DOCUMENT Rev. 2
of Genetically Modified Crops on the Agri-Food Sector
: strong profitability expectations, mixed outcome
The adoption of GM crops
by farmers in the US, Canada and in Argentina has proceeded at an unprecedented
rate compared to the uptake of conventional hybrids. The economic reasons
for this rapid and massive adoption are analysed in section 3.1. Farmers
had strong expectations on the profitability of GM crops, in particular
as regards yield and/or cost savings. However, as shown in section 3.2,
GM crops do not prove to be significantly more profitable than conventional
counterparts. Other factors than profitability play role. They are reviewed
in section 3.3.
The analysis is based on
the available economic literature, which mainly concerns Northern America.
It is limited to the two main GM crops under cultivation Herbicide-Tolerant
(HT) soybeans and Insect-Resistant (Bt) corn. Two Canadian studies on HT
Canola11 have also
been taken into account.
Adoption of biotechnology by farmers : strong expectations
Profitability expectations mainly based on yields
Many surveys and studies
have been carried out to assess reasons for adopting GM crops. They have
confirmed that adoption of GM crops by farmers has been driven by profitability
According to an USDA survey
(1997), the majority of farmers (50 to 75%) cited increase in yield
as first reason for adoption. Savings in costs appear to be the second
reason, mentioned by 20 to 40% of the respondents. This survey was conducted
in 1997, only one or two years after the introduction of the first GM seeds
on the US market. Therefore, it addressed farmers' expectations.
The quick rate of adoption
in the first years is explained by the strong expectations of farmers as
regards profitability. Whether they definitely adopt the new technology
then depends on their degree of satisfaction, and in turn, on the effective
profitability of the crop. Biotech firms have published encouraging results
on the satisfaction rate of farmers having adopted GM crops (Monsanto,
In practice, the most immediate
and tangible ground for satisfaction appears to be the combined effect
of performance (not necessarily measured by yields) and convenience
GM crops, in particular for herbicide tolerant varieties. These crops allow
for a greater flexibility in growing practices and in given cases, for
reduced or more flexible labour requirements. Where labour or time is a
restriction, this convenience effect has an economic impact. In the medium
term, it should translate into increased labour productivity and savings
in labour costs. In the long run, it might have an impact on farm restructuring,
alongside with many other factors which play a role in this process.
The effective profitability
of a GM crop can only be properly assessed on the basis of several years
of cultivation and commercialisation. Several years have to be considered
for two main reasons. First, many other factors have an impact on profitability.
In particular, there are important yearly fluctuations in yields and prices.
Second, effective profitability depends on developments on the supply and
on the demand side.
The first generation of
GM crops is input-oriented. The primary effects of this new technology
were expected and observed on the supply side.
Bullock and Nitsi (1999)
consider five possible effects of technical changes in the field of plant
1. Increase in the maximum
2. Increase of the economically
3. Input-switching technical
change, lowering the cost but yield neutral
4. Quality-enhancing technical
5. Risk-reducing technical
According to these authors,
Bt corn falls under category 2, while Herbicide-Tolerant soybeans rather
have a type-3 effect. Both types of effects imply a shift in farmers supply
functions. Under given prices, farmers produce more. If the demand function
remains unchanged, prices drop. Only type-4 technological change induces
a structural change in the demand function, and possible increases in prices.
When assessing the profitability for farmers and the economic impact of
biotechnology on agri-food markets developments in supply and in demand
have to be considered together. However, it appears that this has not always
been the case, neither for farmers, nor for the leading biotech firms.
Their approach has been supply-oriented.
The effect of agricultural policy: limiting price risk
In the US as well as in the
EU, GM and non-GM crops are not treated differently under the various support
schemes, both are eligible. In the US, crops for which GM varieties
have rapidly developed are all eligible for support under the flexibility
payments, the marketing loan system, as well as for crop insurance.
Soybeans became eligible
for flexibility payments and under the marketing loan system in 1996, which
is the year of first commercial sowings of GM varieties. Several analysts
(FEDIOL, 1999) consider that existing support systems have favoured the
development of soybeans sowings. In particular, the loan rate applied to
soybeans makes this crop attractive compared to wheat and corn. The area
under soybeans is expected to reach a record level in 2000, while prices
are low. By mid-November 1999, the USDA estimated that 90% of the 1998
soybeans crop had received a marketing loan benefit, and that the average
value of this benefit was worth around 0.44 US $/bushel (14.5 €/t).
Oilseed producers are also eligible for the 1999/2000 emergency packages.
A specific assistance programme was set up in early February for oilseeds
producers, to offset record low market prices. Under this programme, payments
for soybeans could average 0.141 US $/bushel (5.3 €/t), according
to calculation by private consultants.
Favourable support conditions
for soybeans could have played a role in the rapid uptake of GM technology
for this crop. In addition, in a low market price context, the expectation
on cost savings is a further driving force for the adoption of the technology.
Eligibility of GM crops under
various support schemes limits the price risk of the productivity-enhancing
technology. It accounts as another reason for the farmers to focus their
planting decision on expected farm-level performance, on cost-efficiency
of inputs. In other words, farmers also had an input-oriented approach.
Comparing the profitability of GM and non-GM crops proves difficult
Generally the cost comparison
of GM crops and their conventional counterpart is limited to crop-specific
costs, assuming that fixed costs are more or less the same.
GM seeds are sold at a higher
price than conventional ones. The price wedge is mainly attributable to
the value of GM technology or to the "technological fee". According to
a Monsanto communication (1998), the technology fee reflects "the insect,
weed, disease control value of the inserted gene, and a significant part
of the fee is used for further research".This difference also reflects
the fact that markets for GM and conventional seeds are separate. Furman
Selz (1998) reports about premia observed on the US market in 1998: US
$ 30 per bag of seeds for GM corn and US $ 5 for GM soybeans seeds, which
represents a 30% price-premium compared to non-GM seeds. They also give
an indication on the average technological fee paid by seed companies to
gene providers: US $ 27 (30% of GM seed price) per bag of corn seeds and
US $ 4.25 (21% of GM seed price) for soybean seeds. Despite of the technological
fee, GM seeds appear to be more profitable than conventional ones for seed
The above-mentioned convenience
effect of GM crops allows for reduced or more flexible working requirements.
However, the related savings in labour costs have not always been properly
assessed. The valuation of family work is rarely broken down on a crop-specific
basis. On the other hand, growing GM crops requires new management skills,
growing practices and possible constraints. GM seeds are generally sold
and sown in the context of contracts. These changes entail transaction
and management costs, which are not easy to assess.
GM crops are expected to
allow for cost-savings through reduced insect and weed control and/or to
achieve higher yields. Under the assumption that the price of non-GM and
GM crops is the same12,
the latter will become more profitable for farmers if the increased seed
costs are offset by savings in weed and/or pest control costs and/or by
On the receipt side : yields and prices
Yield is a key factor
for profitability expectations and results. In fact, available figures
on crop-specific costs are often broken down on an area basis, while prices
are paid on a quantity basis. Based on yields, costs and prices are brought
on a common basis, often per acre/ha. In other words, the effect of possible
increase in yields is taken into account on the receipt side.
Comparing yields of GM and
non-GM crops is not a straightforward exercise. Yields depend on a large
number of factors, and the inserted trait of GM crops is only one factor
amongst others. It is worth recalling (OECD, 1999) that first generation
genetic modifications address production conditions (pests, weeds), they
do not increase the intrinsic yield capacity of the plant. In other words,
referring to Bullock's classification, they do not induce a type 1 (maximum
yield) technical change. Not surprisingly yield performance of GM crops
against their non-GM counterparts depends on growing conditions, in particular
on the degree of infestation in insects or in weeds. Data about yields
of GM crops are widely available, however, often specifications on factors
which influence yields are missing, such as temperature13,
weed control applied etc.
The USDA (1999) has examined
factors affecting the adoption of GM crops. These include farm size,
education and experience, location of the farm, use of production or marketing
contracts. In the case of herbicide resistant soybeans, the USDA has concluded
that "larger operations and more educated operators are more likely to
use herbicide tolerant soybean seeds". Such differences between adopters
and non-adopters of biotechnology have to be taken into account when comparing
yields and returns obtained on both types of farms. This study on factors
of adoption served as a first step for assessing the impact of GM crop
on farmers' returns and on the environment. It allowed for controlling
statistically these exogenous factors and carrying out multivariate regressions
for assessing aggregate impacts of GM crops on yields, profitability and
the environment. Results of this USDA study are indicated below, for each
type of GM crop.
Another key factor on the receipt
side is the market price of GM crops. In many profitability studies,
prices of GM and non-GM crops are assumed to be equivalent. Most of the
available studies are based on 1997 or 1998 data. In these first years
of commercialisation of GM crops, their impact on commodity prices has
not been manifest or is difficult to assess. Different pricing developments
between GM and non-GM crops have only been observed in 1999. However, very
few market reviews report on a regular basis about such developments. The
question of price premiums/discounts will be addressed in chapter 5.
A further issue would be
the full assessment of costs and benefits of GM crops, including effects
on welfare as well as non-market effects, particularly risk assessment
and management. However, the studies reviewed below only cover on farm
profitability in the short term.
Costs and benefits for farmers for selected GM crops
The results of various
publications on the profitability of GM crops are summarised hereafter.
The review is limited to the two main crops under cultivation, respectively
Herbicide Tolerant (HT) soybeans and Insect Resistant (Bt) corn. In addition,
some Canadian studies on rapeseed/Canola have also been included.
Three different types of
GM soybeans have been authorised in the US. Two of them are tolerant to
different herbicides. Soybeans tolerant to glyphosate, Monsanto's "Round
up Ready"(RR) soybeans, have been on the market since 1996 and are the
most widely grown (estimated 80% share in GM soybeans). The third one is
a high oleic soybean variety.
One of the reasons for the
rapid adoption of GM soybeans has been the expectation of a higher yield
than for non-GM soybeans. A number of US research projects have addressed
this issue. Results seem to indicate the reverse: in most field trials
the GM crop shows lower yields than the non-GM crop, as indicated in the
table below, in the case of Roundup Ready (RR) soybeans.
Table 3.1 Differences
in yields between conventional and GM soybeans
Source: Benbrook, 1998, based on Oplinger
Similarly, according to
Benbrook (1998) in South Minnesota, average performance of top yielding
Roundup Ready soybean varieties was 3% lower than the top yielding conventional
varieties, yet in Central Minnesota the yield drag was as much as 13% and
in Southern Wisconsin 6%. While indicating lower yields in each case, these
sub-regional results point to the great variability in yield performance.
Table 3.2 Differences
In Kansas, the yield drag
varied between 2 and 11% in favour of non-GM soybeans, as indicated by
Hofer et al. (1998):
and GM soybeans, Kansas
Duffy & Ernst (1999)
conducted a "cross sectional survey" among 800 farmers in Iowa, based on
interviews and field observations. It was not a side by side observation
of GM and non-GM crops and should provide reliable estimates at state level.
The average yield reported was 3.43 t/ha for those farmers who grew non
GMssoybeans versus 3.29 t/ha for those who grew GM soybeans.
The USDA estimated, on the
basis of the 1997 data, that the increased use of HT soybeans produced
only a small global increase in yields.
One of the explanations given
for the lower yield of GM crops is that the GM-traits were initially not
introduced in the top yielding varieties of soybean. Seed companies are
now incorporating these traits in their yield-leading varieties. If this
is indeed the case, then the yield drag should diminish in the coming years.
Reduced herbicide use and costs
In the 1960s herbicide use
started to replace tillage and cultivation practices as a primary means
of weed control. At that time, these were mainly pre-emergence herbicides.
The use of post-emergence
herbicide in the production of soybean has been rising steadily since they
became available in the 80s. In 1988, 44% of soybean acres were treated,
by 1994 this share had risen to 72%. Quite often, they were used in combination
with pre-emergence herbicides.
However these classical
herbicides had a number of drawbacks:
risk of crop damaged
development of herbicide resistant
some herbicides limit the possibility
of crop rotation.
The emergence of GM soybeans
which are tolerant to glyphosate ("Roundup") has a significant impact on
the use of other herbicides. For instance, the use of imazetaphyr ("Pursuit"),
one of the most widely used post-emergence herbicides has declined from
44% of soybean acres in 1995 to 17% in 1998. The main advantages of using
Roundup on HT soybeans are:
a wider window of application,
both in terms of stage of growth of soybeans and effective control of larger
the easier management of weed
the fact that there is no carry
over, thus giving growers more rotation options.
The use of this product
has increased drastically. In 1990, about 10% of all soybean acreage were
treated with Roundup (at that stage used only as "burndown" treatment).
This figure has risen to 45% in 1998 (Carpenter & Gianessi,
1999). According to the USDA, the use of other synthetic herbicides have
declined by a larger amount, and the net impact of increased cultivation
of HT soybeans is a decrease in overall herbicide applications.
The cost of a program of
Roundup on HT soybeans was 14.7 €/acre (36.6 €/ha) in 1998, compared
to 12€/acre (29.8 €/ha) for a conventional program with pre-plant
treatment alone, or 22.3€/acre (55.2 €/ha) for programs using
However, due to emergence
of resistance in the future additional treatments may be needed. From 1998
to 1999, an increase from 15 to 25% in terms of average pounds of Roundup/acre
was observed. Benbrook reports an increase from 24 ounce/acre to 32-48
ounce/acre in the dose of Roundup Ultra required to gain adequate control
of velvetleaf and ragweed species. This would clearly have an impact on
the cost of GM crops.
Nevertheless, in the short
term, the cost saving effect seems to be dominant. In the Duffy report,
farmers who used GM crops reported spending nearly 30% less than those
who grew non-GM soybeans. Reduced herbicide costs was listed by 27% of
farmers as one of the reasons for planting GM crops. Furman Selz reports
a 33 to 35 €/ha lower herbicide cost for HT soybeans.
Moreover, following the introduction
of GM crops, there is a notable reduction in the price of weed control
programs for non-GM crops. A University of Illinois study revealed that
compared to 1995, the least expensive non-glyphosate herbicide program
was between 4.5-6 €/acre (11-14.9 €/ha) cheaper in 1999. As indicated
by Bullock et al. (1999), this means that non-adopters of HT crops
might also benefit from an induced effect on cost savings.
It is difficult to quantify
the convenience effect of choosing HT crops. However, there are some clear
advantages. For example:
The ease of the glyphosate-herbicide
use and the large time window for spraying, which increases flexibility.
HT crops make the adoption of
no-till or conservation tillage easier. According to Monsanto, in 1997,
nearly half of the acres planted in RR soybeans are not tilled anymore.
The absence or limitation of tillage implies lower use of crop-specific
resources (labour, fuel etc). It is also considered to be more environmental
friendly, in particular as it reduces soil erosion.
Indeed, in a survey by
Duffy and Ernst, 12% of the farmers listed increased planting-flexibility
as a reason for going for GM soybeans.
Increased seed price
Because of the "technology
fee", seed for GM soybeans is more expensive than conventional seed. The
Duffy and Ernst study showed a seed cost of 57 €/ha for GMO soybeans,
versus 42 €/ha for non-GMO soybeans. This difference corresponds to
the technology fee of 15 €/ha reported by Carpenter & Gianessi
(1998). Other sources report somewhat lower figures, but still in the same
order of magnitude 13.5 €/ha (University of Illinois, 1999) and 14
€/ha (Furman Selz, 1999). This means that, in average, GM soybeans
seeds are 35% more expensive than conventional seeds.
No significant profitability effect?
At this stage, there are
two counterbalancing elements in the growing of GM soybeans. On the one
hand, seed prices Of GM crops are higher while yields (and thus, in a hypothesis
of the same price for both variants, income) are lower, on the other hand,
input costs are lower as well.
The Iowa survey (Duffy et
al., 1999) showed that differences in costs and yields between GM and
non-GM varieties do not result in significant differences in return on
land and on labour (at price 5.27 US $/bu =172.9 €/t).
However, if HT soybeans
allow for savings in labour through their convenience effect, the same
return for less labour means an increase in income per working hour.
Table 3.3 Comparison
of returns for GM and conventional soybeans
Seed Cost (€/ha)
Total cost (excluding
Return on land/labour
The costs (total
costs excluding land and labour) for non-GM in the Duffy study are reported
to be 8% higher than for GM crops. However, these higher costs are offset
by the higher yields.
Similarly, in simulations
of the University of Illinois, the variable costs/acre for non-GM crops
were estimated to be 6 to 8% higher than for GM crops. However, the assumption
of no-yield drag made in this study seems not to hold, taken into account
the results of different studies as indicated above.
The USDA has found no evidence
of a significant change in variable profits in 1997, following the dramatic
increase in GM soybeans sowings.
Before drawing definitive
conclusions, the comparison of profitability between herbicide-tolerant
and conventional soybeans systems deserves further analysis, in particular
on the following elements:
Efficiency of different weed
control systems: prices, herbicides quantities, management constraints
Will the yield drag close following
the insertion of herbicide tolerant genes into top yielding varieties?
Are there divergent price developments
between GM and non-GM soybeans?
Table 3.4 Farmers
economics for Bt corn, various infestation scenarios
Profitability studies are
mainly available for Bt-corn, which is the leading GM corn and has been
grown on a wide basis for two or three years.
Evidence on yield gains
By their stalk tunnelling
action, corn borers are significantly damaging to corn crops. During one
growing season, up to three generations of corn borers can affect a given
crop. To be effective, insecticide applications have to be carried out
at the appropriate stage of development. Hence they require scouting, or
in other words, farmers have to follow developments regarding population
and to make their applications decision on this basis, in due time. For
cost/effectiveness reasons, uses of insecticide sprays against corn borers
vary greatly from one production region to another, or even, from one grower
A soil bacterium, the Bacillus
thuringiensis (Bt) produces toxins that kill the European Corn Borer. Bt
corn includes gene material from the Bt bacteria, which allows own production
of insecticide during the growth stage of the plant. Hence it is expected
to have a yield and convenience advantage against non-Bt corn. A survey
carried out in Iowa has shown that 80% of Bt-corn growers had chosen this
option because of the expected yield advantage (Duffy, 1999).
Several studies have found
evidence on yield gains for Bt corn. Based on 1996-1998 data of the Agricultural
Resources Management Data, the USDA has observed that adopters of Bt corn
had obtained higher yields than non-adopters. This might however been partly
explained by performance differences between these two groups of farmers.
Gianessi and Carpenter (1999) report about average gains of 0.73 t/ha in
1997 and 0.26 t/ha in 1998, respectively, + 9% and +3% compared to 97/98
average yield for corn.
The gap between 1997 and
1998 results can be explained by the difference in weather conditions and
in insect pressure. Infestation was low in 1998. Other studies (like
Alexander and Goodhue, Hyde and al., 1999) show the sensitivity of
Bt performance to these two factors.
No clear savings in input costs
According to an USDA case-study,
insecticide treatments are significantly lower for Bt corn than for conventional
corn. Globally, insecticide use for corn was lower in 1998 than in previous
years. However, as previously mentioned 1998 had been a low infestation
year. It is difficult to assess the role of Bt-technology in this reduction.
Other studies (Rice, 1999)
give more details on farmers' practices: an increasing percentage of farmers
(13% in 1996, 26% in 1998) having adopted Bt corn indicate that they use
less insecticide. Insecticides were not used at all by 50% of farmers.
However, it is not clear whether the absence of applications results from
Bt technology or if it was already the case with conventional varieties.
Some farmers still spray insecticide on Bt corn, because its performance
against second or third generation infestation is more limited. In addition,
insecticide may still be needed against other pests.
Considering that most of
the farmers do not apply insecticide for controlling ECB, Furman Selz (1998)
conclude that the value of Bt corn is not insecticide cost savings, but
rather yield protection.
The net effect regarding
insecticide use and price is not clear-cut. Based on the 1998 Iowa survey14,
Duffy (1999) reports reduced applications but increased insecticide costs:
"Farmers applied insecticides in 12% of their Bt corn fields at an average
cost of 17US $/acre. They applied insecticides to 18% of their non-Bt corn
fields at an average cost of 15US $/acre". In this case, the advantage
of Bt corn is not significant.
In addition, Duffy observed
that Bt fields required slightly higher weed control (+ 6 €/ha) and
fertiliser (+11 €/ha) costs.
Refuges imply two-tiers crop management
To prevent resistance in
ECB populations, farmers planting Bt crops have been advised to keep "refuges"
with non-Bt crops next to the Bt-fields. In early 2000, the US Environmental
Protection Agency specified requirements which have to be observed in this
respect. Refuges should cover at least 20% of the area planted in Bt corn.
Where Bt corn is grown near Bt cotton, refuges have to cover an area equivalent
to 50% of the Bt area. This should translate into increased cultivation
It has been argued that resistance
to Bt could raise problems for organic farming, which traditionally uses
sprays or granulates of Bt preparations within pest control programmes.
Furthermore, since findings
on sensitivity of the Monarch Butterfly to Bt toxin have been published
and debated, the effect of this toxin on insects other than corn borers
has become an issue.
Increased seed price
GM seeds are more expensive
than conventional ones. This reflects both the technological fee charged
by some biotech firms and the fact that GM and conventional seeds are sold
on different markets. Alexander and Goodhue (1999) report on GM seed premiums
for 20 GM corn varieties ranking from 3 €/ha for high yield varieties
to 35 €/ha for some Bt varieties. The figure of 22 €/ha can be
found in the Furman Selz paper (1998) as well as in the Gianessi and Carpenter
Contrasted results on profitability
As explained by Hyde et
al (1999), the profitability of Insect resistant crop will depend on
whether the "value of the protection" is less or more than the highest
seed price. Results obtained by this research team for Indiana suggest
that this is generally not the case. However, results depend on the level
of infestation. Hyde and al have found that "when the probability of infestation
increases from 25 to 40%, Bt corn value increases by about 69%". Therefore,
Hyde considers that in areas where infestation is more likely or where
average yields are higher, Bt corn should be profitable.
Several other studies show
that profitability of Bt is higher where infestation is high. The calculations
carried out by Furman Selz (1998) are summarised in the following table.
Source: Furman and Selz
Compared with other
studies, Furman and Selz calculations on income gain appear over-estimated,
in particular, the relative high yield gains under the medium and heavy
Table 3.5 Net gains
and losses for Bt corn
Different results are outlined
in table 3.5 Gianessi and Carpenter have assessed net gains/losses for
the years 1997 and 1998. They have assumed that there was no cost-saving
effect for lower insecticide applications. Results obtained by Duffy for
Iowa are also summarised in the table.
The results of the
two studies are not directly comparable. As already mentioned, Duffy has
estimated the insecticide, weed and fertiliser effects, while Gianessi
and Carpenter have not.
In the Gianessi and Carpenter
study, the combined effect of lower yield gain and corn prices in 1998
resulted in net losses for Bt-corn growers. These first results show that
profitability of Bt corn is highly dependent on the extent of yield gains
and on prevailing market prices for corn. This also explains the gap in
the results of different types of calculations.
Taking into account differences
in variable costs, Duffy concludes that there have been no cost savings.
However, as a result of yield gains, Bt-corn has been slightly more profitable
than conventional corn. Duffy nevertheless considers that the 9 €/ha
gain is not significant.
The cost of GM seeds is also
a key factor in the relative profitability of GM crops. Alexander and Goodhue
have examined the relationship between seed price and profitability, as
well as the likely breakdown of profitability between firms and farmers
for various types of GM corn in Iowa. They found that the ranking of net
revenue performance matched the ranking of seed costs. Under their simulations,
Bt corn appears to be the type of GM corn most likely to allow profits
for farmers. A possible factor of explanation might be the number of Bt
Corn types on the market (7 transformation events have been authorised
in the US). There is a competition between these types of Bt, which are
later incorporated into various hybrids. Hence, the authors consider that
the likelihood of monopolistic pricing of the technology appears more limited.
However, as explained in
chapter 2, biotech companies are considered to form an oligopoly on the
input-side of the farm sector, furthermore after having acquired seed companies
or concluded agreements with them. Their margin of manoeuvre as far as
prices of GM seeds and associated agro-chemical products are concerned
is a key factor in the breakdown of profitability of GM crops. Farm-gate
profitability of GM crops is very sensitive to input prices.
To quote again Alexander
and Goodhue, "analysis provides suggestive rather than conclusive evidence".
There is evidence on yield gains of Bt corn, compared to conventional varieties,
which are exposed to corn borers. The extent of the gain and hence, the
cost-effectiveness of Bt technology, depends on the degree of infestation.
The decision to plant Bt corn or conventional is a complex one, as it has
to take into account the likelihood of infestation and various adjustments
in crop management.
Table 3.6 Costs and
returns of different Canola varieties (in €/ha)
Herbicide Tolerant Canola
Canola is a type of rapeseed
which has been developed and is grown in Canada. It is a registered trademark,
corresponding to specified low contents in erucic acid in oil and in glucosinolates
in meals. It has initially been obtained through conventional breeding,
but in recent years, GM herbicide tolerant varieties have been developed.
The importance of Canola
has increased drastically: barely grown twenty years ago, it became the
third most important crop in Canada in 1994, its value representing 29%
of all grains and oilseed receipts (Agricultural Institute of Canada, 1999).
Canola production in Canada is mainly limited to the provinces of Alberta,
Manitoba and Saskatchewan. These three provinces produce more then 98%
of the Canadian Canola output.
The production of GM Canola
has risen spectacularly over the last years: In 1996, it represented only
4% of the output, in 1999 it was estimated by Fulton & Keyowski at
Contrasted results on yields
Canola yields have gone up
throughout the 1980s and 1990s, for example, in the province of Ontario
yield has doubled between 1983 and 1996.
Yield data comparing herbicide
tolerant (GM) Canola to conventional Canola does not prove to be convergent.
Estimations in Alberta vary between 15% lower to 15% higher yields for
GM crops than for conventional crops, depending on region and variety.
Manitoba figures show higher yields (up to 15%) in most cases.
A convenience effect
Typically, the production
of Canola requires two herbicide applications: one pre-emergent and the
other post-emergent, the latter controlling only for a limited spectrum
of weeds. The characteristic of herbicide resistance offered by GM Canola
therefore improves potential in two ways:
removing competition for moisture
and nutrients between Canola and weed.
eliminating costs for additional
machine movements over the field (Fulton & Keyowski, 1999).
Unclear results on costs and profitability
Comparing costs and margins
of conventional and GM canola is not a straightforward exercise. Based
on 1998 accountancy data, the production economics and statistics branch
of Alberta Province carried out a comparison between different Canola varieties
grown on two types of soil, black and brown ones. There are two species
of conventional Canola with different agronomic characteristics: "Argentine"
Canola provides good performance under frost-free conditions, while "Polish"
Canola is more resistant to frost and drought, but more vulnerable to diseases.
The yield of Polish Canola is generally lower than for Argentine Canola.
The result of the comparison between these varieties and GM ones on the
two types of soils are outlined in table 3.6.
Table 3.7 Conventional
and GM canola production systems
This table illustrates the
difficulty of comparing profitability of these varieties, due to the number
of factors which might have an effect.
Black soil areas allow for higher
In the dark brown zone, there
is no significant difference in yields and in total costs between the Argentine
and the HT variety. Differences appear on the receipt side, lower sale
receipts for HT crops, but higher insurance revenue.
Although variable costs of HT
and conventional Canola are broadly equivalent, even from one zone to another,
the breakdown is different. While costs are higher for GM seeds, those
for fertiliser and herbicides are lower for HT than for "Argentine" Canola.
The convenience effect of HT Canola is reflected in the lower labour and
In the black soil area, there
are significant differences in yields, costs and receipts. The "Argentine"
variety achieves the highest yield, with the HT variety coming close to
that level. Total costs for HT Canola are lower than for conventional varieties,
and this is mainly the result of reduced capital costs. However, due to
higher receipts, Argentine Canola turns out to be more profitable.
As illustrated in table 3.7,
the Fulton & Keyowski study seems a bit more prudent and stresses the
fact that whether or not it is economically advisable to grow GM Canola
varies from farm to farm. This points to a possible source of bias in the
Alberta study: the average size of plots sown in HT Canola is higher than
for conventional varieties. The Fulton & Keyowski assumption that HT
Canola has lower costs and lower yields than conventional varieties appears
to be confirmed by the Alberta data.
Source: Fulton & Keyowski - the producer benefits of herbicide resistant
Canola product line:
a system comparison, 1999
Smart Open Pol
Conventional Open Pol
which: Seed €/ha
There again, no clear-cut
conclusion regarding the effects of the use GM canola can be drawn. There
is only limited availability of data and all simulations start from different
premises. Results depend on varieties compared, on growing and marketing
conditions. However, the rapid adoption of GM Canola indicates that the
variety is very attractive to the farmer.
Mixed outcome, many factors, longer-term assessment needed
The results of
different studies on profitability of the main GM crops can be summarised
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Herbicide Tolerant soybeans
allow for cost savings thanks to reduced use and cost of herbicides. This
could offset the higher seed price. However, the yield of GM soybeans is
still lower than for conventional varieties. When comparing returns per
ha or per labour unit, no significant difference appears between the two
types of crop. In this context, the convenience effect of HT crops appears
to be the main driving force.
For Bt-corn, significant
yield gains have been observed. However the cost-effectiveness of Bt corn
depends on growing conditions, in particular on the degree of infestation
in corn borers. Applications of insecticide have decreased globally. Some
studies show increased total costs for Bt-technology, first for seeds but
also for weed control and fertiliser. Results regarding profitability are
contrasted, none can be considered as significant.
These rather contrasted and
unclear results indicate that short-term profitability is not the only
driving force for the adoption of GM crops by farmers.
There are no clear-cut results
for comparing the profitability of Herbicide Tolerant Canola with
Other factors have
played a significant role in the rapid extension of GM sowings.
The convenience effect
seems to be a significant advantage, in particular for herbicide tolerant
crops. This benefit does not directly translate in terms of profitability,
but rather in terms of attractiveness of GM crops for efficiency purposes.
This convenience effect has to be further assessed in particular, the valuation
of the labour effect. In the longer run, it should imply increased labour
productivity and savings in crop-specific labour costs. Further efficiency
assessments, including price and use of herbicide over a longer time frame,
would also be useful.
The profile of adopters
of the new technology also plays a role. First adopters were mainly young,
educated and well-performing farmers, established on large holdings. The
adoption of biotech crops is not size neutral. The higher than average
farm size of adopters might be a factor explaining, amongst others, the
dramatic increase in areas sown to GM crops. Theoretically, more benefits
are accruing to early starters. Those already having adopted the technology
are likely to have gained from it. In the case of HT crops, gains in efficiency
should translate into improved labour productivity. In the case of Bt corn,
yield gains mean enhanced productivity of land. Under given prices, enhanced
productivity leads to an increase in supply. While more and more producers
are adopting biotech crops, thus contributing to the increase in supply,
on the demand side, concerns about GM food are emerging. This may lead
to a drop in prices. Hence, gains for late adopters are expected to be
lower than for early adopters. In the long run, enhanced productivity will
have an impact on farm restructuring, alongside with other factors playing
a role in this process.
The reviewed studies only
compare farm-level and short-term profitability. Profitability of GM crops
should be analysed over a longer timeframe. First, there are important
yearly fluctuations in yields and prices, and it is difficult to isolate
the possible effect of biotechnology. Results are very sensitive to the
price of seeds and agro-chemical products on the one hand and to commodity
prices on the other hand. In most profitability studies, prices for GM
and conventional crops are assumed to be equivalent.
Developments on the supply
and on the demand side of the food chain have to be considered together,
and this is another reason for assessing profitability over several years.
As a result of consumer concerns and preferences, segregation between GM
and non-GM crops is developing, which implies differentiation in costs
and prices. The economic implications of segregation and identity preservation
are analysed in chapter 5. They might change the outset as regards profitability
of GM versus non-GM crops.
Policy measures, in
particular the eligibility of GM crops under various support schemes, have
reduced the price risk of the new technology. Until recently, no significant
differences in prices between GM and non-GM crops have been systematically
recorded, expect on niche markets. Hence, growers have mainly based their
planting decisions on expected farm-gate performance, on cost-efficiency
of inputs. In other words, they had an input-oriented approach.
The marketing strategy
developed by biotech firms must also be considered. It has been focused
on farmers, the first customers interested in input traits. In the case
of herbicide tolerant crops, the marketing strategy was based on the concept
of "technological package" (the GM seed and the product to which it is
resistant), which allows for "combined pricing". Benefits of GM crops have
been extensively advertised throughout key production areas (Corn Belt).
Biotech firms have been present up to the field, providing commercial and
technical assistance to farmers, whether directly or through their subsidiaries.
They have shaped famers'expectations.
The supply-oriented approach
of both biotech companies and farmers has been quickly confronted with
reactions stemming from the downstream side of the food chain. Consumer
concerns have been echoed and amplified by NGOs and retailers, and they
had a cascading effect on the upstream side. These reactions are analysed
in the next chapters.
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