March, 2004
CropBiotech Briefs Vol. 4 No. 1
Cheaper GM Seeds Could Boost Adoption, Farm Benefits and
Company Profits: The Case of Bt Cotton in Argentina
Matin Qaim* and Alain de Janvry**
*
Center for Development Research (ZEF), Bonn, Germany
** University of California, Berkeley, USA
This article
analyzes adoption and impacts of Bt cotton in Argentina against
the background of monopoly pricing. Based on survey data, it is
shown that the technology significantly reduces insecticide
applications and increases yields; however, these advantages are
curbed by the high price charged for genetically modified (GM)
seeds. Studies show that farmers’ average willingness to pay is
less than half the actual technology price. A lower price would
not only increase benefits for growers, but could also multiply
company profits.
Bt cotton is a GM crop into which a gene
of the soil bacterium Bacillus thuringiensis has been
transferred to make it resistant to major lepidopteran insect
pests. It was developed by the US company Monsanto and, as one
of the first GM crop technologies, it became commercially
available in the mid-1990s. Since then, the technology has
spread rapidly in the US, Australia, as well as in several
developing countries. In Argentina, Bt cotton is patented by
Monsanto and was released in 1998 by Genética Mandiyú, a joint
venture between Monsanto, Delta and Pine Land (D&PL), and the
local company Ciagro. Unlike other countries, however, in
Argentina the diffusion of Bt cotton has been rather slow.
According to official statistics, four years after its
introduction, Bt technology only covered about 5% of the
national cotton area (Table 1). This is surprising, in
particular when compared to GM soybeans which were adopted
almost completely in the country within a similar time frame.
Table 1:
Adoption of Bt cotton in Argentina, 1998-2001 |
|
Cotton Area (ha)
|
Bt Cotton Area (ha)
|
%
|
1998-1999
|
750,930
|
5,500
|
0.7
|
1999-2000
|
331,890
|
12,000
|
3.6
|
2000-2001
|
409,950
|
22,000
|
5.4
|
2001-2002
|
169,000
|
9,000
|
5.3
|
To better understand the low adoption
rates, an interview-based survey of 299 cotton farms was carried
out in 2001 in collaboration with Argentina’s Instituto Nacional
de Tecnología Agropecuaria (INTA). The survey covered the two
major cotton-growing provinces, Chaco and Santiago del Estero,
which together account for 88% of the Argentine cotton area. As
the number of Bt users is still comparatively small, we employed
a stratified random sampling procedure, differentiating between
adopters and nonadopters of the technology. The total sample
consists of 89 adopters (about 60% of all adopters in the
country) and 210 nonadopters. A check with official statistics
showed that the subsample of nonadopters is representative of
the Argentine cotton sector in terms of average farm sizes and
cultivation practices.
Apart from eliciting general farm,
household and contextual characteristics, the survey included
detailed questions about input-output relationships in cotton
cultivation for two growing seasons – 1999-2000 and 2000-2001.
As all Bt adopters had also cultivated at least some
conventional cotton, they were asked the same questions for both
their Bt and conventional plots. Furthermore, the questionnaire
covered aspects of farmers’ perceptions about Bt technology.
Farm level
effects of Bt cotton
To analyze the farm level effects of Bt
cotton in Argentina, we compare cost of production and gross
margins per hectare with and without use of the technology
(Table 2). This analysis is confined to the sub-sample of
adopters. That is, Bt and non-Bt plots are compared on the same
farms to reduce a possible selection bias. As expected, Bt
technology cuts the expenditure on insecticides. In 1999-2000,
the average number of insecticide applications was reduced by
2.4, whereas in 2000-01, it was reduced by 2.3. Moreover, there
is a significant increase in the yields that farmers obtained:
in both seasons the yield gain is above 30%. Machinery and labor
costs are somewhat higher on Bt plots. Although there is a
slight decrease in operating expenses for pesticide
applications, this is more than offset by elevated harvesting
costs on account of higher yields.
Table 2: Comparison between the performance
of Bt cotton and non-Bt cotton in Argentina 1999-2000 and
2000-2001 |
|
Yield (kg/ha)
|
No. of insecticide sprays
|
Insecticide cost ($/ha)
|
Seed cost ($/ha)
|
Gross margin ($/ha)
|
|
1999-2000
|
Bt |
2063
|
2.1
|
17.07
|
104.90
|
174.32
|
Non-Bt |
1558
|
4.5
|
32.43
|
14.64
|
135.28
|
Difference |
505
|
-2.4
|
-15.36
|
90.26
|
39.04
|
|
2000-2001
|
Bt |
2183
|
2.8
|
22.83
|
102.22
|
19.27
|
Non-Bt |
1625
|
5.1
|
42.33
|
18.17
|
12.53
|
Difference |
558
|
-2.3
|
-19.50
|
84.05
|
6.74
|
Yet the most significant cost change is
due to seeds. Bt seeds add to total production cost by one-third
and almost double expenditure for the bundle of purchased
inputs. Altogether, average gross margins are higher with Bt
technology in 1999-2000 and 2000-01. However, there is a big
variance in the results. In both seasons, around 40% of the Bt
adopters actually experienced a decrease in gross margins.
Unsurprisingly, these are largely those farmers who dropped out
the following year.
Compared with other countries where Bt
cotton is grown, farm-level benefits in Argentina are rather
small. In the US, average per-hectare benefits ranged between
$50 and $80 in recent years (Gianessi et al., 2002). For China,
Pray et al. (2002) reported gains of over $400 for the 1999-2001
period, and in Mexico, Traxler et al. (2001) found average net
benefits of $295 per hectare for 1997 and 1998. While in these
countries, the major advantage of Bt technology is a drastic
reduction in pesticide expenditures, in Argentina the main
effect is an increase in effective yields. The increase in total
production cost associated with Bt intensifies the financial
risk that farmers face. Net benefits mainly depend on extra
revenues, which are also a function of cotton prices. A downward
trend in world market prices, as observed in recent years,
therefore lessens the technology’s comparative advantage.
Although yield increases in Argentina were similar in both
growing seasons, the absolute gain in gross margins was much
lower in 2000-01 because of the decline in cotton prices. Lower
prices for Bt seeds could increase the technology’s
attractiveness from the point of view of farmers. This is
reflected in the rising demand for Bt seeds from the black
market, which are sold at around $35-40 per hectare.
Willingness to
pay for Bt cotton
Using a contingent valuation approach,
we estimated farmers’ willingness to pay (WTP) for Bt cotton
seeds. For the full sample, the average WTP is $48, less than
half the actual market price of $103. Farmers’ price
responsiveness is high: at $48, the area under Bt technology in
Argentina would be around 250,000 ha, more than 10 times the
area actually planted in 2000-01. The analysis also shows that
larger farmers are willing to pay more than smaller ones. The
mean WTP for minifundios (less than 20 ha of land) is $38, for
small farms (20-90 ha) it is $52, and for medium and large farms
(more than 90 ha) it is $83.
Company profit
It is obvious that net benefits for
farmers would increase with lower prices for Bt seeds. But what
about the benefits for Genética Mandiyú, the technology
supplying joint venture? Our study shows that the current price
for Bt cotton seeds is almost 80% higher than the level that
would maximize the company’s profits. At the profit-maximizing
price level of $58, profits could be about 3.6 times higher than
they are today, and we predict a Bt cotton area of 184,000
hectares.
Conclusion
Given that the lepidopteran insect pests
which lend themselves for control by Bt are important in
Argentina and that Bt farmers benefit from increased yield and
decreased cost of insecticides, the issue of why official
adoption of Bt cotton has stagnated at 5% deserves to be
addressed. Although the limited flow of information was also
identified as an adoption constraint, the main hurdle for wider
dissemination is the high price of Bt seeds. Farmers have to pay
around $103 per hectare, which is more than double the total
cost that average cotton growers spend on purchased inputs. In
many cases, the price markup outweighs the monetary benefits.
Subtracting the actual seed cost from the total price of $103
results in a $78 technology fee per hectare ($32 per acre),
which is the same as that charged for Bt cotton in the US.
However, agronomic and socioeconomic circumstances are
different. The low-cost and subsidy-free production conditions
in Argentina lead to lower returns and a lower value of Bt
technology from the farmers’ point of view. Therefore, Bt seeds
should be priced differently in Argentina than in the US.
Simulated demand functions for Bt cotton indicate that a lower
technology fee would not only increase adoption and benefits for
growers, but could also multiply the profits of the monopolist
technology supplier. Reasons for the sub-optimal pricing
strategy are unclear. But they might have to do with pressure
from the US farm lobby, that fears competitive disadvantages
when US technologies are marketed more cheaply abroad than at
home.
References
Gianessi, L.P., C.S. Silvers, S.
Sankula, and J.E. Carpenter (2002). Plant Biotechnology: Current
and Potential Impact for Improving Pest Management in US
Agriculture; An Analysis of 40 Case Studies. Washington, DC:
National Center for Food and Agricultural Policy.
Pray, C.E., J. Huang, R. Hu, and S.
Rozelle (2002) Five Years of Bt Cotton in China: The Benefits
Continue. The Plant Journal 31: 423-30.
Traxler, G., S. Godoy-Avila, J.
Falck-Zepeda and J. Espinoza-Arellan (2001) Transgenic Cotton in
Mexico: Economic and Environmental Impacts. Auburn, AL: Auburn
University.
(This research was financially supported
by the German Research Council (DFG) and the Rockefeller
Foundation)
This article is a summary
version of:
Qaim and de Janvry (2003). Genetically Modified Crops,
Corporate Pricing Strategies, and Farmers’ Adoption: The Case of
Bt Cotton in Argentina.
American Journal
of Agricultural Economics 85: 814-828 |