Transcript Lecture 21 - Agricultural and Resource Economics

EEP 101-CONTAINMENT OF
RISKS
&THE EVOLUTION OF
BIOTECHNOLOGY
David Zilberman
State of ag biotechnology
 The cup is half full=High adoption rates
in major crops in U.s. Argentina,China
 Half empty practical ban in Europe &Japan
 Restrictions slowed adoption and product
development
 Under-development of technology in minor
crops& developing countries
 Concern about risk major reason for
resistance
Presumed Points of Failure
1. Productivity: Biotechnology aims to solve problems of
the North; will not make a difference in the South.
2. Access: Biotechnology is controlled by corporations;
will not be accessible on feasible terms to poor
peasants.
3. Risks: Damage to environment and human health,
contamination of native genetic materials, and loss of
crop biodiversity
Impacts of ag bio tech on
productivity
Ag biotech and
development
 Ag biotech was developed in the north, with
application to crop and varieties of
developed countries
 It mostly served to reduce pesticides use
and improve profitability.
 Is the first generation of biotech appropriate
to developing countries
 -will it increase yields?
 How will it affect crop biodiversity?
 We will address these issues here
Theory: Impacts of ag
biotechnology vary
 The impacts of ag biotechnology on yield depends on
 where it is applied
 How it is applied
 What was used before
 The management of the crop before and with biotech
depend on
 socio economic situations and
 institutional arrangement associate with biotechnology
 Two important factor
 The extent of use of chemicals
 The varieties that are being modified
Productivity: Yield-Increasing Potential
 Yield = potential output x (1 - damage)
damage = f (pest, pest control)
 Combination of high pest pressure and minimal
existing use of pest control  potential for yieldincreasing effect
 Attractive features of pest-control agricultural
biotechnologies
 Simplicity of use
 Reduction in use of chemicals or labor
 Expansion of weather conditions where crop grow
Technology, variety changes and
yield effect
 Adoption of GMO may entail a switch from local
variety to generic variety
 This switch may reduce yields
Y  Y
potential
Generic
potential
Local vaariety
Y
(1  DamgBiotech ) 
(1  Damgno biotecg )
 Yield gain =Reduction of pest damage of
generic variety
- Difference in net yield between traditional and
generic
Example 1
 Potential yield local variety =4 ton/ hectare
 Potential Yield generic variety 3 tons/ hectare
 Damage 50%
 Bt reduce damage by 100%
 Yield effect of modified local variety
4 - 4*(1 - .5) = 2
 Yield effect of generic variety
3 - 2
= 1
Productivity: Evidence for Bt Cotton Gains
Bt cotton in:
 United States: yield effect 0 – 15%
 China: yield effect 10%
 South Africa: yield effect 20%-40%
 India: yield effect 60 – 80 %
In every country have reduction in chemical usage
Some Indian Stories
 Field trials in 2001-2 has yield effect of 80%
with generic variety and 87% with local GMV
 Pesticides use decline by 70%
 No wonder yield loss can be 60%
 In 2002-3 when actual cotton was planted yield
effect was between -10%-30%
 Law pest pressure
 In some locations a wrong variety was introduced
 The yield gain in 2003-4 was higher-higher pet
damage
Robin hood and GMV
 In Gujjarat a local breeder introduced illegally Bt
cotton with spectacular result
 A unholy alliance of environmentalists and
companies wanted the cotton to be burned
 Farmer demonstrated and the cotton saved and
Bt legalized
Bt as insurance
 It is meaningless tp speak about yield effect
since pest damage is a random variable and
yield effect varies
 A switch to generic GMV may reduce yield in a
good year but increase it substantially in a bad
one
 Bt increases mean yield but reduces variance
and especially down side risk-where
pesticides are costly and yield losses still may
result in bankruptcy
Example 2
Potential yield: 6 local variety
4 generic variety
Damage 25% with 50% probability
50% with 50% probability
Bt eliminates pest damage
Adoption of generic Bt
Reduces yield from 4.5 to 4 with 50% probability
Increases yield from 3.0 to 4 with 50% probability
Adoption of local Bt
Increases yield from 4.5 to 6 with 50% probability
Increases yield from 3.0 to 6 with 50% probability
Biotech risk and farm size
 The gain in terms of risk bearing cost is main
reason for adoption even in US
 Small farmers that have little access to
insurance and formal credit market may be
beneficial of lower risk
 Seed technology has minimal economics of
scale, reduce need to invest in pest control
equipment and reduce monitoring time- thus
may be appealing to small farmer if affordable
and Modification is done with a good variety
Predicted yield effects of pest controlling Biotech
Availabili
Region
Pest
ty of
pressure
c hemical
Adoption
Yie ld
of
effec t
c hemicals
GM
of
crops
alternativ
es
Developed count ries
Low -
high
high
lo w
med
L.Am (commerc ial)
medium
medium
high
lo w -med
Chin a
medium
medium
high
lo w med\
L.Am(non-
medium
lo w -med
lo w
c ommercia l)
South
& S
med
high
o.
east
high
lo w -med
lo w -med
high
high
lo w
lo w
high
Asia
Afr ic a
-
Environment: Relative to Modern Breeding
Biotech Can Enhance Crop Biodiversity
 Main premise: Agbiotech allows minor modification of
existing varieties and under appropriate institutional setup
can be adopted while preserving crop biodiversity
 Conventional breeding involves often massive genetic changes,
and adjustments to accommodate biodiversity are costly and
 Well functioning IPR system can lead to crop biodiversity
preservation
 Field data support this claim
Ag biotech and crop bio
diversity
Table 1. Number of available varieties for different
GM
technologies in selected countries (2001/2002)
Numb er of
local
varieties/hybrids
Numb er of
imp orted
varieties/hybrids
Country
Technology
Area under
technology (ha)
USA
RR soybean
22 mi llion
>1,100
0
Bt corn
7 million
>700
0
Bt cotton
2 million
19
0
RR soybean
10 mi llion
45
11
Bt corn
0.7 million
15
6
Bt cotton
22,000
0
2
China
Bt cotton
1.5 million
22
5
India
Bt cotton
40,000
3
0
Mexico
Bt cotton
28,000
0
2
South Africa
Bt cotton
20,000
1
2
Argentina
a
Environment: Biodiversity scenarios in the field
 Strong IPRs, strong breeding sector, and low
transaction costs. (US) Private technology owner
will license the innovation to different seed
companies, who incorporate it into many or all
crop varieties, so that crop biodiversity is
preserved.
 Strong IPRs, strong breeding sector, but high
transaction costs. (EU) If an agreement cannot
be reached, companies will bypass breeding
sector, directly introduce GM crop varieties that
are not locally adapted.
Environment: Biodiversity scenarios in the field
 Weak IPRs and a strong breeding sector. (China)
Many different GM varieties are available
Farmers and consumers are beneficiaries. SR
social optimum.
 Weak IPRs and a weak breeding sector. (Africa)
If foreign GM crop varieties are even introduced,
are done directly without adaptation. A loss of
local crop biodiversity.
Biotech Could Enhance Crop Biodiversity
 Conventional breeding led to wholesale replacement of
land races with elite line monocultures
 Biotechnology could provide precise improvements to
traditional land races
 Could lead to reintroduction of new “technologically
competitive” land races - ”Jurasic garden”
Access and
development
Intellectual Property Rights (IPR)
Registrations
Access: Biotechnologies in the South
 Most IP is generated by research in the
North
 Transfer of public sector’s rights to the
private sector provides incentives for
development and commercialization
 Companies have little incentive to invest in
applications specific to the South
Access: Biotechnologies in the South
 Companies are willing to give technologies for use
in South; good PR
 Companies worry about liability, transaction costs
 Universities with rights to technology will also be
open to transferring to South applications
 Needed institutional mediation: IP clearinghouse
Access: Objectives of clearinghouse for
IPR
 Reduce search costs to identifying set of
technologies accessible
 Reduce transaction cost for the
commercialization of innovations
 Increase transparency about ownership of IPR
 Provide mechanisms to manage negotiation of
access to IPR
 Improve technology transfer mechanisms and
practices (mostly in public sector institution)
Access: Model of a clearinghouse for IPR
Member organizations
IP providers:
Non-member
organizations
Assignment, license, or option for full or limited fields of use
Direct licensing
transactions
“Re-packaging”
Pooled sub-licensing
Single patent sub-licensing
IP users:
Non-member IP users
Non-member IP users
Member organization IP
users
Why
Under investment in
ag biotech
 Regulatory constraints, IPR concerns reduce




investment
Size of markets lead to under investment in
minor crops
Lack of investment is because of prices of ag
products
Development of ag technology is cyclical
depend on market condition
Crisis leads to change
Developing countries & minor
crop
 Most ag biotech is developed for major crops in
the north
 Private companies in developed countries hold
IPR for many GMO innovations
 There is a risk that Africa will miss the gene
revolution as it missed the green revolution.
 Specialty crops may not attract investment in
agricultural biotech & under-utilize it
Continued investment in public research
 Risk of under investing in public research and
development
 Public sector research complement private
sector . Through technology transfer there is
continuity.
 Public sector research contributes to
competitiveness
 Public sector R&D is essential in developing
countries and minor crops
Private & Public research
 Public sector research emphasize





generalized basic innovations
Private sector research is product focus
There is complementarily between sectors
Technology transfer is crucial link
Private sector under R&D and that affects
minor crops
Diversification of research
paradigm
 There is a risk of overemphasizing biotech
 Need public research in alternative
solutions that is not embodied in products
 Need regulatory research- with
international cooperation and exchange of
knowledge.
Access: Reducing Regulatory Constraints
 Registration should be efficient. Excessive requirements
may be used as a source of political economic rent
seeking.
 Borders are arbitrary. Countries can take advantage of
regulatory clearances granted elsewhere and concentrate
on addressing unique local problems and risks.
 Countries should develop regional alliances for regulation
and establish mechanisms for easy transfer of regulatory
information.
Regulatory design-tougher
is not better
 Regulation has a role risk control and screening
 Post regulation monitoring can correct
mistakes-irreversibility happens -but not always
 Tough regulation may lead to
 Concentration
 Delay of introduction of technologies
 Reduced research and investment and retardation
of technology
 Need to optimize regulation
Impacts of regulation strategies
 For plant that reproduce sexually- once a GMV
variety is developed(an event) the gene is
inserted to others through back crossing
 Tough regulation of each variety lead to reduce
choice and switching away from local varietiesa small number of varieties will be used and
much of the potential of innovation lost
 Regulations of events increase choice -cost of
modifying specific varieties smaller
Regulation and pace of
change
 Varieties may change rather fast with
conventional breeding
 Slow regulatory process may result in
insertion of GMVs in older varieties and loss
of benefits obtained through conventional
breeding Slow regulatory process slow innovation as
it is reducing returns to and thus
investment in innovation
Acceptance
Europeans attitude to Gmo
 Lack of trust in government-Bse F &mouth
 Insufficient food safety regulation
 Strength of environmental movement
 Biotech is American technology
 Barrier to trade
 Scientists and society do not want to fall
behind
Acceptance
 Progress of ag biotech depends on broad




acceptance
Consumers have right to discriminate
according to the way products are produced.
This discrimination should not be used to
form trade barriers
A global Academy of science needed for
dispute resolution
Regulatory constrained needed for
acceptance. Concerns may be valid.
Labeling
 Reasonable labeling is a reasonable regulatory
requirement
 Product tracing will reduce cost of safety
maintenance.
 Labeling will benefit industry in the long
run.Enable product differntiation
 Should be done privately subject to government
monitoring
Risks
Risk Containment Approach for
Policymaking
 Risk = Probability of a bad event
occurring during a period of time.
 risk management to design policies to
1)maximize risk reduction within a
given constraint on social costs. Or
2)maximize social welfare subject to
risk constraints
 Risk containment can be practiced
locally&globally
Precaution in technology
development
 Precaution is not avoiding risks. It means
containing risks in an adaptive process of
continuous learning..
 There are gaping holes in scientific
knowledge, but it is the best we have.
 Progress requires gradual expansion of
capacity containing risks as we venture to
new territories.
Even risk averse individuals
take risk
 There are many risk management
strategies including:
 Diversification
 Insurance
 experimentation
 Not taking risks id risky
Multiplicity Of Risks
 Individual risks can not evaluated in isolation.
There are trade-offs in risk taking
 Some of the risks associated with food
policies include:





Food shortages
Environmental degradation
Market concentration
Poverty
Political instability
The Relations between risks
and time
 Risks may be correlated. High likelihood
of Food shortages is linked with high
poverty probability.
 Governance design should have a long
term perspective
 . Dynamic processes contribute to
generation or reduction of risks.
 Population growth may increase food
shortage risk
Malthusian scenario&agricultural
technology
 Food grew faster than population throughout
most of the 20th century
 Food productivity growth is sluggish-but
population is expected increase and food
demand to double.
 Food availability can meet the challenge by:
 Increased productivity
 increase intensification
 Expansion of agricultural land and resource base

Intensification and the
environment
 Alternative practices were introduced to
reduce damages (IPM, Low Tillage, precision
farming) with varying results
 Intensive use of chemicals(pesticides and
fertilizers), multiple cropping and intensive
plowing leads to
 risks to human and animal health
 Contamination of bodies of water,
 Soil erosion
Current ag biotech practices
were invented to replace
chemicals
 Expectation of strict pesticides
regulations motivated introduction of
pest control ag-biotech
 Its adoption is fast because of
convenience as well as profitability.
Underreporting of GMO use in India
Brazil, and China.
Environment: Sound Basis for Risk Analysis
 Is the Precautionary Principle a sound basis for risk
analysis?
 There are always trade-offs between risks and benefits,
and between risks and risks.
 In Africa, does risk of “genetic contamination” exceed risk of
starvation?
 Agricultural biotechnology should be evaluated in
comparison to pesticides and other real alternatives.
 In tropics, increased productivity would reduce pressure for
deforestation.
Gmo’s are not perfect Gmo’s have problems-resistance buildup,
damage to secondary pests, genetic
contamination.
 Refugia, monitoring of impacts, restriction of
use in some locations can address these
problems partially-but alternatives have
problems and risks that have to be considered.
 Agricultural biotech is in its infancy- built up of
human capital and accumulation of -will lead to
eliminations of many bug and lead to better
technologies
Current ag biotech & risks
 Realized risks of agricultural biotechnology
thus far is small(in spite Monarch Butterfly)
 Experimentation with agricultural biotech is
vast(100million acres + annually), Each year
without a major incidence adds confidence to
the use of the technology.
 yet monitoring is needed to continue.
 Loss of ag bio-diversity is reduced when a
diversity of GMO varieties is introduced.
New ag bio-technologies
 Development of current GMO provided
tools for more attractive future GMOimproving nutritional contents and health.
 It may use plants as labs for chemicals
and medicines.That may necessitate
growing genetically modified plants that
are not edible in order to protect our
sources of food
Bio tech and environment
 GMO leads to gains in terms of pesticides
use reduction and reduce acreage as yields
increase
 Gene flow is a potential problem- need to
be monitored
 The risk depends on the gene inserted-Bt
and vitamin C producing genes may be
rather benign - but genes can produce
toxins-regulations should vary
The Price of Excessive Regulatory
Caution
 The regulatory process of ag chemicals and
biotechnology designed to respond to
concerns of environmentalists, but also
benefited agribusiness
 Led to concentration
 Reduced solutions available for small crops &
reduce diversity &specialization of farming.
 Reducing environmental risks increases
concentration risks
Farm land expansion& the
environment
 Without increase in yield per acre population
and demand growth will lead to expansion of
agricultural resource utilization-deforestation,
depletion of water resources,air and water
pollution
 Productivity increasing innovations crucial for
protection of natural resources
 U.S agricultural acreage has decreased
throughout the century due to innovation&
intensification.
Conclusions
Agbiotechnology has significant potential for developing
countries; the challenge is to realize that potential:
 Productivity: yield effect of biotechnology tends to be larger in
developing countries
 Access: institutions can reduce IP and regulatory costs for
developing countries
 Risks: crop biodiversity can be preserved and could even be
restored with biotechnology
Ag bio tech is only part of the
solution
 Ag biotech is more than Gmo’s.
 It will evolve- alternative molecular approaches
will be developed-but
 knowledge will not be accumulated without
experience
 Development may be dependent on public and
private sector funding
 Ag biotech must be pursued as part of a
portfolio of technology and knowledge tools
aiming to enhance productivity and
environmental sustainability of agriculture.
Europeans attitude to Gmo
 Lack of trust in government-Bse F &mouth
 Insufficient food safety regulation
 Strength of environmental movement
 Biotech is American technology
 Barrier to trade
 Scientists and society do not want to fall
behind
Acceptance
 Progress of ag biotech depends on broad




acceptance
Consumers have right to discriminate
according to the way products are produced.
This discrimination should not be used to
form trade barriers
A global Academy of science needed for
dispute resolution
Regulatory constrained needed for
acceptance. Concerns may be valid.
Labeling
 Reasonable labeling is a reasonable regulatory
requirement
 Product tracing will reduce cost of safety
maintenance.
 Labeling will benefit industry in the long
run.Enable product differntiation
 Should be done privately subject to government
monitoring
Consider
 250 million Americans are the “guinea pigs” for
agricultural biotechnology. Northern countries also
took the risk with cars and with modern chemicals.
 Africa missed the Green Revolution; will it also miss
the Gene Revolution?
Epilog Differences in attitudes
US vs EU- is it consumers
attitudes?
 U.S. relative advantage in Biotech threatens
European dominance in chemical pest control
markets
Innovative capacity:
Forward citations to US agbiotech patents
By nationality of lead inventor and grant date of cited patent
1800
1600
1400
1200
1000
800
600
400
North American
200
0
1984 1985
1986 1987
1988
European
1989
1990
1991
1992
1993
1994
Japanese
1995
1996
1997
1998
1999
2000
Innovative capacity:
Forward citations to US agrochemical patents
By nationality of lead inventor and grant date of cited patent
1800
1600
1400
1200
1000
800
600
North American
400
200
European
0
1980 1981
1982 1983
1984 1985
1986 1987
Japanese
1988 1989
1990 1991
1992 1993
1994 1995
1996 1997
1998 1999
2000
Market incentives:
Global crop protection market, sales US $
millions
$35,000
1 yr. % change
2000 to 2001
$30,000
$25,000
Others
-10.2 %
agchem
+12.9 %
agbio/
seed
Japanese
corporations
$20,000
US
corporations
-1.2 %
agchem
agbio/
seed
$15,000
$10,000
European
corporations
-1.0 %
agchem
$5,000
$0
1991
2001
Data Sources: Wood Mackenzie Agrochemicals, in Chemistry & Industry, November 1993 and Phillips
McDougall, AgriFutura Newsletter, March 2002
Innovative capacity:
comparing citation based indices of
patent quality
Behavioral evidence:
Double standards for the
“precautionary
principle”?
 Double
standards applied
to intra-EU trade
relations and external EU trade relations
(Majone, 2003)
 As applied to chemicals vs. biotechnologies?
 Possible metrics?
 Sources?
Behavioral evidence:
Conspicuous industry absence from
policy process?
“When GM products came to the market in
Europe, we were faced with contradictory
statements or even silence both from regulators
and from industry. This contributed substantially
to the lack of confidence now present.”
- Dirk-Arie Toet
Nestec Ltd., 2001
Conclusions
 Regulate not ban technologies
 Effective &trusted regulation essential
for innovation
 Reform IPR introduce clearing house.
 Compensate for biogiversity
 Continue support for public research