The impact and management of biotech on developing countries

1. The impact and management of biotech on developing countries David Zilberman, University of California Gregory Graff, University of California Matin Qaim, University of Bonn Cherisa Yarkin, University of California

2. Presumed Points of Failure • Productivity: Biotechnology aims to solve problems of the North; will not make a difference in the South. • Access: Biotechnology is controlled by corporations; will not be accessible on feasible terms to poor peasants. • Risks: Damage to environment and human health, contamination of native genetic materials, and loss of crop biodiversity

3. Ag biotech and development • Ag biotech was developed in the north, with application to crop and varieties of developed countries • It mostly served to reduce pesticides use and improve profitability. • Is the first generation of biotech appropriate to developing countries • -will it increase yields? • How will it affect crop biodiversity? • We will address these issues here

4. Theory: Impacts of ag biotechnology vary • The impacts of ag biotechnology on yield depends on • where it is applied • How it is applied • What was used before • The management of the crop before and with biotech depend on • socio economic situations and • institutional arrangement associate with biotechnology • Two important factor • The extent of use of chemicals • The varieties that are being modified

5. Productivity: Yield-Increasing Potential • Yield = potential output x (1 - damage) damage = f (pest, pest control) • Combination of high pest pressure and minimal existing use of pest control  potential for yield-increasing effect • Attractive features of pest-control agricultural biotechnologies • Simplicity of use • Reduction in use of chemicals or labor • Expansion of weather conditions where crop grow

6. Technology, variety changes and yield effect • Adoption of GMO may entail a switch from local variety to generic variety • This switch may reduce yields • Yield gain =Reduction of pest damage of generic variety - Difference in net yield between traditional and generic

7. Example 1 • Potential yield local variety =4 ton/ hectare • Potential Yield generic variety 3 tons/ hectare • Damage 50% • Bt reduce damage by 100% • Yield effect of modified local variety 4 - 4*(1 - .5) = 2 • Yield effect of generic variety 3 - 2 = 1

8. Productivity: Evidence for Bt Cotton Gains Bt cotton in: • United States: yield effect 0 – 15% • China: yield effect 10% • South Africa: yield effect 20%-40% • India: yield effect 60 – 80 % In every country have reduction in chemical usage

9. Some Indian Stories • Field trials in 2001-2 has yield effect of 80% with generic variety and 87% with local GMV • Pesticides use decline by 70% • No wonder yield loss can be 60% • In 2002-3 when actual cotton was planted yield effect was between -10%-30% • Law pest pressure • In some locations a wrong variety was introduced • The yield gain in 2003-4 was higher-higher pet damage

10. Robin hood and GMV • In Gujjarat a local breeder introduced illegally Bt cotton with spectacular result • A unholy alliance of environmentalists and companies wanted the cotton to be burned • Farmer demonstrated and the cotton saved and Bt legalized

11. Bt as insurance • It is meaningless tp speak about yield effect since pest damage is a random variable and yield effect varies • A switch to generic GMV may reduce yield in a good year but increase it substantially in a bad one • Bt increases mean yield but reduces variance and especially down side risk-where pesticides are costly and yield losses still may result in bankruptcy

12. Potential yield: 6 local variety 4 generic variety Damage 25% with 50% probability 50% with 50% probability Bt eliminates pest damage Adoption of generic Bt Reduces yield from 4.5 to 4 with 50% probability Increases yield from 3.0 to 4 with 50% probability Adoption of local Bt Increases yield from 4.5 to 6 with 50% probability Increases yield from 3.0 to 6 with 50% probability Example 2

13. Biotech risk and farm size • The gain in terms of risk bearing cost is main reason for adoption even in US • Small farmers that have little access to insurance and formal credit market may be beneficial of lower risk • Seed technology has minimal economics of scale, reduce need to invest in pest control equipment and reduce monitoring time- thus may be appealing to small farmer if affordable and Modification is done with a good variety

14. Predicted yield effects of pest controlling Biotech

15. More complete view of adoption • Farmers may be risk averse- they consider the both the mean and risk effects of new GMVs • They consider local GMV and generic GMVs • Credit availability is a constraint • Heterogeneity within and between farms is a reason of differentiated behavior • We may see • Full adoption/Diversification • Expansion to areas where the crop is not grown • Change in economics of insurance

16. Access Intellectual Property Rights (IPR) Registrations

17. Access: Biotechnologies in the South • Most IP is generated by research in the North • Transfer of public sector’s rights to the private sector provides incentives for development and commercialization • Companies have little incentive to invest in applications specific to the South

18. Access: Biotechnologies in the South • Companies are willing to give technologies for use in South; good PR • Companies worry about liability, transaction costs • Universities with rights to technology will also be open to transferring to South applications • Needed institutional mediation: IP clearinghouse

19. Access: Objectives of clearinghouse for IPR • Reduce search costs to identifying set of technologies accessible • Reduce transaction cost for the commercialization of innovations • Increase transparency about ownership of IPR • Provide mechanisms to manage negotiation of access to IPR • Improve technology transfer mechanisms and practices (mostly in public sector institution)

20. Access: Model of a clearinghouse for IPR Member organizations IP providers: Non-member organizations Direct licensing transactions Assignment, license, or option for full or limited fields of use “Re-packaging” Pooled sub-licensing Single patent sub-licensing IP users: Non-member IP users Non-member IP users Member organization IP users

21. Access: Reducing Regulatory Constraints • Registration should be efficient. Excessive requirements may be used as a source of political economic rent seeking. • Borders are arbitrary. Countries can take advantage of regulatory clearances granted elsewhere and concentrate on addressing unique local problems and risks. • Countries should develop regional alliances for regulation and establish mechanisms for easy transfer of regulatory information.

22. Regulatory design-tougher is not better • Regulation has a role risk control and screening • Post regulation monitoring can correct mistakes-irreversibility happens -but not always • Tough regulation may lead to • Concentration • Delay of introduction of technologies • Reduced research and investment and retardation of technology • Need to optimize regulation

23. Impacts of regulation strategies • For plant that reproduce sexually- once a GMV variety is developed(an event) the gene is inserted to others through back crossing • Tough regulation of each variety lead to reduce choice and switching away from local varieties-a small number of varieties will be used and much of the potential of innovation lost • Regulations of events increase choice -cost of modifying specific varieties smaller

24. Regulation and pace of change • Varieties may change rather fast with conventional breeding • Slow regulatory process may result in insertion of GMVs in older varieties and loss of benefits obtained through conventional breeding- • Slow regulatory process slow innovation as it is reducing returns to and thus investment in innovation

25. Environment Risks Agricultural biodiversity

26. Environment: Sound Basis for Risk Analysis • Is the Precautionary Principle a sound basis for risk analysis? • There are always trade-offs between risks and benefits, and between risks and risks. • In Africa, does risk of “genetic contamination” exceed risk of starvation? • Agricultural biotechnology should be evaluated in comparison to pesticides and other real alternatives. • In tropics, increased productivity would reduce pressure for deforestation.

27. Bio tech and environment • GMO leads to gains in terms of pesticides use reduction and reduce acreage as yields increase • Gene flow is a potential problem- need to be monitored • The risk depends on the gene inserted-Bt and vitamin C producing genes may be rather benign - but genes can produce toxins-regulations should vary

28. Gmo’s are not perfect- • Gmo’s have problems-resistance buildup, damage to secondary pests, genetic contamination. • Refugia, monitoring of impacts, restriction of use in some locations can address these problems partially-but alternatives have problems and risks that have to be considered. • Agricultural biotech is in its infancy- built up of human capital and accumulation of -will lead to eliminations of many bug and lead to better technologies

29. Environment: Sound Basis for Risk Analysis • Risks and benefits should be quantified. • Sound reliability factors—i.e. confidence intervals—should be used to standardize risk estimates.

30. Environment: Relative to Modern Breeding Biotech Can Enhance Crop Biodiversity • Main premise: Agbiotech allows minor modification of existing varieties and under appropriate institutional setup can be adopted while preserving crop biodiversity • Conventional breeding involves often massive genetic changes, and adjustments to accommodate biodiversity are costly and • Well functioning IPR system can lead to crop biodiversity preservation • Field data support this claim

31. Table 1. Number of available varieties for different GM technologies in selected countries (2001/2002)

32. Environment: Biodiversity scenarios in the field • Strong IPRs, strong breeding sector, and low transaction costs. (US)Private technology owner will license the innovation to different seed companies, who incorporate it into many or all crop varieties, so that crop biodiversity is preserved. • Strong IPRs, strong breeding sector, but high transaction costs. (EU) If an agreement cannot be reached, companies will bypass breeding sector, directly introduce GM crop varieties that are not locally adapted.

33. Environment: Biodiversity scenarios in the field • Weak IPRs and a strong breeding sector. (China) Many different GM varieties are available Farmers and consumers are beneficiaries. SR social optimum. • Weak IPRs and a weak breeding sector. (Africa)If foreign GM crop varieties are even introduced, are done directly without adaptation. A loss of local crop biodiversity.

34. Biotech Could Enhance Crop Biodiversity • Conventional breeding led to wholesale replacement of land races with elite line monocultures • Biotechnology could provide precise improvements to traditional land races • Could lead to reintroduction of new “technologically competitive” land races - ”Jurasic garden”

35. Conclusions Agbiotechnology has significant potential for developing countries; the challenge is to realize that potential: • Productivity: yield effect of biotechnology tends to be larger in developing countries • Access: institutions can reduce IP and regulatory costs for developing countries • Risks: crop biodiversity can be preserved and could even be restored with biotechnology

36. Ag bio tech is only part of the solution • Ag biotech is more than Gmo’s. • It will evolve- alternative molecular approaches will be developed-but • knowledge will not be accumulated without experience • Development may be dependent on public and private sector funding • Ag biotech must be pursued as part of a portfolio of technology and knowledge tools aiming to enhance productivity and environmental sustainability of agriculture.

37. Consider • 250 million Americans are the “guinea pigs” for agricultural biotechnology. Northern countries also took the risk with cars and with modern chemicals. • Africa missed the Green Revolution; will it also miss the Gene Revolution?

38. Epilog Differences in attitudes US vs EU- is it consumers attitudes? • U.S. relative advantage in Biotech threatens European dominance in chemical pest control markets

39. Innovative capacity: Forward citations to US agbiotech patents By nationality of lead inventor and grant date of cited patent North American European Japanese

40. Innovative capacity: Forward citations to US agrochemical patents By nationality of lead inventor and grant date of cited patent North American European Japanese

41. 1 yr. % change 2000 to 2001 -10.2 % +12.9 % -1.2 % -1.0 % Market incentives: Global crop protection market, sales US $ millions agchem agbio/ seed Others Japanese corporations agchem US corporations agbio/ seed European corporations agchem Data Sources:Wood Mackenzie Agrochemicals, inChemistry & Industry,November 1993 and Phillips McDougall, AgriFuturaNewsletter, March 2002

42. Innovative capacity: comparingcitation based indices of patent quality

43. Behavioral evidence:Double standards for the “precautionary principle”? • Double standards applied to intra-EU trade relations and external EU trade relations (Majone, 2003) • As applied to chemicals vs. biotechnologies? • Possible metrics? • Sources?

44. Behavioral evidence:Conspicuous industry absence from policy process? “When GM products came to the market in Europe, we were faced with contradictory statements or even silence both from regulators and from industry. This contributed substantially to the lack of confidence now present.” - Dirk-Arie Toet Nestec Ltd., 2001

45. The US and EU can fight over control of Pest control markets Developing countries should not pay the price China and India will benefit from biotech- But what about Africa?