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THE ECONOMICS OF HYBRID RICE IN ASIA TECHNOLOGY ADOPTION, PUBLIC EXPENDITURES, AND PRIVATE INCENTIVES Patrick S. Ward Environment and Production Technology.

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Presentation on theme: "THE ECONOMICS OF HYBRID RICE IN ASIA TECHNOLOGY ADOPTION, PUBLIC EXPENDITURES, AND PRIVATE INCENTIVES Patrick S. Ward Environment and Production Technology."— Presentation transcript:

1 THE ECONOMICS OF HYBRID RICE IN ASIA TECHNOLOGY ADOPTION, PUBLIC EXPENDITURES, AND PRIVATE INCENTIVES Patrick S. Ward Environment and Production Technology Division International Food Policy Research Institute New Delhi, India

2 Based on: Spielman, D.J., D. Kolady, P.S. Ward, H-Ar-Rashid, and K. Gulati (2012). “Public Expenditures, Private Incentives, and Technology Adoption: The Economics of Hybrid Rice in South Asia.” International Food Policy Research Institute (IFPRI) Discussion Paper incentives-and-technology-adoptionhttp://www.ifpri.org/publication/public-expenditures-private- incentives-and-technology-adoption

3 WHY DO FARMERS ADOPT HYBRIDS (OR ANY TECHNOLOGY)? Expected utility maximization  Economists assume that agricultural households maximize the expected pleasure they get from consuming food, non-food, and leisure with the income and food they derive from agricultural production  Compare pleasure that would be achieved under different states of the world and the probability of that state of the world actually occurring  If farmers expect that adopting a new technology will maximize their total pleasure, then they will adopt How do farmers formulate these expectations?  Learning by doing  Learning from others

4 THE PROCESS OF TECHNOLOGY DIFFUSION

5 HYBRID MAIZE DIFFUSION IN THE U.S. Source: Griliches, 1957

6 Limited access to credit Limited access to information Risk aversion Inadequate farm size (important for non-scale neutral technologies) Tenure arrangements Labor constraints preventing timely operations Unreliable supply of complementary inputs Inappropriate transportation infrastructure CONSTRAINTS TO TECHNOLOGY ADOPTION

7 KEY CONSIDERATIONS FOR ADOPTION OF HYBRID RICE 1.Seed costs (inclusive of any subsidied) 2.Quantity of seed required (per unit of land) 3.Quantity of complementary inputs (irrigation, chemical fertilizers, herbicides, pesticides, etc.) required (per unit of land) 4.Labor requirements (e.g., additional weeding) 5.Yields Intended use: Is the harvested grain for home consumption or marketable? Stochastic: realized yields are just one of many possible states of nature 6.Output price 7.Risk preferences and subjective probabilities The interactions of these considerations leads to different patterns of adoption across different contexts!

8 THE BENEFITS OF HYBRID RICE Direct benefits  Yield improvement ~15-30%  Higher yields  production intensification  Reallocation of land to other crops  Reallocation of land to non-farm uses  Lower seed rates Indirect benefits  Hybrids confer biological protection of intellectual property  Viable basis for investment in the seed industry  IP protection makes new technologies remunerative  Genetically engineered traits in a hybrid background  Stress tolerant traits from conventional breeding

9 CRITICISMS OF HYBRID RICE Recurrent purchases of hybrid seed are too costly for many resource-poor, small-scale farmers in developing countries  Purchasing new seed is a fairly common practice among paddy farmers in South Asia  Seed-saving by definition limits farmers’ access to technological improvements embodied in seed  Higher costs are at least partially defrayed by lower seed rates Hybridization concentrates the market in the hands of a few large multinational seed companies  Some compelling evidence to support market concentration  Remains to be seen whether this results in anti-competitive market practices Lowers in-situ biodiversity and greater susceptibility to pests and diseases

10 THE LIMITATIONS OF HYBRID RICE In China  Adoption driven by state intervention in farm-level production decisions (Lin, 1991) Beyond China  Stable yield gains (heterosis) limited to temperate zones  Narrow genetic base of parent lines  Grain quality (amylose < 25%) rejected by consumers  Difficulties in producing quality seed  High cost of seed (10x more than inbred seed)  Dependence on state intervention (subsidized inputs)  Variable returns, evidence of disadoption

11 INDIA’S EXPERIENCE: HOMEGROWN SCIENCE 1989: Public R&D investment  funded by Indian Council on Agricultural Research (ICAR) and international donors (FAO, ADB, UNIDO) and partners (IRRI)  c , investment $7.7m 1990s: poorly adapted hybrids introduced in southern India  Initial releases in south India: variable yields, low returns  Later releases with 50% seed subsidy: variable yields, low returns : New hybrids introduced by private sector  Releases in eastern/northern India (Bihar, eastern UP, Jharkhand, Chhatisgarh, etc.) where yields are low, gains more visible 2012ff: Improved hybrids introduced by private sector?  Higher amylose content (>25%) to meet consumer preferences National target Hybrid rice to cover 25% of all rice cultivated area by 2015

12 DESPITE HESITATIONS AMONG FARMERS… Source: Francis Kanoi, 2009

13 …STRONG EXPECTED MARKET GROWTH Source: Francis Kanoi, 2009

14 BANGLADESH’S EXPERIENCE: TECH TRANSFER 1993: Public R&D investment  Marginal investment by BRRI, donors, partners 2000s: poorly adapted Chinese hybrids introduced  Private sector enters seed market to supply after 1998/99 floods  Initial releases: Older Chinese hybrids: variable yields, low returns, low consumer acceptance  Concentrated in winter (boro) season 2005ff: New hybrids introduced by private sector  Lal Tir, Supreme, ACI enter market with imports, own hybrids  BRAC enters market with own hybrids  Decline in due to exogenous shock, seed performance 2012ff: Improved hybrids introduced by private sector?  Higher amylose content (>25%) to meet consumer preferences

15 RISKS ASSOCIATED WITH IMPORTING SEEDS AND OTHER TECHNOLOGIES May be poorly adapted to Bangladesh’s diverse agroecological conditions, crop management practices, farming systems, and consumer preferences  Poor alignment with consumer preferences results in thin output markets and lower prices, which drives down profit margins Reliance upon status quo trade policies  If either China or Bangladesh change their policies regarding the transfer of either seed or germplasm from China to Bangladesh, what would happen to the domestic supply of hybrid seeds?

16 DISTRIBUTIONAL ASPECTS: UNANSWERED QUESTIONS ON HYBRID RICE  Where is hybrid rice most competitive?  High v. low potential agroecologies and marketsheds  Who grows hybrid rice?  Large v. small farmers  What are the major constraints to production?  Seed price, input requirements, labor requirements  How important are consumer preferences?  Rice for own consumption or marketable output?  Tentative findings (based on hh data)  Scale neutral adoption  Seed price zeroed out by lower seeding rate  Consumer preferences addressed by 2 nd generation hybrids

17 HYBRID RICE IN AN ST&I FRAMEWORK Discovery DeliveryDevelopment Investment strategies Collaboration strategies Risk management strategies Outputs & impacts Viable technology products Productivity enhancements Poverty reductions Policies & investments Tools & technologies Assets & inputs Knowledge stocks Scientific capital Human capital

18 SCIENTIFIC DISCOVERY Challenges: largely technical  Securing stable heterosis in tropical rice hybrids  Improving hybridization systems (e.g., two-line)  Increasing amylose levels for consumers  Broadening the germplasm base for breeding efforts Solutions?  Increased investment in international and national research in the public sector  IRRI Hybrid Rice Development Consortium (HRDC)  CGIAR Global Rice Science Partnership (GRiSP)  Improving access to China’s hybrid lines, hybridization systems

19 TECHNOLOGY DEVELOPMENT Technical challenges  Improving seed production systems Policy challenges  Streamlined regulatory procedures  Legal IP protection: Biological IP is not enough  Competitiveness: Market power/anti-trust issues  Investment: Appropriate incentives for private R&D Solutions?  India’s 2004 PPV&FR Act?  Continued reliance solely on biological IP protection?  Monitoring of seed industry competitiveness

20 PRODUCT DELIVERY Probably the weakest element in the hybrid rice innovation process Delivery and adoption of hybrid rice will depend on improvements made in the discovery and development stages  Feedback mechanisms between the three stages can facilitate these improvements Requires research to understand the factors that motivate or constrain farmers’ adoption of hybrid rice

21 HYBRIDS AS A PLATFORM FOR DELIVERING PRO-POOR TECHNOLOGIES Hybridization presents a biological protection of IP  Incentivizes private sector R&D Can we combine efforts to incentivize private sector innovation with efforts to reach small-scale, resource-poor farmers? Examples:  Humanitarian use exemptions  Technology subsidies  Technology embodiment  Market segmentation

22 DEMAND FOR DROUGHT TOLERANT RICE: HYBRID VS. INBRED Source: Ward et al. (2014)

23 CONCLUSIONS Hybrid rice: new technology, great potential Widespread adoption will depend on  Advances in scientific discovery  Improvements in international R&D cooperation  Improvements in private R&D incentives  Improvements in farm-level incentives (prices, subsidies)  Further understanding of distributional aspects of adoption  Policy solutions spanning science, technology, and innovation are necessary conditions for hybrid rice’s diffusion in Asia

24 Thank you


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