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Profiting from Science

The economics of biotech

“For years, everyone understood that GMOs are out there but no one was  selling them,” commented Mark Hayes, a partner at Twin Garden Farms, in Harvard, IL. Yet when Walmart tested the waters and announced it would accept GMO corn in the summer of 2012, Hayes says “I suddenly got no fewer than ten emails and letters from customers saying I needed to sign a document verifying that I don’t grow GMO corn, and that I now and forever will not sell GMO corn.” 

Thus Walmart’s pronouncement opened the door—perceptually and literally—to selling GE corn, which in turn angered and frightened many consumers. 

Hayes says that if opinion shifts, there very well may be effective and consistent ways to improve crop production and therefore the economic benefits of growing GE crops.  This will require more than just acceptance but require education and a relationship between growers and scientists.  Growers will need to appropriately manage GE crops and scientists will have to continuously innovate to effectively address ever-changing pest and weed challenges.  

Perhaps even value-added GE varieties such as the Arctic Apple will make headway in the market.  In the meantime, each grower must carefully consider all of the potential benefits and costs, both on and off the farm, to make an economically sound decision about GE crop varieties.

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From a simple math-equation point of view, biotech and genetically engineered (GE) crops make sense. Farmers can save on pesticide and weed applications, as well as other costs related to production, safety, and health.  But the studies, most of which look at aggregate economic benefits, show that net profitability with GE crops is based on many variables and not necessarily guaranteed.  

Following, we’ll look at some of the results from larger-scale studies and drill down into the considerations that might influence growers in the fresh produce industry (for more coverage of biotechnology, see our cover feature and Legal-Ease).

Only Four

Unfortunately, conventional media has hyped and confused the issue of GE produce to the point of misperception, leading many to believe there are a myriad of GE fruits and vegetables out there—a GE counterpart for every organic commodity.  Not so.  There are only four main GE commodities: corn, cotton, soybeans, and sugar beets. 

On average, more that 80 percent of corn and cotton and 90 percent of soybeans and beets currently grown in the United States are genetically modified.  New GE varieties, however, are on the rise—such as Arctic Apples, which do not brown when cut; a citrus greening-resistant orange; and a tomato that resists bacterial leaf blight by using a gene from peppers.  But adoption of these has been slow and met with resistance from many growers due to consumer concerns about GE crops.

Resistant Varieties

With few exceptions, the current selection of GE seeds and crops fall into two categories: insect resistance (IR) and herbicide tolerance (HT). The former, IR crops, express proteins that naturally repel specific pests, while HT crops can tolerate  herbicides, such as the well known and widely used Roundup brand of solutions.

From a broader perspective, IR and HT crops offer both economic and environmental benefits. Essentially, IR crops can save money by requiring less pesticide use; HT varieties allow growers to spray and kill weeds without affecting crops, potentially increasing yields. Environmentally, in developing countries like India which have low safety protocols, using less pesticide is a major health benefit as it limits human exposure to toxic chemicals.

In places like the United States, spraying fewer pesticides on IR crops and tilling fields less with HT crops translates into improved water quality, given that agricultural runoff is the largest water pollutant.

Real Economics

Any true cost-benefit calculation for growers must be done on home turf, and not with hypothetical savings in pesticides, field management, and water quality. For example, even with new GE seeds, many growers experience yield drag, or smaller harvests, in first or subsequent plantings.  Yield drag can result from the new gene not expressing the modified trait or exhibiting undesirable traits.  Also, certain seeds, such as Monsanto varieties, require growers to pay a technology fee and prohibit reseeding or replanting without subsequent fees (the subject of much legal wrangling—see our article in the Legal-Ease department). 

Putting aside the philosophical and ownership debates for a moment, a more real and pressing issue is that even GE seeds can offer diminishing returns.  Eventually, pests adapt to IR plants and weeds to HT crops, requiring new innovations in technology, which can mean additional fees and costs, more plantings, and so forth.

One reason some HT seeds have begun to fail is that farmers over-sprayed Roundup herbicide to increase short-term harvests versus utilizing more lengthy practices of traditional crop rotation.  How these changes affect growers economically depends on the commodities planted and their associated costs.

“The economic decisions are difficult for farmers,” says Steve Savage, agricultural scientist and blogger at appliedmythology.blogspot.com. “A vast amount of farmland is rented, and usually on an annual cash basis [which] puts a lot of pressure on the farmer to plant the highest yielding, best cash crop.  So some of the things they might otherwise do for weed control, they might not do because the income potential isn’t high enough.  They could practice covered cropping or no-wheel traffic, but the payoff for these practices doesn’t come for five to six years. Farmers have to make rational economic decisions or they don’t stay in farming, and the drivers in the system today are pushing growers towards relatively short-term thinking.”

Balancing the Costs

When considering the economic implications of GE crops, each grower must consider the variables and not assume that pest resistance or weed control automatically produces higher profits. While GE technology certainly serves some, others may find costs outweigh benefits.

In trying to confirm definitive economic benefits, a 2006 European study found varied data related to  soybean production: “At this stage, there are two counterbalancing elements… On the one hand, seedprices of GM crops are higher while yields…are lower; on the other hand, input costs are  lower as well.”

Further analysis in the study found GE crops were equally adoptable by large and small growers alike, and that benefits could include “off-farm” income, such as the ability to dedicate time to other nonagricultural activities, although, again, such benefits depended on the grower. “The net economic benefits for farmers are nevertheless variable in regional terms.  One reason is that the crops are designed to solve pest and weed problems which vary greatly in geographical distribution and impact on production.”

Certainly, the scientific aims of GE commodities are to manage aspects of growing through traits expressed in the crops, thereby reducing costs and increasing profits. But, to date, it is not clear whether this is true across the board. Rather, the economic risks and benefits of GE crops remain highly individualized and variable-dependent. Further, because of the current murky sentiment around GE crops, adoption could create unforeseen economic challenges, such as customer relations.

“For years, everyone understood that GMOs are out there but no one was  selling them,” commented Mark Hayes, a partner at Twin Garden Farms, in Harvard, IL. Yet when Walmart tested the waters and announced it would accept GMO corn in the summer of 2012, Hayes says “I suddenly got no fewer than ten emails and letters from customers saying I needed to sign a document verifying that I don’t grow GMO corn, and that I now and forever will not sell GMO corn.” 

Thus Walmart’s pronouncement opened the door—perceptually and literally—to selling GE corn, which in turn angered and frightened many consumers. 

Hayes says that if opinion shifts, there very well may be effective and consistent ways to improve crop production and therefore the economic benefits of growing GE crops.  This will require more than just acceptance but require education and a relationship between growers and scientists.  Growers will need to appropriately manage GE crops and scientists will have to continuously innovate to effectively address ever-changing pest and weed challenges.  

Perhaps even value-added GE varieties such as the Arctic Apple will make headway in the market.  In the meantime, each grower must carefully consider all of the potential benefits and costs, both on and off the farm, to make an economically sound decision about GE crop varieties.

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Chris O’Brien is a freelance writer and researcher based in Boulder, CO. He specializes in business trends with a focus on sustainable industries.