Biotechnology in U.S. agriculture: Trade consequences for dairy products

Abstract

The emergence of synthetic bovine Somatotropin (bST) is one of the most widely discussed advances in biotechnology. Its potential impacts on milk production around the world could be significant. However, the exact economic impacts of bST in any one region depends on a number of factors, some of which are still highly controversial. This article sets out to estimate the economic impacts of the adoption of bST in the United States, the single largest milk producer in the Western world. A quarterly econometric model of the U.S. dairy sector is used to forecast the total production, consumption, and excess supply of milk to 1995. The preliminary results indicate that under the assumption of a gradual rate of adoption and a 15 percent milk production response, the United States could be exporting as much milk as New Zealand by 1995. Should the production response rate or the adoption rate be higher, the United States could indeed become a major competitor in the world dairy market by 1995. Although such a development could adversely impact on other dairy exporters, such as New Zealand, the precise economic impacts on world prices and trade would depend crucially on the position that other major dairy producers, especially the EC, adopt with respect to the use of bST.