Size and Distribution of Market Benefits From Adopting Biotech Crops
by Gregory Price, William Lin, José Falck-Zepeda, and Jorge Fernandez-Cornejo
Technical Bulletin No. (TB-1906) 44 pp, November 2003
The adoption of biotech crops, particularly herbicide-tolerant
soybeans and cotton, has been rapid since their commercial
introduction in 1996. Biotech crops can offer producers distinct
advantages over conventional varieties, such as potentially higher
yields and lower pest control costs. But producers are not the only
ones to benefit. Biotechnology developers and seed companies charge
technology fees and seed premiums to adopters who plant biotech
varieties. In addition, U.S. and foreign consumers enjoy lower
commodity prices that result from biotechnology-induced increases
in food supplies, though biotech-wary consumers may feel excluded
from these gains.
What Is the Issue?
Much debate has centered on how benefits from agricultural
biotechnology are shared among stakeholders. Different studies
estimate significantly different portions of the total biotech
benefit "pie" shared by U.S. farmers, biotechnology innovators
(those who develop, manufacture, and sell biotech crop seed), U.S.
consumers, and producers and consumers in other countries. But to
what extent do these estimates vary as a direct result of
methodological approaches, assumptions regarding the responsiveness
of production and consumption to changes in commodity prices, which
crops are analyzed, study period, and the choice of data source on
farm-level consequences of biotech crops' adoption?
How Was the Study Conducted?
This study seeks to determine the sensitivity to changes in
various research assumptions and data sources of the estimated size
and distribution of benefits from adopting Bacillus thuringiensis
(Bt) cotton, herbicide-tolerant cotton, and herbicide-tolerant
soybeans in 1997. The stakeholders considered are U.S. farmers,
U.S. consumers, biotechnology developers, germplasm suppliers, and
foreign producers/consumers. We focus on specific and readily
quantifiable market benefits accruing to these stakeholders.
We use a model in which the benefits from the sale and adoption
of each biotech crop's seed are measured as changes to economic
welfare in both the seed input and commodity output markets. The
framework accounts for monopoly profits, resulting from
intellectual property rights protection, that accrue to the
innovators in the input market. The model also measures economic
welfare changes (from higher production efficiency and lower
commodity prices) for producers and consumers in a competitive
The change in economic welfare from each biotech crop stems from
an increase in commodity supply, which is the result of
biotech-induced yield increases and savings in pest control costs.
Our estimates of market benefits from agricultural biotechnology
are based on data sources that isolate these farm-level effects.
The change in supply is integrated into the rest of the model to
calculate pre- and post-biotech prices and quantities in an
international setting. While our analyses use 1997 data, the
analytical framework is, by and large, applicable to today's market
What Did the Study Find?
Both total benefits and their distribution among stakeholders
are sensitive to analytical assumptions. Estimated market benefits
of agricultural biotechnology-in a base scenario using
representative data and reasonable assumptions about market
responsiveness-ranged from $213 million to $308 million for each of
the three biotech crops in 1997. Gains ranging from $212.5 million
to 300.7 million (depending on the data source) were associated
with the planting of Bt cotton.
Herbicide-tolerant cotton improved total welfare
by an estimated $231.8 million, while the adoption of
yielded $307.5 million in benefits. The estimated benefits reported
in this study represent 2-5 percent of the respective U.S. crop
values in 1997.
In our base case, U.S. farmers received about a third of the
total benefit from adopting Bt cotton (previous studies estimated
the share at around 50 percent), and just 20 percent of the
estimated total benefit from adopting herbicide-tolerant
soybeans-at the lower end of the benefit range in previous studies.
With herbicide-tolerant cotton, a small U.S. farmers' share (4
percent) can be attributed to the premia paid for biotech seed
(versus conventional seed) and low cotton prices in 1997, which
offset the benefit of higher yields. Biotechnology innovators
captured about 30 percent and 68 percent of the estimated total
benefits from the adoption of Bt cotton and herbicide-tolerant
soybeans. For herbicide-tolerant cotton, we estimate that U.S.
consumers and foreign producers and consumers received the bulk of
the estimated benefits.
By using the same model to re-estimate the benefits under
different assumptions about market responsiveness, the results
demonstrate their sensitivity to what an analyst accepts as
reasonable expectations of how changes in supply affect U.S. and
world prices. Supply responsiveness affects the estimated benefits
overall, and affects the benefits to U.S. farmers more than the
benefits to U.S. consumers. For example, doubling the supply
sensitivity reduces the estimated total benefit by about half in
the case of herbicide-tolerant soybeans and causes U.S. soybean
producers' share of the estimated total benefit to disappear.
Year-specific variables, such as pest infestation levels and
weather, also affect the size and distribution of benefits. This
suggests that multiyear analyses will yield more reliable estimates
of the market benefits from biotech crops than single-year
Although not included in this study's benefit estimates,
important market benefits-such as the ease of pest management
associated with herbicide-tolerant crops and the insurance value of
insect-resistant crops-can affect the results. In addition,
potential nonmarket benefits, including effects on the environment
and human health, could influence the benefit estimates. Other
environmental effects of biotechnology-such as pesticide toxicity
levels, length of persistence in the environment, and impacts on
nontarget species- would influence total net benefits of biotech
crops, but also are not part of our assessment.