Economy-wide Impacts of Bt Cotton George B. Frisvold, University of Arizona Jeanne M. Reeves, Cotton Incorporated Cotton Economics and Marketing Conference Beltwide Cotton Conferences New Orleans, LA January 9 – 12

Problem Statement 2005 – global Bt cotton adoption reaches 8.5 million hectares Most impact studies Restricted to farm-level or single country Restricted to farm-level or single country Don’t consider price effects Don’t consider price effects Don’t consider trade effects Don’t consider trade effects Don’t consider “downstream” markets such as textiles and apparel Don’t consider “downstream” markets such as textiles and apparel

Alternative Approaches Falck-Zepeda, Traxler, and Nelson: Two-region (US and ROW) cotton sector model Frisvold, Reeves, and Tronstad: Three-region (US, China, and ROW) cotton sector model Elbehri and MacDonald: Multi-region, multi- sector CGE approach using GTAP

This Study Examines Bt Cotton Adoption Using a 9-region 9-sector Version of GTAP RegionsSectors USACotton China Other Crops India Livestock and Dairy Australia Processed Food MexicoTextiles ArgentinaApparel South Africa Chemicals EUManufacturing ROWServices

Methods Change in unit costs can be decomposed into cost-per-acre effects and yield effects Cost per acre and yield impacts from empirical studies used to construct TFP shocks for GTAP simulations Shocks based on 2005 adoption rates and most recent studies of yield and cost impacts

Estimated Total Factor Productivity Growth from Bt Cotton % Productivity Growth Bt Cotton Adopting Regions USA3.1 China9.5 India3.3 Australia4.0 Mexico7.5 Argentina1.0 South Africa 3.2 Non-Adopting Regions EU0.0 ROW0.0

Percentage Change in Production from Global Bt Cotton Adoption CottonTextilesApparel USA China India Australia Mexico Argentina South Africa EU ROW

Percentage Change in Land Rents and Employment Land Rents -- Sector Employment -- RegionCottonTextilesApparel USA China India Australia Mexico Argentina South Africa EU ROW

Impact of Global Bt Cotton Adoption on World Prices and Production (percent change) World Price World Production Cotton Textiles Apparel-0.07<0.01

Welfare and Trade Impacts EconomicWelfare Trade Balance CottonTextilesApparel USA China India Australia Mexico Argentina South Africa EU ROW World Total 1,380.2

Welfare Consequences of Not Adopting Bt Cotton ($ US million) Baseline Only US and China Adopt US Does Not Adopt USA China India Australia Mexico Argentina South Africa EU ROW ,380.21,038.21,143.2

Impacts of US Non-Adoption (US Impacts, % Change) LandRents --Sector Employment-- CottonTextilesApparel Baseline US Does Not Adopt

Conclusions Global economic benefits of Bt cotton adoption $1.38 billion US benefits >$207 million Developing countries capturing most of gains World cotton price lower by 3% and land rents fall in most regions (technological treadmill effect)

Conclusions Textiles and apparel: employment, production, and trade balances increase in China, India, and Argentina employment, production, and trade balances increase in China, India, and Argentina decline elsewhere decline elsewhere reductions greatest in non-adopting regions reductions greatest in non-adopting regions Costs of non-adoption: Loss in economic welfare Loss in economic welfare Lost jobs in cotton, textiles and apparel industries Lost jobs in cotton, textiles and apparel industries Lower agricultural land rents Lower agricultural land rents