Effects of the GM Controversy on Iowa Corn-Soybean Farmers' Acreage Allocation Decisions

By Alexander, Corinne; Fernandez-Cornejo, Jorge et al. | Journal of Agricultural and Resource Economics, December 2003 | Go to article overview

Effects of the GM Controversy on Iowa Corn-Soybean Farmers' Acreage Allocation Decisions


Alexander, Corinne, Fernandez-Cornejo, Jorge, Goodhue, Rachael E., Journal of Agricultural and Resource Economics


Prior to the 2000 planting season, some industry observers predicted acreage of genetically modified crops would decline dramatically. However, actual 2000 plantings presented a puzzle. Farmers reduced their acreage of genetically modified corn, but concurrently increased their acreage of genetically modified soybeans. We demonstrate that it may be theoretically optimal for risk-averse farmers to reduce their corn acreage but not their soybean acreage. However, past experience, attitudes, and farm size explained planting decisions to a larger degree than did risk preferences.

Key words: expected utility, genetically modified crops, two-limit tobit model

Introduction

The introduction of genetically modified (GM) crops in 1996 was heralded as a new era of agriculture; farmers would benefit from lower production costs, higher yields, and reduced pesticide use. From the beginning, Europe and Japan expressed misgivings about food that had been genetically manipulated, and refused to import transgenic grain. The European and Japanese consumer controversy over GM crops intensified in late 1999 and early 2000. Anticipating the possibility this negative reaction would spark consumer concerns in the United States, several American companies, including Gerber, Frito-Lay, and Heinz, announced they would discontinue use of GM ingredients in their products. Consequently, agricultural producers entering the 2000 crop year faced increased uncertainty regarding the demand for these crops.

Prior to the 2000 planting season, some industry observers predicted GM acreage would decline dramatically. However, actual 2000 plantings presented a puzzle. Farmers reduced their acreage in GM corn, but concurrently increased their acreage in GM soybeans. Our objective is to analyze the determinants of spring 2000 planting decisions, and evaluate the importance of demand uncertainty for GM crops as a decision factor. We model the demand uncertainty as an uncertain price penalty for GM crops. A theoretical model of the acreage allocation decision for a risk-averse producer is paired with producers' assessments of the relative production risks and returns of GM and conventional crops. These assessments were elicited using focus groups. Testable hypotheses are obtained regarding the effects of the GM controversy, and then are tested using data from a spring 2000 survey of Iowa producers.

Theoretical Model

A producer's acreage allocation decision is modeled using expected utility maximization for a risk-averse producer choosing between a GM and a conventional variety. The producer faces yield risks for GM and conventional products. Due to the controversy, the producer faces a further risk for the GM crop in addition to price risk. In comparing the GM and conventional varieties, we focus on the additional risk associated with the GM alternative, since both the GM and conventional crops face the same underlying price risk associated with commodity crops. In order to emphasize the GM-conventional variety choice, the allocation decision is examined within a specific commodity rather than across commodities. Including commodity price risk responses and the cross-commodity acreage allocation decision would complicate the analysis substantially without providing additional insight into the questions we emphasize.

The decision to model risk-averse producers is based on findings of previous economic research as well as producer comments elicited through focus group discussions. Several empirical studies have established that producer risk aversion is an important factor in acreage allocation decisions using producer-level data. Results of a study conducted by Marra and Carlson suggest the intensity of adoption could be explained by differences in farmer attitudes toward risk and the covariance of enterprise returns. Saha, Shumway, and Talpaz jointly estimated production function and utility function parameters and determined that Kansas wheat farmers exhibited risk-averse preferences. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Effects of the GM Controversy on Iowa Corn-Soybean Farmers' Acreage Allocation Decisions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.