In the introduction of this dissertation the necessity for agricultural innovations is pointed out. In this respect, GM plant breeding is presented as an opportunity. GM crops offer different characteristics and possible applications (generation I, II, III). Benefits and costs linked to these technologies can affect seed developers, farmers, environments, and consumer differently. Similar to other innovations, long term effects from GM crops are not known yet and difficult to predict. Especially long term social irreversible costs due to environmental and consumers’ health hazards are seen as potential threats of GM crops. Many societies evaluate such perceived risks or costs higher than potential benefits. In Europe, this has result in political deadlock regarding approval of cultivation of new GM crops.
The overall research aim of this dissertation is to provide empirical analyses of socio-economic consequences and potential of GM crop technology applications. The previous empirical studies contribute to existing literature which evaluates the socio-economic aspects of GM crops under different perspectives.
The conducted empirical studies analyze empirical situations of unintended appearances of selected GM seeds (Empirical Studies 1 and 2) and the socio-economic potential of selected GM breeding innovations for Germany and Europe (Empirical Studies 3, 4, and 5). In accordance with the specific research question appropriate methodologies are applied. The main empirical findings from the different perspectives are summarized in Table 28.
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Table 28: Main findings in the Empirical Study 1, 2, 3, 4, and 5
Empirical Study
Main empirical findings
1 The EU’s current regulation of a zero threshold for unapproved GMO events in seeds can result in legal insecurity and bears regulatory challenges.
2 International wheat markets lost usual cointegration relationships after appearance of unauthorized GM wheat in the U.S. and an ensuing import ban by Japan and the Republic of Korea during June and July 2013.
3 MISTICs for GM HR rape seeds in Germany are estimated to be €13.8 and €7.28 per citizen, with and w/o a 10% yield increase, respectively.
Even though GM HR rape seeds are currently banned, the option to introduce the technology at some future point in time remains. This option value is evaluated with
€249.058 million.
4 MISTICs for GM yield-increasing wheat in Germany are estimated to be between
€7.75 and €12.78 per citizen, with and w/o a decompensation scenario, respectively.
A decompensation scenario is used as a theoretical concept to transfer private (farm) to non-private (social) benefits.
5 Multi-output multi-input distance functions are applied to derive an average marginal shadow value (MSV) for yield-increasing wheat seeds of 18.87 €/ha for European crop farms.
MSVs will differ for European crop farms due to general production differences in regions and economic classes.
Note: Maximum incremental social tolerable irreversible costs (MISTICs) identify an upper bound associated for incremental irreversible costs, up to which the release of a new technology can be
considered socio-economical.
Source: Authors’ own compilation
In the Empirical Study 1, a case study about unintended appearances of GM maize and GM potatoes in Germany in 2010 is conducted. The Lower Saxony State Office for Consumer Protection and Food Safety found traces of GMOs in various seed lots of Pioneer’s maize variety PR38H20. Farmers that planted those seeds were committed to destroy their maize crops. Based on the empirical case we concluded legal insecurity and regulatory challenges in handling GM contaminated seed material.
In the Empirical Study 2, we showed that international wheat markets lost usual cointegration relationships after appearance of unauthorized GM wheat in the U.S. and an ensuing import ban by
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Japan and the Republic of Korea during June and July 2013. Both importing countries have a rejective attitude towards GMOs in wheat. The global market turbulences, found in the investigated case, indicate the limited economic potential of some GM crops due to individual countries’ preferences.
In the Empirical Studies 3 and 4, the methodological concept of MISTICS—a real options approach—is applied to estimate socio-economic effects from an introduction of GM HR rape seeds and GM yield-increasing wheat in Germany. Both studies conclude on positive MISTICs and by that on potential benefits to famers and the environment. Nevertheless, with the current ban of these technologies, German society passes up the potential benefits for the sake of a GM free agricultural crop production. This indicates that German society weights perceived social irreversible costs higher than perceived benefits of the technologies. It needs to be considered that the benefits, as they are determined, are mainly private (for famers) and the potential of non-private benefits (non-farmer or society) due to environmental benefits are rather low. Following GREEN et al. (2005), we suggest theoretical decompensation scenarios to transfer private to non-private benefits in the Empirical Study 4. In both studies, we consider reduction in carbon (C) emission as potential non-private benefits. The social costs of carbon are evaluated with € 65.18/ton of C according to TOL (2011).
Other socio-economic effects in terms of, for example, food security or different other environmental impacts are beyond the scope of the analysis, since their effect is often not clearly identified and their economic evaluations are often difficult or not available in the literature. The determined MISTICs (Empirical Studies 3 and 4) identify an upper bound for social incremental irreversible costs (SIICs) from the introduction of an innovation, up to which the release of the new technology can be considered socio-economical. As other socio-economic effects, actual SIICs are often difficult or unfeasible to determine with our current state of knowledge, again, since they are not clearly identified and the evaluation of costs in economic units will be difficult.
The studies in the Empirical Studies 3 and 4 take an ex-ante perspective and therefore their results depend on the assumption about future developments of costs and benefits and the adoption of the technologies. In general, the assumptions are based on empirical (ex-post) observations and results of scientific studies. The limitation of an unknown future remains and is important for the interpretation of our results. For instance, for the assumption of adoption processes, we faced the problem that neither HOSUT nor any other type of GM wheat was ever introduced to a commercial market before and GM HR rapeseed was only introduced in North America, Australia, and Chile (JAMES, 2014). Therefore, we approximated an adoption function for the Empirical Studies 3 and 4 based on data for the adoption of hybrid rapeseeds in Germany. Even though HOSUT lines and GM HR rapeseeds differ from hybrid rapeseeds due to their breeding technology, characteristics and
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species, using these data enable us to estimate an adoption function for a recent yield-increasing innovation for German agricultural crop production.
Within the real option framework past volatility drives uncertainty and influences the size of the hurdle rates. Consequently, higher past volatility increases the MISTICs value. The period of 2006 to 2013, as considered to estimate future volatilities, is characterized by high volatility across agricultural commodity markets. Consideration of another time span will affect the estimation of volatility and consequently the options value and the MISTICs value.
Regulators can use the MISTICs measures to structure their decision-making process. If they want to maximize society’s welfare, innovations should be immediately released if MISTICs are smaller than actual SIICs or than the society’s perceived costs. However, MISTICs do not consider the distribution of private to non-private benefits, which might also influence the citizen attitudes and regulatory preferences.
In the Empirical Studies 5, multi-output multi-input distance functions are applied to observe interactive and substitutional economic relationships between inputs and outputs for European crop production. The empirical analysis is based on a comprehensive farm accounting data set (FADN).
Specifically, we analyze the importance of seeds as a production input for wheat output for European crop farmers. Based on this a marginal shadow value (MSV) for yield-increasing wheat seeds is derived through an economic evaluation of the marginal effects between the input ‘seed’ and the output ‘wheat’. The findings suggest that MSVs will differ for European crop farms due to general production differences in regions and economic classes. For the estimation of a shadow value for yield-increasing seeds, we are limited to marginal effects. Thus, the determination of a complete shadow value for HOSUT seeds, which showed yield-increasing potential of 28% (see Section 3.1.1) cannot be accomplished with this approach. Further, the MSV reflects only private, and no non-private, benefits from a yield-increasing innovations. Still, the MSV gives important information about the economic relevance of seeds as a production input.
The Empirical Studies 3, 4, and 5 analyze the impact of crop innovations on farm level. Within the studies It is assumed that society do not evaluate crop innovations from GM breeding differently than those from conventional breeding methods. Thus, the presence of GMOs is not assumed to affect the market price of the crop product. However, from our conclusions in the Empirical Study 2 we are aware that market prices are likely to change with the introduction of GM crops.
Nevertheless, any assumption about the extension of the prices difference due to regulatory costs, such as coexistence measures (SKEVAS et al., 2010), segregation costs and labeling (MOSCHINI and LAPAN, 2006, ZILBERMAN, 2006) would be vague. Further, in the Empirical Studies 3, 4, and 5, it is
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assumed that switching between conventional and GM crop production is costless, including no differences in seed prices. Under Section 3.4 we discussed that this assumption does not hold in agricultural practice. It is also important to consider that the results in the Empirical Studies 3, 4, and 5 are based on current European farming conditions and patterns, even though new technologies might imply further changes in the production system. Furthermore, in each case conclusions about the economic potential are drawn only for one breeding innovation for one crop, ceteris paribus. To assess the general socio-economic potential of GM crops in Europe all available GM innovations for every crop are needed to be considered.
Eventually, the issue of socio-economic evaluation of GM breeding innovations are addressed from different perspectives applying different research designs and methods. The applied approaches can also be used for socio-economic assessment of other innovations in agricultural production.
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