be shared by producers and
    consumers in those two populous DCs (plus gains
    to their biotech and seed firms)

25
Third case study Prospective effects of Golden
rice adoption by developing countries
26
GM food issue is even more complex with 2nd
generation biotechnlogy
  • Some second-generation GM crops promise also
    direct health benefits to food consumers
  • especially poor households in developing
    countries in the case of micronutrient-enhanced
    GM varieties of staple food crops (e.g. Golden
    Rice)

27
Modeling of 2nd gen. GM attributes
  • For first-generation GM varieties, we assumed a
    farm productivity shock for a portion of the crop
    area (around half for food crops)
  • For second-generation GM varieties, we assume
    unskilled labor in poor countries becomes more
    productive
  • ignoring their potential to also lower farm
    costs
  • gt our calculated gross benefits, which also
    still exclude net gains to biotech firms, are
    thus lower-bound estimates

28
Basis of golden rice assumption
  • It has more beta-carotine, which is needed for
    provitamin A production that reduces blindness,
    morbidity and mortality
  • Philippines case study (Zimmerman/Qaim 2004)
    first-strain golden rice could reduce number of
    DALYs lost due to provitamin A deficiency by up
    to 47
  • That is equivalent to an increase in unskilled
    labor productivity in that country of 0.53
  • N.B. the latest strain of golden rice (Paine et
    al., 2005) is many times more effective than that
    first strain, so again our results represent
    lower-bound estimates

29
2nd generation scenarios
  • Two modeling experiments of effects of developing
    countries of Asia adopting Golden Rice
  • (a) if there are no import bans, versus
    (b) in
    the presence of a moratorium by the European
    Union, Japan and Korea

30
Welfare effects of golden rice
Economic welfare of ( billion/year) China India Other Dev. Asia EU15, JaKo WORLD
Dev. Asia adopts golden rice (a) No moratoria 1.8 0.6 1.0 1.2 6.4
(b) EU, JaKo adopt moratorium 1.9 0.6 1.0 -4.7 1.0
31
Take-home message 4
  • Second-generation Golden Rice benefits to Asias
    developing countries could be substantial, and
    those gains to the adopting countries would be
    reduced only very slightly if EU, Japan and Korea
    were to ban imports of those crops from
    GM-adopting countries

32
The malnutrition issue for Sub-Saharan Africa is
even more acute than in Asia
  • yet Sub-Saharan African (SSA) countries are not
    embracing GM technology, partly for fear of
    losing access to EU markets
  • How does that potential loss compare with the
    potential gain from GM adoption to farmers and
    consumers in SSA?
  • Our GTAP model-based estimates suggest
  • Large gains to domestic farmers and consumers in
    SSA from adoption of 2nd generation
    nutritionally-enriched GM varieties, even if just
    for golden rice and wheat (assumed here to have a
    2 labor productivity shock, or 4 times that in
    Asia)

33
Welfare effects of 2nd generation GM wheat and
rice adoption by SSA
Economic welfare of (billion/year) SSA adoption of 2nd gen. rice and wheat, with EU ban SSA adoption of 2nd gen. rice and wheat, without EU ban
South Africa 1.79 1.78
Other SADC 0.41 0.40
Other SSA 1.44 1.42
All SSA 3.64 3.60
34
Take-home message 5
  • Second-generation GM rice and wheat could
    benefit Sub-Saharan Africa very substantially
    and gains would be hardly affected if EU were to
    ban imports of those crops from GM-adopting
    countries

35
Caveats include
  • Magnitude of boost to unskilled labor from the
    health benefit of 2nd generation GM crops is
    speculative
  • Difficulties of adapting and diffusing GM
    varieties for SSA conditions are ignored
  • But, once overcome, gains would be greater the
    more other GM crop varieties are developed
  • Especially if those new crop varieties also
    provided cost savings/TFP gains less pollution
    for farmers

36
Summary take-home message
  • GM cotton and food varieties especially 2nd
    generation ones could benefit developing
    countries very substantially, regardless of who
    provides the technology (public or private,
    national or multinational, large or small firms)
  • True even if the EU were to ban imports from
    GM-adopting countries, since most of the gains
    would be shared by developing country farmers,
    consumers and textile workers (plus those DC
    biotech firms able to survive the current high
    cost of getting through the regulatory approval
    process)

37
A few background papers
  • Anderson, K., E. Valenzuela and L.A. Jackson,
    Recent and Prospective Adoption of Genetically
    Modified Cotton A Global CGE Analysis of
    Economic Impacts, Economic Development and
    Cultural Change 56(2) 265-96, January 2008
  • Anderson, K. and E. Valenzuela, The World Trade
    Organizations Doha Cotton Initiative A Tale of
    Two Issues, The World Economy 30(8) 1281-1304,
    August 2007
  • Anderson, K. and L.A. Jackson, Some Implications
    of GM Food Technology Policies for Sub-Saharan
    Africa, Journal of African Economies 14(3)
    385-410, September 2005
  • Anderson, K., L.A. Jackson and C.P. Nielsen, GM
    Rice Adoption Implications for Welfare and
    Poverty Alleviation, Journal of Economic
    Integration 20(4) 771-88, Dec 2005
  • These and related papers are available at
  • www.econ.worldbank.org/programs/trade/biotech
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