6 - Cotton GMO Adoption and Private Profitability

Abstract

This chapter reviews the economic benefits and costs of Bt cotton, with detailed analysis of rent creation and distribution in 1996 and 1997, by using survey data. It provides the preliminary surplus estimates for Bt cotton in 1998 and then compares the preliminary results from 1998 both to estimates from 1996, and to the estimate from the 1997 planting season presented by Falck et al. The results indicate that farmers and the innovators share almost equally rents created by adopting Bt cotton. Farmers gain 43% of total rents whereas the innovators gain 47% of total rents. The regions with low adoption such as California and Missouri lost because farmers suffered a reduction in cotton lint prices without having the benefits of the technology. Finally, it discusses some of the implications of the estimated distribution of rents on farmer and society welfare and impacts of biotechnology varieties in the US and abroad. A sensitivity analysis is performed to evaluate results by reducing the yield and/or cost change assumptions by half. In the worst case scenario, where yield increases and cost reductions were reduced by 50%, farmers still were able to capture 21% of the total rents, whereas the innovators gained 74% of total rents. Farmers share almost equally with the innovators the rents created by the technology even when a monopolistic structure for the input market is assumed.