Greg Traxler, Jose Falck-Zepeda, and Robert Nelson 

Cotton growers in Alabama have been at the forefront of the new world of agricultural biotechnology. On the heels of huge damages from cotton pests in 1995, more than 70% of the state’s cotton acreage was planted to the new transgenic cotton varieties in 1996 and 1997, making Alabama the state with the fastest rate of adoption in the United States. Results of an AAES study show that not only farmers, but also industry and consumers are reaping the benefits of this new technology.

Transgenic cotton was developed through a strategic alliance between Monsanto and the dominant U.S. seed cotton firm, Delta and Pine Land Co. (D&PL). The Bollgard ^TM, or Bt, gene was developed by Monsanto in the 1980s from a soil microorganism, Bacillus thuringiensis kurstaki, long known to produce a protein that is toxic to certain species of Lepidoptera when ingested. Cotton plants were transformed to express genes from the Bacillus microorganism using Agrobacterium tumefaciens, a bacterium that can inject some of its genes into plant cells. Inserting the Bt gene into the cotton plant causes the plant itself to produce the protein that is toxic to certain species of lepidopteran insects, significantly reducing chemical pest control costs and insect losses in infested areas.

Commercially important lepidopterans in the cotton industry are the tobacco budworm, cotton bollworm, and pink bollworm, which together accounted for an estimated $391 million in cotton losses and treatment expenses in the United States for 1995 and $699 million in 1996. Bt cotton also offers farmers increased certainty of control because it is effective against insects that have developed resistance to certain chemicals, notably pyrethroids.

In 1996, the first year of commercial availability, Bt cotton was planted on 1.8 million acres, or 14% of the acreage in the United States. All adopting farmers paid Monsanto a technology fee of $32 dollars per acre. Adopting farmers also paid D&PL an average of $2 per acre more for Bt seed as a seed premium over conventional varieties. The rate of adoption varied substantially among states. In Alabama the adoption rate was 74%, whereas in New Mexico, Virginia, Missouri, and parts of Texas the adoption rate was less than 1%. The highest adoption rates occurred in the South, where the Bt varieties were best adapted and where the highest per-acre losses from lepidopteran insects occur.

Bt cotton was a valuable product in Alabama and some other regions because budworms had become resistant to conventional pyrethroid insecticides, making Bt cotton an expedient control alternative. Other regions, such as those actively participating in the Boll Weevil Eradication Program, could achieve coincidental control of bollworms and budworms through the use of broad-spectrum chemicals needed to control other pests.

The cotton seed industry has been quite concentrated for at least the last decade, with D&PL holding a 70% to 90% market share of cotton seed sales in the Southeast. Therefore, the alliance of D&PL with Monsanto as the only providers of Bt cotton raised concerns that nearly all the benefits from this new pest control option would be captured entirely by seed sellers, with farmers receiving few benefits. An AAES study was instituted to develop an economic model to examine the distribution of benefits from the planting of Bt cotton. Researchers estimated total benefits and the share of benefits going to U.S. cotton producers, foreign cotton producers, U.S. and foreign consumers, Monsanto, and D&PL.

The appearance of an improved cotton production technology has two effects. The first effect is that adopting farmers may enjoy a reduction in their cost of production and an increase in yields. For example, Bt cotton reduced insecticide costs without reducing yields for many farmers. The smaller, and less obvious, second effect is that the world cotton supply may increase, thereby slightly reducing the price that all farmers receive. Bt cotton increased the world cotton supply by reducing losses to pests and by allowing fields in areas with large populations of pyrethroid-resistant insects to stay in production.

The estimate of the cost reduction induced by the introduction of the new technology is crucial to the calculations and is difficult to measure accurately. Researchers combined information from surveys of farmers, on-farm experimental plots, and on-station experimental plots to refine their estimate. The Bt varieties consistently out-yielded conventional varieties in controlled experiments and, except in North Carolina, had higher yields in producer surveys. Total pest control costs were also lower by 5% to 73%. Alabama also enjoyed the largest yield advantage of any state for the use of Bt over non-Bt cotton. The model estimated that the introduction of the 1.8 million acres of Bt cotton in the United States in 1997 decreased world price by approximately four cents per pound. The relatively modest change in price can be explained by the fact that Bt acreage represented less than 5% of the total world acreage planted to cotton.

Estimated surplus totals and shares for 1996 and 1997 are given in the table. The researchers estimated a total world benefit of $241 million for the first year of Bt cotton and $190 million for the second year. In each year, U.S. farmers received the largest share of benefits, ranging from 42% to 59% of total benefits. The combined share of Monsanto and D&PL ranged from 26% to 44%. In 1996, the gene developer, Monsanto, received the next largest share (21%), followed by U.S. consumers (9%), net benefits to the rest of the world (6%), and the germplasm supplier, D&PL (5%). 

There were regional winners and losers from the introduction of Bt cotton. The new technology improved the competitive advantage of adopting farmers in areas of Alabama, Arizona, Arkansas, Georgia, South Carolina, and Mississippi where lepidopteran pest pressure is high. In 1996, adopting Alabama farmers captured 53% of benefits to all U.S. farmers, reflecting the fact that Alabama had the most serious infestation of pyrethroid-resistant lepidopterans. Farmers in nonadopting regions, such as the Texas High Plains, and all producers in foreign countries had net losses because they absorbed the small reduction in the world cotton price without receiving any cost-savings from the new technology.

The introduction of genetically modified crops has occurred at a time when changes in market structure are arising. This has caused concern in some parts that farmers and consumers may not be sharing in the benefits from the new technologies. This study suggests that a significant share of the benefit was captured by adopting farmers and consumers of cotton lint. The size and distribution of benefits to farmers and consumers should continue to increase as Bt cotton varieties further diffuse in the United States and internationally, as substitute technologies for controlling pyrethroid-resistant lepidopteran pests appear, and as other companies develop Bt cotton varieties.