Producer Surplus Distributions in GM Crops: The Ignored Impacts of Roundup Ready® Wheat

By Huso, Scott R.; Wilson, William W. | Journal of Agricultural and Resource Economics, August 2006 | Go to article overview
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Producer Surplus Distributions in GM Crops: The Ignored Impacts of Roundup Ready® Wheat


Huso, Scott R., Wilson, William W., Journal of Agricultural and Resource Economics


Release of a genetically modified (GM) crop variety would lower prices of competing pesticides used on conventional varieties. This causes an increase in surplus for those farmers who adopt the GM variety, as well as for those who plant the conventional variety. A Cournot model was developed to determine the equilibrium quantities of conventional pesticides. A market with conventional wheat was compared to a market with both conventional and GM wheat varieties to identify price decreases of the conventional pesticide as a result of the GM trait introduction.

Key words: genetically modified crops, Roundup Ready®, wheat

Introduction

A major debate has ensued in North American agriculture during the past few years about the potential value of Monsanto's Roundup Ready® (RR) wheat. Monsanto had the trait under review by regulatory agencies in both the United States and Canada and was pursuing plans for commercialization (Wilson, Janzen, and Dahl, 2003). A number of studies quantified the prospective welfare distribution (e.g., Furtan, Gray, and Holzman, 2005; Carter, Berwald, and Loyns, 2004b, 2005) for this trait. Other studies estimated the real option value of RR wheat (Furtan, Gray, and Holzman, 2003; Carter, Berwald, and Loyns, 2004a).

Each of the above studies, as well as the public dialogue, ignored the trait's prospective impacts on equilibrium in the input market. Indeed, a major benefit of the introduction of a GM trait occurs if the trait provides direct competition to, and pricing pressures on, conventional technologies. In this case, not only do adopters benefit, but nonadopters benefit due to these reduced prices. The demand for this GM trait depends on weed pressures, grower idiosyncrasies, and prices. Welfare analysis without attending to these effects would result in an understatement of the benefits.

Weeds compete with wheat for moisture, nutrients, and sunlight. Conventional herbicides are used to kill or stunt weeds and allow the wheat plant to compete and survive, but are limited to specific weeds which may require herbicide mixtures. Combinations of hard-to-kill weeds may force farmers to target certain weeds and allow others to remain. These factors, combined with the possibility of multiple applications of chemicals, affect farmers' demand for the RR technology in wheat.

Roundup herbicide provides superior control of a broad spectrum of weeds, thus reducing the need for several herbicides and widening the farmer's application window. However, despite these attributes, Monsanto realigned its research portfolio and decided to defer commercialization of RR wheat. Reasons given for the deferment include the decline in spring wheat acreage in the United States, a lack of widespread need for superior weed control in the wheat market, and the success of other traits in Monsanto's research portfolio (Monsanto, 2004, p. 287).

The case of RR soybeans provides insight to the possible price impacts involved with RR wheat. Adoption of RR soybeans has been rapid since 1996, reaching a level of 87% of total U.S. soybean acres in 2005. Reasons for farmers' aggressive adoption range from higher yield, to improved weed control without crop injury, to reduced management time spent to supervise production (Gianessi and Carpenter, 2000; Fernandez-Cornejo and Hendricks, 2003). As noted by Carpenter and Gianessi (2003), from 1995 to 2000, the percentage of U.S. soybean acres treated for each herbicide class, except glyphosate, declined. Imazethapyr use decreased by 32%, trifluralin by 16%, and chlorimuron by 6%. In contrast, the authors found that the use of glyphosate increased from 20% of acres in 1995 to 62% of acres in 2000.

In an earlier study, Gianessi and Carpenter (2000) documented that the price of chlorimuron and imazethapyr declined by 40%-50% in 1997 and 1998, and the price of glyphosate declined by 22% in 1998. Gianessi and Carpenter concluded: "The result of lower priced Roundup Ready treatments in comparison with competitive herbicides and the lowering of the price for key herbicides including glyphosate meant that soybean growers spent significantly less on herbicides in 1998 than in 1995" (p.

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