The Political Economy of Adoption of GM Rice Technology in India

1. The Political Economy of Adoption of GM Rice Technology in India Gal Hochman, LathaNagarajan, Carl Pray

2. Genetically modified crops • Although GM technology for some important food crops is available and has demonstrated benefits to small farmers and consumers in other developing countries, regulations and policies in India are holding back its deployment in food production. • If suitable GM technology were not available, political decisions and regulations would not have any direct bearing on the matter.

3. Genetically modified crops • However, scientists on the biosafety technical committees in India have reached the conclusion that some GM food crops such as BtBrinjal are not only available for use, but they are safe and will have positive economic impacts. • However, policy makers in the Ministry of the Environment and Forests (MoEF) vetoed Genetic Engineering Approval Committee’s (GEAC) approval of Bt eggplant. • In addition field trials of most GM crops have ground to a halt because the GEAC now requires no objection certificates (NOCs) from all state Chief Ministers before the field trials can continue.

4. Economic interests • What is behind these policy and regulatory constraints to production of GM food in India? • To try and answer this question, we will • Try and identify what economic interests can lead to the formation of policy; and • which groups and which regions of the country could gain or lose economic benefits from the adoption of the GM technology.

5. What we show • When simulating the introduction of a GM technology, we separate between two effects: • The impact of the technology on input uses (e.g., insect resistance trait reduces use of insecticides, while nitrogen use efficient trait reduces the need for fertilizers), and • The adoption of the GM technology reduces crop risk and thus leads to better crop management and further investment in the production processes resulting in higher yield.

6. What we show • We, then, show that economic gains are largest in • regions with efficient rice producers and • in regions whose production process benefits the most from the GM trait: • For example, herbicide tolerance traits benefits regions whose labor cost share is highest • While HT impacts allocation of inputs, it has less of an impact on yield. On the other hand, IR and NUE impact yield much more. • Policy maters: The minimum support price of paddy rice to Indian farmers affects (significantly) the distribution of benefits among the various stakeholders.

7. What do we do • We develop a state-level supply chain model that evaluates and quantifies implications from the introduction of GM rice on surpluses of stakeholders along the supply chain of rice.

8. The rice supply chain • The analysis distinguishes among • agricultural inputs (i.e., labor, machine, chemicals, seeds, and water) • upstream paddy market • Midstream milling markets • Downstream market for rice and processed rice.

9. The upstream market • Production structure: • The paddy rice is produced using chemicals, machinery, labor, seeds, and irrigation • The paddy rice production function is calibrated using cost-share of inputs reported in the data (i.e., Indian Commission for Agriculture Costs and Prices). • We assume 5% of paddy rice produced is used as seeds for next year, the rest is sold to the mills /procurement • Throughout the analysis, the minimum support price is constant at 900 Rs. / 100 kg (i.e., 9000 Rs. / metric ton)

10. A shift in supply of paddy rice S0 S1 PMSP Subsidy D Qr1 Qr1

11. Midstream market • While Qr denotes paddy rice, X denotes milled rice • The mill production structure: X=B⋅Qrγ • Where 0<γ<1 and B>0 • The paddy yield: • Rice = 67% • Husk = 21% • Rice Bran = 8% • Small Broken = 2% • Rice Husk small = 1-2% • The milled rice price is double that of the paddy rice price

12. Downstream market • Rice is used for consumption, • We assumed: • 20% loss of paddy rice • Out of the 80% • 67% used to produce milled rice, which is consumed as food • 29% creates value (e.g., used to produce processed food), and adds 17 US$ per ton. Afewmillion metric tons are used to produce Chira, Khoi, and Muri, as well as other products. • Final rice price is 20% higher than the midstream price, reflecting a retail profit margin of 7% to 10%

13. The simulated scenarios • We assess the impact of adoption of the following traits: • Insect resistant, • Herbicide tolerant, • Nitrogen use efficient, and • Yield enhancer.

14. The rice supply chain:Total factor productivity and input shares

15. Farmers’ operating costs are 75% of revenues • The calibration suggests highest productivity in Gujat, Punjab, and Uttarakhand. • The analysis also suggests average total factor productivity of 0.76 • The log-linear structure suggests the following average cost shares: • fertilizers – 0.07, • machine – 0.10, • bullock – 0.07, • labor – 0.41, • seeds – 0.05, • insecticides – 0.02 and • irrigation – 0.03.

16. Number of approved field trials

17. The simulated scenarios • Four counter factual scenarios are assumed • Insect resistance (IR); • Herbicide tolerance (HT); • Nitrogen use efficiency (NUE); • Yield increase (YI);

18. Insect resistance • When simulating the effect of the introduction of IR rice on various economic agents along the supply chain, we made the following assumptions: • The seed cost per hectare of IR genetically modified rice increases by 10% relative to that of the non-GMO rice. • The introduction of IR rice led to a reduction in risk and thus better crop management and use and more investment in cultivation and production of rice, formally resulting in a 5% Hicks-neutral technological change (Anderson 2008). • The introduction of IR transgenic rice results in a decline of 15% in the use of pesticides (recall that our assumptions suggests that price of pesticides is fixed). Formally, we assumed that the amount of pesticides used declines by 15%, and that the cost-share of insecticides declines by 15%.

19. Input use: IR

20. Herbicide tolerance • Assumptions made for the numerical analysis: • The introduction of HT traits affects seeds costs, and the cost of seeds goes up by 10% (Hareau et al., 2005); • The introduction of HT traits results in a 5% Hicks-Neutral shift (Anderson); • The introduction of HT traits leads to a 10% increase in the amount of herbicides used. • The introduction of HT traits leads to the elimination of weeding labor (on average, 25% of total weeding costs).

21. Manual weeding costs

22. Nitrogen Use Efficiency • When simulating the counter-factual scenario of the adoption of NUE traits, we made the following assumptions: • The introduction of NUE traits affected seeds costs, whereby the cost of genetically modified seeds goes up by 10%(Hareau et al., 2005); • The introduction of NUE traits results in a 5% Hicks-Neutral shift; and • The introduction of NUE traits leads to a 15% decline in amount of fertilizers used.

23. Yield increasing • Yield increasing trait will improve the crops yield, without impacting the input use. • The yield modification will also impact the price of the seeds. • Specifically, we assume seed prices go up by 10% and the yield trait increases yield via a Hicks-Neutral technological change of 15%.

24. Impact on Yield

25. Impact on prices: level

26. Percent price change

28. Field trials completed

29. Benefits: Supermarkets and moms and pops stores

31. Fertilizers are over utilized in India • The benefits from the adoption of NUE to the economy, however, are much larger • Assuming the price of fertilizers is fixed, a 25% reduction in nitrogen use (which in 2005-06 accounted for about 60% of total fertilizer use) suggestsa 15% reduction in cost of fertilizers • equivalent to an annual saving of 33,676 million Rs. – almost 600 million US$.

32. Concluding remarks • The analysis suggests that benefits are largest in the efficient rice producing regions, • But also in regions where the benefit from the change in input-use is most substantial. • The results suggest that the technologies that resulted in the largest impact on production cost, ceteris paribus, yielded the largest gain to farmers but the lowest benefit to consumers (HT versus IR and NUE). • When the technology resulted in a substantial yield increase (yield enhancing trait) the benefits to the consumers are largest. • Policy plays a key role when quantifying the benefits from the various technologies