Publications: ISAAA Briefs

No. 14 - 1999

Rent Creation and Distribution from the First Three Years of Planting Bt Cotton
José Benjamin Falck-Zepeda, Greg Traxler, and Robert G. Nelson
Department of Agricultural Economics and Rural Sociology Auburn University

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Published by: The International Service for the Acquisition of Agri-biotech Applications (ISAAA). Ithaca, New York
Copyright: (1999) International Service for the Acquisition of Agri-biotech Applications (ISAAA)
Reproduction of this publication for educational or other noncommercial purposes is authorized without prior permission from the copyright holder, provided the source is properly acknowledged.
Reproduction for resale or other commercial purposes is prohibited without the prior written permission from the copyright holder.
Correct Citation: Falck-Zepeda, J.B., Traxler, G., and Nelson, R.G. 1999. Rent Creation and Distribution from the First Three Years of Planting Bt Cotton. ISAAA Briefs No. 14. ISAAA: Ithaca, NY. 18 p.
ISBN: 1-892456-18-4
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Contents

 

Summary

Introduction

Background

The Empirical Model

Results

Discussion

Summary and Conclusions

References

Appendix

 
Summary

We used an alternative data set from Plexus Marketing Research, Inc. and Timber Mill Research, Inc. to reestimate rent creation and distribution from the adoption of Bt cotton in 1996. This alternative data set allowed us to compare the sensitivity of the estimates for 1996 presented in a previous paper. Results from both estimations indicate that farmers gain between 43% and 59% of all rents created from the introduction and adoption of Bt cotton. In contrast, the innovators (Delta and Pine Land, and Monsanto) gain between 47% and 26% of all rents in 1996.

Preliminary results from the estimation of rent creation and distribution for 1998 indicate that farmers and innovators share almost equally the rents created by adopting Bt cotton. Farmers gain 43% whereas the innovators gain 47% of total rents. Regionally, there were winners and losers from the adoption of Bt cotton in 1998. Regions with low adoption rates, such as California and Missouri, lost because farmers suffered a price reduction of cotton lint without having the benefits of the technology. We performed a sensitivity analysis to evaluate results by reducing the yield and/or cost change assumptions in half. In the worst-case scenario, where yield increases and cost reductions were reduced by 50%, farmers still captured 21% of the total rents, whereas the innovators gained 74% of total rents.

Results for the three-year analysis have been fairly consistent. Farmers share the rents created by the technology almost equally with innovators, even when a monopolistic structure for the input market is assumed. Improving the reliability of these results requires modeling rents using an ex ante framework where risk is considered in the analysis. The naive estimations presented here and in our other papers need to be formalized into a model that introduces the characteristics discussed earlier. There is a need to validate results from surveys whose intention is to measure cost and yield benefits or losses due to technology. This is the only way that we can assure that measurements of the benefits and losses of the technology are measured accurately. Finally, there is an urgent need to quantify the environmental externalities, particularly to quantify the benefits of decreased pesticide releases into the environment. These benefits may be significant and are not currently included in the framework presented here.

List of Tables
Table 1 Adoption of Bt cotton in the United States, selected states. 
Table 2 International plantings of Bt cotton, 1996-1998.
Table 3 Percent adoption of cotton GMVs in the United States, selected states, 1998.
Table 4 Results of evaluation studies of Bt cotton in the United States and the rest of the world.
Table 5 Estimates of economic surplus due to the introduction of Bt cotton in 1996.
Table 6 Percent adoption, total acres, yield difference, cost reduction and farmer surplus, 1998.
Table 7 Estimates of economic surplus due to the planting of Bt cotton in 1998.
Table 8 Economic surplus results, 1997 corn crop.
Table 9 Average number of insecticide applications to control BBW complex, selected states.